Sales and Service Tax in Malaysia

One of the most pivotal developments has been the reintroduction of the Sales and Service Tax (SST) system in September 2018, replacing the Goods and Services Tax (GST) that had been in effect since 2015. 

Contributing Advisor

Quinn Lu

Senior Associate, International Business Advisory

The decision to revert from GST to SST was not merely an administrative change but a comprehensive policy realignment designed to address public concerns about rising living costs and complex tax administration. For foreign investors and multinational corporations, understanding Malaysia's SST framework remains critical for effective business planning, pricing strategies, and regulatory compliance in one of Southeast Asia's most dynamic economies.

What is sales tax?

Sales Tax in Malaysia operates as a single-stage tax imposed at the point of manufacturing or importation of taxable goods. Unlike the previously implemented GST, which functioned through a multi-stage input-output tax credit mechanism, Sales Tax is levied only once in the supply chain, creating a fundamentally different tax structure that affects business operations and consumer pricing.

Key features of Malaysia's sales tax

The tax is imposed only once, either at the manufacturer's level for locally produced goods or at the point of importation for foreign goods.

The current sales tax structure employs multiple rates based on the classification of goods:

Under Malaysian law, "manufacture" encompasses the conversion of organic or inorganic materials into new products through manual or mechanical processes, including assembly of parts into machinery or other products. This definition excludes installation activities for construction purposes but includes refining processes for petroleum products.

Who pays SST in Malaysia

Consumers bear the economic burden of Sales and Service Tax (SST) as the final cost, while registered businesses are legally responsible for collecting it from customers and remitting it to the Royal Malaysian Customs Department (RMCD).

How sales tax affects foreign investors

Foreign companies establishing operations in Malaysia face distinct challenges and opportunities under the Sales Tax system. The single-stage nature of the tax creates several implications for international businesses:

• Foreign manufacturers must register for Sales Tax if their annual turnover of taxable goods exceeds RM 500,000 (US$ 118,000). Unlike GST, where input taxes could be reclaimed, Sales Tax represents a direct cost that cannot be offset, potentially increasing the overall tax burden on manufacturing operations.
• All imported goods are subject to Sales Tax at the point of customs clearance, with rates determined by the goods' Harmonized System (HS) code classification. This immediate tax liability at importation affects cash flow management and pricing strategies for foreign companies bringing goods into Malaysia.
• The single-stage nature of Sales Tax can create tax-compounding effects when goods pass through multiple ownership stages before reaching end consumers. Foreign investors must carefully structure their supply chains to minimize these cumulative tax impacts.
• Foreign companies may face different competitive dynamics compared to the GST era, as local manufacturers and importers all face the same single-stage tax structure, potentially leveling the playing field in certain sectors.

Tax rates

Registration requirements for foreign companies

Foreign businesses operating in Malaysia must navigate specific registration requirements under the SST framework, with obligations varying based on their business activities and revenue thresholds.

Who needs to register

• Any business engaged in manufacturing taxable goods within Malaysia must register for Sales Tax if their annual sales value exceeds RM 500,000 (US$ 118,000) within a 12-month period. This applies regardless of the company's country of incorporation, meaning foreign-owned manufacturing operations are subject to the same requirements as local companies.
• Companies importing taxable goods into Malaysia for distribution, sale, or use in further manufacturing must register for Sales Tax when their annual import value exceeds the prescribed thresholds. The registration requirement applies from the point of importation, making it immediately relevant for foreign companies establishing Malaysian operations.

The RM 500,000 (US$ 118,000) threshold is calculated on a rolling 12-month basis, using either historical sales data or projected future sales. Foreign companies must monitor their sales values carefully to ensure timely registration compliance.

Businesses below the mandatory registration threshold may opt for voluntary registration, which can provide certain operational advantages, including the ability to purchase raw materials and machinery with sales tax exemptions.

Registration process

• Companies must first determine their registration obligations based on their business activities, annual turnover, and the nature of goods they manufacture or import. The assessment should consider both current operations and projected business growth.
• All SST registrations are processed through the Royal Malaysian Customs Department's MySST online portal. This centralized system streamlines the application process but requires careful preparation of supporting documentation.
• Foreign companies must provide comprehensive documentation including:
  • Malaysian business registration certificate from the Companies Commission of Malaysia (SSM).
  • Financial statements demonstrating annual turnover.
  • Director and beneficial owner identification documents.
  • Malaysian bank account information for tax refund purposes.
  • Detailed business activity descriptions.

Companies previously registered under GST were automatically transitioned to SST registration, typically processed within 24 hours. New applicants without prior GST registration may experience longer processing times depending on documentation completeness.

Upon successful registration, companies receive specific registration numbers following standardized formats:

• Sales Tax Number (STN): STN-YYMM-XXXXXXXX for manufacturing and importation activities
• Service Tax Number (SST): W24-YYMM-XXXXXXXX for service provision activities

Registration thresholds

Manufacturers and importers must register when their annual sales value of taxable goods exceeds RM 500,000 (US$ 118,000).

Service providers face varying thresholds:

• General services: RM 500,000 (US$ 118,000) annual turnover
• Food and beverage services: RM 1.5 million (US$ 355,000) annual turnover
• Certain services require registration regardless of turnover: credit card services, forwarding agents

Incentives and exemptions

Malaysia's SST framework incorporates various incentives and exemptions designed to support specific policy objectives and maintain economic competitiveness.

Manufacturing exemptions

Registered manufacturers can obtain exemptions on raw materials and components used directly in producing taxable finished goods. These exemptions are crucial for maintaining manufacturing competitiveness and preventing tax cascading effects.

New machinery, equipment, and spare parts used exclusively in manufacturing processes may qualify for sales tax exemptions, provided they are used solely for producing taxable finished goods.

All goods manufactured for export are exempt from sales tax, supporting Malaysia's export-driven economic strategy.

Free Trade Zones and Special Areas

Manufacturing companies operating within designated Free Indsutrial Zones enjoy comprehensive tax exemptions:

• Duty-free importation of raw materials and manufacturing equipment.
• Sales tax exemptions on all materials used in export production.
• Export requirement: minimum 80 percent of production must be exported (reducible to 60 % with special permits).

Trading and commercial activities within Free Commercial Zones benefit from:

• Exemptions from custom duties, sales tax, and service tax for goods that are re-exported.
• Warehouse and distribution activities without immediate tax obligations.
• Transhipment and repackaging operations with tax relief.

Licensed Manufacturing Warehouses (LMW) allow manufacturers to defer tax payments until goods enter the domestic market:

• Import raw materials without upfront duty and tax payments
• Improved cash flow management for manufacturing operations
• Tax obligations arise only when finished goods are sold domestically

Digital services special treatment

Foreign digital service providers face specific tax obligations:

• 8 percent service tax on digital services provided to Malaysian consumers (increased from 6 % in 2024)
• Registration required for providers with annual Malaysian revenue exceeding RM 500,000 (US$ 118,000)
• Applies to both B2B and B2C transactions, creating broad coverage

Digital services may also be subject to withholding tax obligations, creating potential double taxation scenarios that require careful management.

Compliance and filing requirements

The SST compliance framework imposes specific obligations on registered businesses, with penalties for non-compliance that can significantly impact operations.

• SST returns must be filed every two months through the MySST portal. This frequency creates a more manageable compliance burden compared to monthly GST filing requirements.
• SST payments must be completed by the last day of the following month following the taxable period. For example, returns covering January-February must be filed and paid by March 31.
• All SST returns must be submitted electronically through the MySST system, with paper submissions not accepted.
• Businesses must maintain comprehensive records for a minimum of seven years:
  • Sales invoices and purchase receipts.
  • Customs declarations for imported goods.
  • Manufacturing records and inventory documentation.
  • Bank statements and payment records.
  • Tax return submissions and correspondence with authorities.

Records may be maintained in electronic format, provided they remain accessible and readable throughout the retention period.

Penalty structure

E-invoicing integration

As of July 2025, Malaysia has fully implemented mandatory e-invoicing for all businesses with turnover exceed RM 500,000. 

Businesses in Malaysia are exempt from issuing e-invoices if their total annual turnover is below RM 500,000, provided they have no shareholders, subsidiaries, or related companies with revenue exceeding this threshold. Additionally, specific types of income, such as employment income (salaries) and court-ordered alimony, are exempt from e-invoicing requirements. 

Businesses must ensure their accounting and invoicing systems can generate compliant e-invoices that properly reflect SST charges and exemptions.