Malaysia Automotive Industry Guide
Sales Tax Exemptions and Procedures for the Automotive Industry in Malaysia
Guide on Automotive Industry
The automotive industry in Malaysia benefits from certain sales tax exemptions and follows specific procedures. Here's a breakdown:
Sales Tax Exemptions
CKD Pack Importation: Franchise AP holders can generally import Completely Knocked Down (CKD) packs without paying sales tax. This exemption applies under specific conditions and requires approval from the Director General of Customs.
Locally Assembled Passenger Cars: From June 15, 2020, to June 30, 2022, there was a 100% sales tax exemption on locally assembled passenger cars.
Imported Passenger Cars: During the same period, a 50% sales tax exemption was applied to imported passenger cars.
Procedures
CKD Pack Importation:
Franchise AP holders import CKD packs.
CKD packs are sent to contract manufacturers (CMs) for assembly.
CMs assemble the CKD packs into Completely Built Up (CBU) vehicles.
Sales Tax on CBU Vehicles:
Sales tax is generally chargeable on the finished CBU vehicles manufactured in Malaysia.
Key Considerations
Registered Manufacturers: Contract manufacturers with annual sales exceeding RM500,000 are required to register as registered manufacturers.
Other Duties: In addition to sales tax, import duties and excise duties may also apply.
Compliance: It's crucial to adhere to all relevant regulations and procedures to avoid penalties.
Importation of Completely Knocked Down (CKD) Packs and Assembly into Completely Built Up (CBU) Vehicles in Malaysia
The Malaysian automotive industry heavily relies on the importation of Completely Knocked Down (CKD) packs, which are then assembled into Completely Built Up (CBU) vehicles within the country. This process offers several advantages, including:
Reduced Import Duties: CKD packs generally attract lower import duties compared to fully assembled vehicles.
Local Content Requirements: Encourages local component manufacturing and assembly, boosting domestic industries.
Job Creation: Creates employment opportunities in the automotive manufacturing sector.
Process Overview
Importation of CKD Packs: Franchise AP holders import CKD packs, which consist of major vehicle components like engines, transmissions, and body parts.
Assembly by Contract Manufacturers (CMs): CKD packs are sent to CMs, who assemble them into complete vehicles. These CMs must be registered with the relevant authorities.
Sales Tax on CBU Vehicles: Sales tax is generally chargeable on the finished CBU vehicles manufactured in Malaysia.
Key Considerations
Sales Tax Exemptions: Certain sales tax exemptions may apply to CKD packs and locally assembled vehicles, subject to specific conditions and approvals.
Other Duties: In addition to sales tax, import duties and excise duties may also apply to CKD packs and CBU vehicles.
Compliance: Adhering to all relevant regulations and procedures is crucial to avoid penalties and ensure smooth operations.
By understanding this process and its associated regulations, businesses in the automotive industry can effectively navigate the import and assembly procedures in Malaysia.
Import Duties
Ad Valorem Basis: Import duties in Malaysia are calculated as a percentage of the imported goods' value.
Rates: The rates vary significantly depending on the type of goods, ranging from 0% to 60%.
Customs Value: The import duty is based on the Customs Value of the car, which includes the CIF (cost, insurance, and freight) price.
Excise Duties
Specific Goods: Excise duties are imposed on specific goods like motor vehicles, cigarettes, and alcohol.
Purpose: They serve as a regulatory measure to control the entry of certain products into the country.
Calculation: For cars, the excise duty is calculated on the Customs Value plus import duties and SST.
Rates: The rates vary based on the engine capacity and type of vehicle.
Other Relevant Procedures
Import Licensing: Depending on the type of goods, import licenses may be required from relevant authorities.
Customs Declarations: Accurate customs declarations are essential, including details about the goods, their value, and the country of origin.
Inspections: Customs officials may conduct inspections of imported goods to verify their compliance with regulations.
Payment of Duties and Taxes: All applicable duties and taxes must be paid before the goods can be released from customs.
Compliance with Regulations: Adhering to all relevant regulations and procedures is crucial to avoid penalties and delays.
Key Points:
CKD Pack Importation: Franchise AP holders can import CKD packs and send them to contract manufacturers (CMs) for assembly.
Sales Tax Exemption: Importers are generally exempt from paying sales tax on CKD packs, provided they meet certain conditions and obtain approval from the Director General of Customs.
Registered Manufacturers: Contract manufacturers with annual sales exceeding RM500,000 are required to register as registered manufacturers.
Sales Tax on CBU Vehicles: Sales tax is chargeable on the finished CBU vehicles manufactured in Malaysia.
By following this guide and understanding the relevant regulations, businesses in the automotive industry can ensure compliance with Malaysian tax laws and streamline their operations.
Where to Find More Information
MySST Customs Website: The official website (https://mysst.customs.gov.my/) provides detailed information on the importation of CKD packs and the assembly of CBU vehicles in Malaysia.
Royal Malaysian Customs Department: The official website of the Royal Malaysian Customs Department provides detailed information on import procedures, duties, and taxes.
How Professional can Help
Guide on Automotive Industry
Professional can be instrumental in guiding automotive businesses in Malaysia through the complex tax landscape. Here's a breakdown of their key roles:
1. Navigating Sales Tax Exemptions and Procedures
CKD Pack Importation: Professional can help businesses understand the specific conditions for sales tax exemptions on CKD pack imports and ensure compliance with the necessary procedures.
Sales Tax on CBU Vehicles: We can guide businesses on the calculation and payment of sales tax on locally assembled CBU vehicles.
Staying Updated: Professional stays abreast of any changes in sales tax regulations and ensure businesses adapt accordingly.
2. Optimizing Import Duties and Excise Duties
Duty Calculations: Professional can assist in calculating import duties and excise duties accurately, minimizing potential overpayments.
Duty Minimization Strategies: We can explore strategies for minimizing duty payments, such as utilizing free trade agreements or taking advantage of duty drawback schemes.
Duty Deferral Options: Professional can advise on options for deferring duty payments, improving cash flow management.
3. Ensuring Overall Tax Compliance
Tax Audits: Professional can represent businesses during tax audits, ensuring accurate information is provided and potential disputes are resolved efficiently.
Tax Return Filing: We can assist in preparing and filing accurate tax returns, minimizing the risk of penalties and interest charges.
Record-Keeping: Professional can advise on proper record-keeping practices to support tax filings and facilitate smooth audits.
4. Leveraging Tax Incentives
Identifying Eligible Incentives: Professional can identify and help businesses apply for relevant tax incentives, such as investment tax allowances or research and development tax incentives.
Meeting Eligibility Criteria: They ensure businesses meet all the eligibility criteria for claiming tax incentives.
5. Transfer Pricing Guidance (for Multinational Companies)
Arm's Length Principle: Professional can help multinational companies establish transfer pricing arrangements that comply with the arm's length principle, ensuring fair taxation across borders.
6. Staying Ahead of Regulatory Changes
Continuous Monitoring: Professional continuously monitors changes in tax laws and regulations, keeping businesses informed and proactive in adapting their tax strategies.
By engaging with Professional, automotive businesses in Malaysia can navigate the complex tax environment effectively, minimize their tax liabilities, and focus on their core operations.
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