Malaysia Customs Duties, SST & RMCD Rules 2025–2026: The Complete Guide for Foreign Companies Importing and Exporting

1. Why Malaysia's Customs Landscape Matters to a Foreign Company

Malaysia is one of the world's largest trading economies, a gateway to ASEAN's 680-million-consumer market, and a manufacturing base for electronics, chemicals, machinery, and consumer goods. For a company headquartered in China, Taiwan, Hong Kong, or Singapore looking to set up a Malaysian entity, the question of how goods move in and out — and at what tax cost — is often the single biggest variable in the business case.

The Royal Malaysian Customs Department (RMCD) administers three layers of tax on imports: Customs (Import) Duty, Sales Tax (under the SST framework), and Excise Duty (on specific regulated goods). All three are calculated on the CIF (Cost, Insurance, Freight) value — that is, the total declared cost of goods including purchase price, insurance, and freight to the Malaysian port of entry. Understating the CIF value is a serious offence that RMCD cross-checks against commercial invoices, and it triggers audits.

What has changed in the last 12 months is significant: the entire tariff classification system has been updated, the SST scope was broadened dramatically, enforcement has shifted to real-time digital cross-checks (amplified by Malaysia's e-Invoice rollout), and a new public ruling now standardises how foreign-currency-denominated transactions are handled for tax purposes. Foreign companies that built their Malaysia market-entry model on 2024 assumptions need to revisit their numbers now.

2. The Customs Duties Order 2025: What Changed on 1 November 2025

The Customs Duties Order 2025 (CDO 2025) took effect on 1 November 2025. It aligns Malaysia's tariff classification with the World Customs Organization (WCO)'s updated Harmonised System (HS) — the international coding standard revised every five years. Every few years, Malaysia must update its own Customs Duties Order accordingly, and this cycle's update brought substantive changes beyond mere renaming.

What the update did

• New HS codes: Hundreds of codes underwent renaming, restructuring, or merging. Products that previously sat under a single code may now be split across two or more codes attracting different duty rates.
• Revised duty rates: Some product lines moved from a 0% duty bracket to 5% or higher. Even a 5 percentage-point increase in duty on a RM 10 million annual import bill means RM 500,000 in additional cost — instantly.
• New product classifications: Items in the tech, materials, and agri-food sectors were reclassified, affecting their SST treatment simultaneously (since SST rate determination is tied to the HS code).

Import duty rates in context

Import duty rates range from 0% to 60% ad valorem and are determined by the HS code. There is no single "standard" rate — every product category carries its own rate under the new CDO 2025 schedule. RMCD's HS-Explorer tool (accessible via the customs.gov.my portal) allows businesses to look up the current applicable rate by product code.

A critical nuance: if your HS code changed under CDO 2025, any prior SST exemption approval you hold may need to be renewed — because the exemption was granted against the old code, not the new one. This is one of the most commonly missed compliance steps for companies that secured manufacturer exemptions before November 2025.

3. The SST Expansion of July 2025: 4,800+ New Taxable Items

Effective 1 July 2025, the Malaysian government significantly broadened the SST scope. Over 4,800 additional goods and services were added to the taxable list. This is the single largest SST expansion since the tax was reintroduced in 2018, and it specifically targets imported non-essential goods and a wider range of professional and commercial services.

Sales Tax changes

The standard Sales Tax rate for most goods remains 10%, applied at either the manufacturing stage (for domestically produced goods) or the importation stage (for imports). A reduced rate of 5% applies to specified essential or intermediate goods, including certain construction materials, some foodstuffs, petroleum oils, and — from July 2025 — a wider range of imported goods. Newly added taxable imported items at 5% include certain fruits, premium seafood, cosmetics, and smartphones.

Essentials such as rice, chicken, beef, vegetables, eggs, local fish, medicines, and basic building materials remain exempt. Following public feedback, certain imported fruits (apples, oranges, mandarin oranges, and dates) were added to the exempt list from 1 July 2025, reversing an earlier proposal.

Service Tax changes

Most services are taxed at 8% (the rate increased from 6% in March 2024). However, food and beverage, telecommunications, parking, logistics, and from July 2025, specific new categories such as construction services (for contracts without a reviewable clause signed before 9 June 2025, eligible for extended exemption until 30 June 2027), private healthcare for non-Malaysians, and private education for international students, remain or are reduced to 6%.

The rental and leasing service tax rate was reduced from 8% back to 6% under Service Tax Policy 2/2025 (Amendment No. 3) — a business-cost relief measure formalised on 23 January 2026. This is particularly relevant for foreign companies leasing office space, warehousing, or equipment in Malaysia.

Registration threshold and penalties

Any person (Malaysian or foreign) who manufactures taxable goods or provides taxable services in Malaysia must register for SST once annual taxable turnover reaches RM 500,000. For a foreign-owned Sdn Bhd, registration is done via the MySST portal. The transitional grace period for penalty-free late registration (which ran through 31 December 2025) has now expired — RMCD enforces full penalties from 2026.

4. Customs Public Ruling 1/2026: The New FX Rate Rule for Foreign-Currency SST Invoices

This is the most operationally significant change for foreign companies in 2026. On 31 March 2026, the Director General of Customs issued Public Ruling 1/2026 – Determination of Foreign Currency Exchange Rates for Service Tax Invoices and Sales Tax Invoices. The ruling is currently available only in Malay, but its effect is clear and mandatory.

What the ruling requires

When a Sales Tax-registered manufacturer or Service Tax-registered person issues an invoice in a foreign currency, the invoice must also state the equivalent MYR amount. The conversion must use the selling foreign exchange rate applicable in Malaysia at the time the taxable service is provided or the goods are sold — not the rate on the payment date, not an average rate, and not the rate at invoice issuance if that differs from the supply date.

Acceptable sources for the selling FX rate are:

• Bank Negara Malaysia (BNM) — the central bank;
• Any commercial bank in Malaysia or bank registered under BNM;
• International news agencies including Bloomberg, Reuters, or Oanda;
• Foreign central banks such as the European Central Bank or the Federal Reserve Bank of New York.

If a company wishes to use any other FX rate source not listed above, it must submit a written application to the Service Tax or Sales Tax Policy Branch, RMCD Headquarters, and obtain the Director General of Customs' approval before using that source.

For imported goods — where Customs Duty, Excise Duty, and Sales Tax are being calculated — the foreign exchange selling rate is separately determined by the Director General of Customs at the time of importation. This is a different rate-setting process from the invoice FX rule, and businesses must not conflate the two.

5. Duty-Saving Mechanisms: LMW Licences, Free Zones, and AEO Status

Malaysia's customs regime is designed with significant duty relief mechanisms for manufacturing exporters and compliant traders. Foreign companies that understand and use these mechanisms correctly can dramatically reduce or even eliminate upfront duty costs.

Licensed Manufacturing Warehouse (LMW)

An LMW is a customs-bonded manufacturing facility licensed by RMCD. Manufacturers operating in an LMW can import raw materials, components, packaging, and machinery duty-free and SST-free. Duties only become payable when the finished goods are sold into the Malaysian domestic market. Goods exported out of Malaysia attract no import duties at all on the inputs.

LMWs are particularly powerful for foreign manufacturers who are setting up export-oriented production in Malaysia — for example, a Chinese electronics company establishing a Malaysian assembly plant to export to the ASEAN region. In that scenario, the company imports components from China, assembles in Malaysia, and re-exports. The LMW licence eliminates all upfront duty and SST costs on the components.

Key LMW conditions to note:

• The LMW must be a distinct, licensed premises — it is a facility licence, not a company-level licence.
• Applications are submitted to the Director of Zone Operations / State Director of Customs at the relevant state.
• The company must maintain a rigorous document control process for all shipment movements (K1 import forms, raw material records, finished goods logs).
• If HS codes change under CDO 2025, the company's LMW raw material approval list must be updated to reflect the new codes — otherwise exemption claims will be rejected at customs.

Free Trade Zones (FTZs)

Malaysia operates several Free Trade Zones, primarily at major ports and industrial areas. Goods brought into an FTZ can be stored, processed, or assembled without paying import duties, as long as they are re-exported. If goods leave the FTZ to enter Malaysia's domestic market (the "Principal Customs Area"), full duties and SST are triggered at that point.

Authorised Economic Operator (AEO)

The Malaysia AEO Programme is administered by RMCD and has been running since 2010. It is open to all supply chain participants — manufacturers, importers, exporters, customs agents, and warehouse operators. There is no accreditation fee.

Companies that meet RMCD's compliance and supply-chain security standards are accredited as AEOs and enjoy:

• Automatic approval of self-declarations for import, export, and transit;
• Deferred payment of duty and tax (improving cash flow significantly);
• Reduced physical inspections and faster customs clearance;
• Mutual recognition with other countries' AEO programmes (facilitating preferential treatment when exporting).

The application process involves downloading the Information Guideline from aeo.customs.gov.my, completing a Compliance Checklist (Attachment 2), and submitting an Application Form (Attachment 1) along with the checklist to the relevant RMCD State Office. The compliance checklist covers security management, internal audit procedures, financial solvency, and customs compliance history.

For a foreign-owned company, AEO is best pursued after at least one to two years of clean compliance history in Malaysia — the application will be stronger and approval faster. Companies that attempt AEO accreditation immediately upon incorporation without a track record typically face longer review times.

6. The SST Manufacturer Exemption Schedules: How to Legally Zero-Rate Your Input Costs

Beyond the LMW, the Sales Tax Act 2018 provides a parallel exemption mechanism administered through the MySST portal. This is critical for manufacturers who are not operating in an LMW or FTZ but still want to reduce SST on their inputs.

The exemption is structured in Schedules under the Sales Tax (Persons Exempted From Payment of Tax) Order:

• Schedule A: Exemption for specific categories of persons (e.g., government agencies, certain licensed manufacturers).
• Schedule B: Exemption on specific goods (goods listed as exempt regardless of buyer).
• Schedule C (C3 and C4 for Traders): The "Manufacturer's Exemption" — the most widely used. Registered manufacturers can import raw materials, components, and packaging used directly in production at 0% Sales Tax.

The application for Schedule C exemption is made through the MySST portal. Critical requirements:

• The HS codes in your exemption application must exactly match your K1 import declarations — RMCD's systems cross-reference them automatically. A mismatch is an instant rejection trigger.
• You must submit a full bill of materials (BOM) with HS codes, a manufacturing process flow diagram, and estimated annual import volumes and values.
• Approval typically takes 5 to 14 working days with clean documentation; incomplete applications can extend this to 6–8 weeks.
• After CDO 2025, if any of your input HS codes changed, you must apply for a fresh exemption under the new codes — the old approval does not automatically transfer.

7. Step-by-Step: What a Newly Incorporated Foreign Company Must Do in 2026

If you are setting up a foreign-owned Sdn Bhd in Malaysia that will import goods, manufacture, and/or provide taxable services, here is the compliance sequence ONEKEY BIZ recommends:

1. Classify your products under CDO 2025 HS codes. Use RMCD's HS-Explorer tool or engage a licensed customs agent to obtain binding classification advice for your key product lines. Do this before finalising your pricing model or supply contracts with your overseas parent.
2. Calculate your landed cost using the CIF method. Import Duty = CIF × HS-code duty rate. Sales Tax = (CIF + Import Duty) × SST rate (5% or 10%). This is your true input cost — not the FOB price your CFO may be using.
3. Register for SST via MySSTportal once you breach RM 500,000 in taxable turnover. For new companies, project when you will hit the threshold and pre-register. Do not wait for the quarter you breach it — late registration now triggers full penalties.
4. Update your invoicing system to comply with Public Ruling 1/2026. All SST invoices in foreign currencies must show the MYR equivalent at BNM or commercial bank selling rate at the time of supply. Update your ERP (SAP, Oracle, Xero, QuickBooks, etc.) templates immediately if you invoice in USD, CNY, SGD, or any other foreign currency.
5. Apply for LMW licence (if manufacturing for export). Submit to the RMCD Zone Director for your state. Prepare your premises, document control system, and raw material HS code list under CDO 2025 codes.
6. Apply for Schedule C SST Manufacturer Exemption (if manufacturing domestically). Apply via MySST with your CDO 2025 HS codes, BOM, and manufacturing flow.
7. Build a compliance history, then apply for AEO. After 12–24 months of clean K1 declarations, accurate SST filings, and no penalty notices, submit your AEO application to unlock deferred duty payment and auto-clearance.
8. Review and renew any existing HS-code-linked approvals. If you had prior exemptions tied to 2023/2024 codes, cross-check them against CDO 2025. Renew where codes have changed.

Need guidance on any of these steps? Contact our ONEKEY BIZ compliance team or visit our customs and tax services page for more details.

8. Worked Example: A Chinese FMCG Company Setting Up a Malaysian Distribution Hub

Consider a consumer goods company based in Guangzhou that wants to import personal care products (shampoos, body lotions, cosmetics) from China into Malaysia for distribution to ASEAN.

Step 1 – HS code classification: Under CDO 2025, personal care and cosmetics fall under Chapter 33 of the HS schedule. Some cosmetics items moved to the expanded SST-taxable list from July 2025. The company identifies its precise 10-digit HS codes for each SKU.

Step 2 – Landed cost calculation: Shampoo (HS 3305.10): Import duty rate 5%, Sales Tax 10%.
CIF value per shipment: RM 200,000
Import Duty: RM 200,000 × 5% = RM 10,000
Sales Tax base: RM 200,000 + RM 10,000 = RM 210,000
Sales Tax: RM 210,000 × 10% = RM 21,000
Total landed cost: RM 200,000 + RM 10,000 + RM 21,000 = RM 231,000 — 15.5% above CIF.
(Note: actual rates depend on the precise HS code under CDO 2025; this is illustrative.)

Step 3 – FX invoice compliance: The Chinese parent invoices the Malaysian Sdn Bhd in USD. Under Public Ruling 1/2026, the Sdn Bhd's invoices to its Malaysian customers (for taxable goods or services) must show MYR equivalent at the BNM selling rate on the supply date. The company updates its Xero accounting template to auto-fetch BNM rates and populate the MYR column.

Step 4 – Trade facilitation: Because this is primarily a distribution business (not manufacturing), the company does not qualify for an LMW. It applies for Schedule A/B SST exemptions for any goods that qualify, and registers for SST on its distribution services when turnover exceeds RM 500,000.

Step 5 – AEO planning: After 18 months of clean compliance, the company applies for AEO status. It gains deferred duty payment (paying monthly in arrears rather than at port) — a major cash flow benefit at RM 31,000 per shipment in duty and tax.

9. Common Mistakes Foreign Companies Make — and How to Avoid Them

• Using old HS codes post-CDO 2025. The single most common error in late 2025 and early 2026. RMCD will apply stricter tariff code validation throughout 2026. A wrong code can mean underpayment (triggering a penalty and surcharge on back-duty) or overpayment (money left on the table).
• Assuming the grace period still applies. The penalty-free SST late-registration window closed on 31 December 2025. There is no longer a safety net for non-registration — penalties apply from the first day of liability.
• Forgetting to update SST exemption approvals after HS code changes. If your Schedule C exemption was issued against a code that no longer exists under CDO 2025, your next shipment will be assessed at full SST — a nasty surprise at the port.
• Issuing SST invoices in foreign currency without MYR equivalent. Public Ruling 1/2026 is now in force. Invoices missing the MYR equivalent are technically non-compliant and expose the issuing company to RMCD audit queries and potential penalties.
• Conflating the import-stage FX rate with the invoice-stage FX rate. For imported goods, the RMCD Director General sets the FX rate at importation. For SST invoices issued by the registered business, the rate is the BNM/bank selling rate at the time of supply. These are two separate rules and two separate rates — do not apply one to the other.
• Undervaluing imports. RMCD cross-checks declared CIF values against commercial invoices, and the e-Invoice system now provides real-time audit trail capability. Undervaluation triggers investigation and penalties.
• Treating DAP (Delivered at Place) as relieving you of all customs duties. When using DAP Incoterms, the Malaysian buyer/importer remains responsible for import customs clearance and all duties. The foreign seller covering freight costs does not shift the duty obligation.

Malaysia's customs and SST framework in 2025–2026 is more sophisticated and more actively enforced than at any point since SST's reintroduction in 2018. The combination of e-Invoice data linking, RMCD digital analytics, and CDO 2025 reclassification creates a compliance landscape where the details — the right HS code, the right FX rate source, the right exemption schedule — genuinely matter. Foreign companies that invest in getting these details right from day one will have lower landed costs, cleaner audit records, and stronger relationships with RMCD. Those that don't will pay the price — literally. Speak to ONEKEY BIZ to assess your current exposure and build a compliant import-export structure in Malaysia.

This article is general information only, not legal, tax or immigration advice. Policies, thresholds and official fees are set by the relevant Malaysian authorities and may change. Talk to our consultants about your specific situation.