Translated from original article by HSBC VisionGo.
What are some of the regulatory and fiscal issues that cross-border e-commerce businesses need to be aware of when they enter the Malaysian market?
To combat the Covid-19 pandemic, the Malaysian government imposed restrictions on movement which had a huge impact on the Malaysian business community – many brick and mortar businesses were forced to close until the movement control order was lifted. However, the restraining order also provided a necessary opportunity for businesses to move their operations online, boosting Malaysia’s internet economy, particularly the e-commerce sector.
The rapid growth of local e-commerce in Malaysia has also attracted cross-border merchants, with many Chinese e-commerce sellers beginning to locate in the Malaysian market. In this article, we invited Lee Wen Bin, Client Engagements Department Deputy Director of Healy Consultants, to introduce the various regulatory and tax management issues that you should be aware of when doing cross-border e-commerce in Malaysia.
Cross-border e-commerce companies must be registered to operate standalone sites
When entering the Malaysian market, cross-border e-merchants can choose to either join a major e-commerce platform or set up their own standalone website, and there are some different requirements for these two business channels. Lee Wen Bin said that if a cross-border e-commerce business wants to build its own standalone website, it needs to register its own company in Malaysia, while there is no such requirement to be on a major e-commerce platform.
However, Lee suggests that whether a merchant wants to set up a standalone site or not, it is best to set up a company in Malaysia. As the volume of customers grows and revenues increase, it will be more compliant to do tax returns, transfers and withdrawals in the company’s name than in your personal name. It is also more compliant to find service providers and collaborate between businesses when you register a Malaysian company.
In addition, under the Malaysian Consumer Protection (Electronic Trading Transactions) Regulations 2012, online traders are required to disclose certain personal and company information such as the identity of the seller, company registration number (if any), email address and telephone number. Sellers are also required to provide appropriate channels for customers to be able to correct any errors before confirming their orders. If the merchant is on a third party platform (such as Lazada and Shopee), the platform must keep the merchant’s information for up to two years.
How do you manage cross-border funds?
It is recommended that e-commerce companies open local bank accounts for easy and compliant exchange and transfer of funds
Due to foreign exchange controls, Malaysian Ringgit is not exchangeable within China. According to the Malaysian government, the Malaysian Ringgit needs to be exchanged into foreign currency within Malaysia, through authorised domestic banks and non-bank financial institutions, before it can be transferred to other countries. Therefore, cross-border e-commerce merchants who receive RM in Malaysia need to exchange it into RMB in Malaysia before they can transfer it back to their home country for use.
If they are enrolled in an e-commerce platform, sellers do not need to worry about exchanging foreign currency as the platforms have partner third party payment tools – Shopee, for example, will settle the payment and then exchange it directly into US dollars into the seller’s bound third party payment tool, after which the seller can then exchange and withdraw the money to their bank card on their own. However, this way, the seller’s RM revenue will first be converted into USD and then into RMB, the exchange rate is uncontrollable during the exchange process and there may be some exchange rate loss.
In addition, as revenue gets higher, if the foreign currency received is transferred directly to a personal account in China, it may be subject to China’s limits on the amount of foreign currency received. At this point, Lee suggests that it is necessary to register a Malaysian company and then open a Malaysian company bank account – public to public transfers are more compliant than individual sellers receiving and transferring money. At the same time, with a Malaysian bank account, sellers can choose their own time to exchange money at a more favourable exchange rate, reducing losses.
Take HSBC as an example, HSBC has a branch in Malaysia and e-commerce companies can consult your Hong Kong or Mainland account manager to refer their needs to HSBC Malaysia.
What taxes do cross-border e-commerce companies need to pay in Malaysia?
The main taxes that cross-border e-commerce companies need to pay when operating in Malaysia are: income tax (personal or corporate), digital services tax, import duties and withholding tax.
Lee Wen Bin points out that Malaysia operates a territorial taxation system. For cross-border e-commerce businesses, income is deemed to be derived from Malaysia if it relates to any activity in Malaysia, regardless of whether the income is earned in Malaysia or not.
Corporate Income Tax
If a cross-border e-commerce business is not resident in Malaysia, no personal income tax is payable. If a cross-border e-commerce business is incorporated in Malaysia, income from the sale of goods is subject to corporate income tax – income below RM500,000 is taxed at a rate of 17% and the excess is taxed at a rate of 24%.
Digital Services Tax Malaysia imposes a 6% service charge on offshore digital service providers from 1 January 2020. This tax applies to offshore cross-border e-commerce businesses with annual revenues greater than RM500,000 (if the e-commerce business is incorporated in Malaysia, it is not subject to this tax).
If the goods sold by a cross-border e-commerce business need to be exported to this country or elsewhere, the Malaysian government imposes different import duties depending on the type of goods, the place of origin and the quantity of the products. If exporting from China to Malaysia, please refer to this website.
According to Lee, there are special circumstances where cross-border e-commerce businesses may be subject to withholding tax if they pay royalties to non-residents in connection with e-commerce. Details can be found in the guidelines issued by the Malaysian government.
Platforms may be subject to Sales and Service Tax (SST)
In addition, some large e-commerce platforms may levy SST, which is calculated by the platform and added to the platform’s service fee, such as Shopee, and a list of these fees can be found on the platform’s seller portal.
Smaller cross-border sellers may be less likely to set up a Malaysian company in the early stages of their business due to the low volume of customer orders and low revenue. However, once the business has taken off, incorporating a company may make it easier to scale up your business, negotiate partnerships and develop your sales channels. With a local office in Malaysia, Healy Consultants can help cross-border sellers register their companies, provide customised services such as company secretarial and tax advisory management, and offer assistance to Chinese business owners who do not understand the Malaysian language and culture, both in terms of religious practice and language.
For example, Lee reminded that cross-border e-merchants selling products in Malaysia should also be aware of some religious-related regulations. As Malaysia is a Muslim country with strict alcohol and tobacco controls, cross-border merchants are not allowed to sell alcohol and tobacco products. To sell home brewing equipment to Malaysia, you will also need to obtain a special customs permit. Also, cloth bearing the imprint or reproduction of any chapter of the Quran is strictly prohibited from import or export. Sellers can refer to the list of prohibited items listed on the Malaysian Customs website.
However, although the Malaysian government does not allow foreign merchants to sell alcohol products into Malaysia, if a cross-border merchant sets up a company in Malaysia, they can import alcohol and sell it online as a local merchant. If a cross-border merchant chooses to be on a major platform, they will also have to comply with the platform’s rules on product selection, with both Lazada and Shopee having their own rules on prohibited and restricted products.
If cross-border merchants have any other questions about company registration, taxation, accounting and legal issues, they can contact Healy Consultants at: