MRO Aerospace Malaysia: Ultimate Guide to Duty & Tax Exemptions
If you want to understand Malaysia’s tax exemptions for the aerospace Maintenance, Repair, and Overhaul (MRO) industry, the easiest way is to imagine setting up a massive, high-tech mechanic shop for airplanes.
To encourage you to build this shop in Malaysia, the government promises not to tax you on the things you need to run your business. However, the government has different rules depending on who owns the items and whether those items are staying in Malaysia or leaving.
Here is the complete breakdown of Malaysia’s MRO tax exemptions using clear examples and the exact government codes you need to know.
1. Buying Things to Keep in Your Shop (Permanent Imports)
When you are setting up or running your MRO business, you have to buy tools and spare parts to keep on your shelves. Since these items are used directly to carry out your repair work, the government waives two types of taxes: Sales Tax (the tax on purchasing goods) and Import Duty (the ticket price for bringing foreign goods into the country).
The "Heavy Machinery" Rule (Item 33A & Item 117)
This rule applies to the big, permanent tools and machinery you buy to operate your business.
Sales Tax Exemption: Claimed under Item 33A of the Sales Tax (Persons Exempted from Payment of Tax) Order 2018.
Import Duty Exemption: Claimed under Item 117 of the Customs Duties (Exemption) (Amendment) (No. 4) Order 2023.
Practical Example: Imagine you need a $500,000 engine diagnostic computer to test Boeing 737 engines. You buy it from Germany and bring it to your facility in Subang. Because this machine stays in your shop and is used directly for aerospace MRO, you declare it under Item 33A and Item 117. You pay zero sales tax and zero import duty.
The "Spare Parts & Consumables" Rule (Item 33B & Item 118)
This rule applies to the consumable materials and replacement parts you buy to keep in your inventory.
Sales Tax Exemption: Claimed under Item 33B of the Sales Tax Order.
Import Duty Exemption: Claimed under Item 118 of the Customs Duties Exemption Order.
Practical Example: You order 10,000 titanium aviation rivets and 50 gallons of specialized aircraft sealant. You are going to store these on your shelves and use them as airplanes come in for repairs. Because these are raw materials and spare parts used directly in your MRO activities, you claim Items 33B and 118. They enter your inventory tax-free.
2. Handling the Customer's Broken Equipment (Temporary Movements)
Here is where most MRO companies make a costly mistake. They assume everything that enters their facility uses the rules above. But what happens when you aren't buying a part to keep, but just holding a customer's part to fix it? This requires navigating temporary movement facilities rather than permanent import exemptions.
The "In and Out" Rule: Temporary Import (Item 34 & Section 97)
When a customer's equipment enters Malaysia strictly to be repaired and then sent right back out, you are not buying the part, so it should not be taxed as inventory. However, Customs needs a guarantee that the part won't be secretly sold in the local market.
The Legal Framework: To clear the item tax-free, you must combine two laws:
Sales Tax Exemption: Claimed under Item 34 of the Sales Tax Order.
Import Duty Exemption: Governed directly by Section 97 of the Customs Act 1967.
The Security Requirement: Section 97 is strict. To protect their potential tax revenue, the Royal Malaysian Customs Department (RMCD) requires a security deposit equivalent to the duties and sales tax that would be payable if the item were being permanently imported. You can provide this security via a Bank Guarantee or a General Bond (often used by established operators for multiple shipments).
The Strict 3-Month Timeline: Goods cleared under Item 34 and Section 97 are granted an initial temporary import period of exactly 3 months.
Applying for Extensions: If the repair takes longer than 3 months, you must submit an extension application to Customs before the initial period expires. Customs typically grants extensions up to an additional 6 months.
Discharge: Once the repaired item is re-exported within the approved timeframe, you submit the export declaration forms to Customs, and your security deposit is discharged (released).
Practical Example: An airline in Singapore ships a broken aircraft engine to your facility. You declare it under Item 34 and Section 97, securing it with a General Bond. You fix the engine and ship it back to Singapore within the 3-month window, show the export paperwork to Customs, and they release your bond liability.
The "Out and Back" Rule: Temporary Export (Item 37 & Item 83)
This rule is the exact opposite. It applies when you have to send a part out of Malaysia to get specialized help, and then bring it back.
The Legal Framework:
Sales Tax Exemption: Claimed under Item 37 of the Sales Tax Order.
Import Duty Exemption: Claimed under Item 83 of the Customs Duties (Exemption) Order 2017.
The Condition: You must obtain written approval from the Director General of Customs before the item leaves Malaysia. When it returns, the original item is duty-free, but Customs may still charge duty on the value of any new replacement parts the overseas repair shop installed.
Practical Example: You are overhauling an engine, but there is a highly complex microchip you do not have the equipment to test. You ship the chip to a lab in France. When France ships it back to you, Item 83 and Item 37 ensure Customs doesn't charge you import taxes on your own chip just because it crossed the border again.
3. How to Actually Get These Exemptions (The 3-Step Process)
You cannot just tell Customs you are an MRO and demand tax-free entry. You have to prove it through a strict paperwork process.
Step 1: Get the "Hall Pass" (MIDA SPM)
Before you buy anything to keep in your shop (under Items 33A/33B and 117/118), you must prove to the Malaysian Investment Development Authority (MIDA) that you are a legitimate aviation repair company. If they agree, they give you a Confirmation Letter (SPM) via their InvestMalaysia digital portal.
Step 2: Register with Customs (RMCD)
Now that you have the MIDA hall pass, you must submit it to Customs to get the actual permission to claim the exemptions.
For Sales Tax (33A/33B): You apply online through the Customs MySST portal.
For Import Duty (117/118): You submit manual paperwork (your company cover letter, the SPM, and Appendix I/SPM1) to the State Customs Control Station (Industrial Section).
Step 3: Show the Vouchers at the Border
When your $500,000 machine or box of titanium rivets arrives at the airport, your forwarding agent types your specific exemption permission numbers into the customs declaration forms.
(Note: Temporary imports under Section 97 / Item 34 follow a different, shipment-by-shipment approval and security process directly with RMCD).
The Ultimate Compliance Test
If you take away one thing, it is this: Do not mix up your inventory with your customer's repairs.
If a customs auditor visits your facility, they will look at a piece of equipment and ask, "Did you buy this to keep on your shelf (Item 33B / Item 118), or is this a customer's property that you are going to send back (Item 34 / Section 97)?" If your paperwork claims you bought it, but your repair logs show you shipped it back to a client in Singapore, you are using the wrong tax facility and will face severe financial penalties. Strict internal tracking—especially monitoring those 3-month Section 97 deadlines to prevent penalized General Bonds—is the only way to survive an audit.
Are you confident in your MRO Customs & SST compliance?
Led by former RMCD senior officers with over a decade of hands-on experience in MRO aerospace trade compliance in Malaysia, Baryk Partners provides specialist support for aerospace MROs and manufacturers. We help you navigate complex exemption eligibility, manage temporary imports and reporting, and ensure audit readiness in a zero-tolerance regulatory environment.
Contact Baryk Partners PLT today to discuss a customized MRO Aerospace Customs & SST Compliance Review for your facility in Malaysia:
Phone / WhatsApp: +6012 628 0798
Email: hktee@barykpartners.com
Website: www.barykpartners.com
