The Royal Malaysian Customs Department has published Public Ruling No. 1/2026, effective 31 March 2026, establishing mandatory exchange rate sources and consistency requirements for businesses issuing tax invoices in foreign currencies, with penalties for noncompliance, including invalid invoices and potential goods seizure.
Malaysia’s Royal Malaysian Customs Department (RMCD) has issued Public Ruling No. 1/2026 (PR 1/2026) addressing the foreign currency exchange rate applicable for sales tax and service tax compliance.
Effective 31 March 2026, it mandates that businesses must use specific exchange rates when issuing invoices for taxable services or sales conducted in non-local denominations. Authorised sources for these rates include Bank Negara Malaysia, commercial banks, and recognised international financial news agencies. The ruling requires companies to apply their chosen exchange rate source consistently for at least one year to ensure accounting stability. Public Ruling No. 1/2026 also outlines the updates introduced by the ruling and highlights potential areas of uncertainty, as well as the implications of non-compliance.
Public Ruling No. 01/2026, issued by the Royal Malaysian Customs Department (JKDM), provides comprehensive guidelines on the selling exchange rates for foreign currencies used in service tax and sales tax invoices.
Scope and objective
The primary objective of this ruling is to standardise how registered service tax persons and registered sales tax manufacturers convert foreign currency amounts into RM for tax reporting purposes. This ensures that the tax amount is accurately reflected even when the transaction is conducted in a foreign currency.
Mandatory invoice requirements
Under the Service Tax Act 2018 and the Sales Tax Act 2018, registered persons must include specific information in their invoices. If an amount is stated in a foreign currency, the following rules apply:
- Service tax: The amount must be converted to RM using the selling exchange rate applicable in Malaysia at the time the taxable service is provided.
- Sales tax: The amount must be converted to RM using the selling exchange rate applicable at the time the taxable goods are sold.
Approved sources for exchange rates
Businesses are not permitted to use arbitrary exchange rates. The ruling specifies that the selling exchange rate must be sourced from one of the following recognised bodies:
- Bank Negara Malaysia (BNM).
- Commercial banks in Malaysia or any other bank registered under BNM.
- International news agencies, specifically Bloomberg, Reuters, or Oanda.
- Foreign central banks, such as the European Central Bank or the Federal Reserve Bank of New York.
Key operational rules
Once a rate source is selected (e.g., BNM rates), it must be applied consistently for at least one year from the end of the accounting period. If a business intends to use a rate source not specified in the guidelines, it must obtain prior written approval from the Director General of Customs by submitting an application to the relevant JKDM policy branch.
Importation and imported services
The ruling clarifies that different exchange rates apply to imports depending on the nature of the transaction, with imported goods using the rate prescribed by the Director General of Customs at the time of importation, while imported services must be converted using the selling exchange rate in Malaysia at the time the service is performed.
Regulatory uncertainties
The ruling remains subject to change through legislative amendments to the Service Tax Act 2018 or Sales Tax Act 2018, which would automatically override current provisions. The Director General of Customs can also amend or withdraw the ruling at any time. Additionally, the guidance is general in nature and may not address complex business scenarios, with JKDM disclaiming liability for losses from misinterpretation.
Noncompliance consequences
Businesses face several penalties for failing to meet requirements:
- Invalid tax invoices if foreign currency amounts aren’t converted to Ringgit Malaysia using specified rates at the time of transaction
- Audit discrepancies from violating the one-year consistency requirement for exchange rate sources
- Full financial liability for tax errors, including underpayments from incorrect exchange rates, as JKDM accepts no responsibility for misuse
- Deemed inaccuracies when using unauthorised rate sources without prior written approval from the Director General
- Goods seizure or penalties for importations if the Director General’s prescribed exchange rate isn’t used for duty and sales tax calculations
