NeonHippy

That is the question that has been taxing me of late. A couple of people have told me the MM2H tax free car deal is not as good as it seems and there have been a number of posts here across several threads that seem to criticise the deal. Yet to me it seems a very good deal. So I give my interpretation below in the hope that if I am wrong someone will be able to show me where I am going wrong before I make an expensive mistake.

First let's define a few terms:- Intrinsic Value (IV) is the cost of manufacture plus a profit margin for the manufacturer and distributor; Tax Value (TV) is the tax charged against the IV; Total Cost (TC) is the sum of the IV & TV. To keep the arithmetic easy I will assume a car has an IV of RM100,000 and a TV of RM50,000. Also to keep the arithmetic easy I will assume that the TC of the car will depreciate at a constant rate of 10% p.a. rather than a more realistic exponential function. Looking at second hand cars on the internet, cars in Penang seem to be expensive compared to similar aged models in the UK, so I think it fair to say that the high taxation that makes Malaysian cars expensive to begin with carries through to their second hand value.

Given the above assumptions then if I were to sell the car after one year it's value will have reduced to RM135,000 clearly selling the car now would net me a tidy profit on the original purchase price. This is not what would be expected from a tax free purchase. It would also be unrealistic to think my car still has the same IV as when I first bought it so I anticipate paying back the depreciated TV of RM45,000. But not many MM2Hers will trade their cars after 1 year, so let's look at what happens in year 4. The car has now depreciated by 40% and has a TC of RM90,000 which is less than the original purchase price and I am being asked to pay RM30,000 tax so it appears that I am being asked to pay some "deferred" tax on the car. When in fact the money I get for the car is composed of an IV of RM60,000 and a TV of RM30,000.

This seems fair to me, although I can see 2 pitfalls to the process. Firstly, as a foreigner I do not expect to get the best price from a used car dealer, especially if, say, I am selling it to return home and am therefore under pressure to sell. Although this pitfall will also be true if I buy and subsequently sell a used car. The second pitfall is that determining the TV of a second hand car is not an exact science, the authorities (rightly) do not want me to profit from the deal so I expect them to err slightly on the side of caution. I have to take it on trust that they will not grossly over charge me.

So there is my interpretation, where am I going wrong?

Gunnar45

I think it is OK if one sells the car after 4 - 5 years or later.
For newer cars, the valuation to determine its tax value may be a bit on the high side and not reflect what it can be sold for.

bakedbean

It can be a good deal. There are some hefty discounts. But, like everything else, there is paperwork involved buying the tax free car.

Then more paperwork and headaches at the other end, when sold. You could probably read Stuurman's excellent post here:
http://britishexpats.com/forum/retir...2h-car-852576/

It's just another one of those variables in life where you do not know the future, and it just adds to the hassle factor. But I am probably looking at this from a biased view at the moment

JC3

Hi NeonHippy,

I believe your interpretation is correct.

I bought a new car under the MM2H scheme and think of the tax saving as being akin to an interest free loan. Some of that ‘loan’ will need to be paid back when I eventually sell the car, and the amount to be repaid falls roughly in line with depreciation of the car’s value.

The downsides that I know of are:

Bureaucracy / Hassle factor.
There’s a bit of paperwork involved in the purchase process (actually it’s online). I bought a Honda and did the paperwork myself without an agent – I found it fiddly mostly because my Honda Sales Representative was poor which made things more a lot more difficult - he’s since retired. It’s actually easy once you know how. That said I’m pleased with the car and Honda have a new Service Centre in Georgetown which I find very good.
A friend bought a Toyota and they did the MM2H paperwork for him, free and hassle free.
There’s more (tax) paperwork when you come to sell. But having read Stuurman’s helpful post on selling his MM2H car, it sounds more straightforward than I had envisaged provided one plans ahead a bit.

Delivery delay
You may have to wait several months for delivery of a new car. You can buy and drive a second-hand car this week.

Car Rental costs
So you may need to factor in car rental costs whilst waiting for delivery of your new car, and possibly again when you sell it.

No publically available data on the tax re-payable on re-sale of MM2H car
This creates a fear factor. But from what I can gather it looks like the tax re-payable falls roughly in line with the car’s re-sale value.



BTW, if you do buy an expensive new car, let’s say at a TC of RM150,000+ I recommend getting it fitted with a tracking device, and also factory fitted with a window tinting film that cuts glare and that makes the glass virtually unbreakable. You don't want your new car being stolen and driven to Thailand.

There are also stories of car front windows being smashed with motorcycle helmets when the car is stopped at the traffic lights in order to grab handbags etc. from the front seat. And concerns about having an accident with a motorcyclist and being quickly surrounded by a mob. In the second scenario I think it’s best not to leave the car, and to drive to a police station and report the accident.

This all makes Penang sound far more dangerous that it is – sorry!

JC3

NeonHippy

Sound advice JC3 although I'm not sure how easy it would be to drive to the police station. Earlier this year we were sitting overlooking Tsunami Village when our attention was drawn to raised voices. A motorcyclist had placed his bike in front of a vehicle and was shouting at the driver. Within seconds the vehicle was surrounded by other motorcyclists. The driver foolishly got out and there was a bit of a scuffle before the police arrived.

Form filling can be a right royal pain but if it saves 20% - 30% of the cost of a new car that's a pretty good hourly rate by my books.

InVinoVeritas

I am very much in two minds about this, NeonHippy. It is very tempting when you see savings of up to 36% but these are often on a car you would not normally buy and which are probably unsuited to life in Penang. In the end I got a Myvi because nearly all my driving is within Penang and being able to park is more important to me than anything else.

But I could (and did) rent a Myvi or Vios or Accord, so why buy? Well in my case I simply preferred to have RM50K sitting outside my condo instead of in an MM2H FD.

The reasons not to buy are:-

You can collect/drop a rental car at the airport instead of relying on taxis.
You can rent the car that suits your needs for each trip.
If the rental car breaks down, they will bring you another.
Likewise if you have an accident, they bring you another car.
You don't have to get it serviced every 6 months.
You don't have to wash it, put air in the tyres etc etc
You don't have to disconnect the battery if you are away for a few weeks.

So my advice, enjoy spending a few weeks thinking about which shiny new car you would like, maybe visit a few showrooms and do a few test drives (the male equivalent of shopping) and then just carry on renting.

JC3

I just noticed one MM2H agent quoting a Charge of RM1,500 +GST for assisting with the purchase of an MM2H car.

Wow! Having done it myself without an agent, I'd say that's extremely expensive for something that should take no more than two hours of the agent's time, if that. The application is nearly all done online.

For reference RM1,500 is more than a security guard in Malaysia earns in a month, working seven days a week.

JC3

bakedbean

It's slightly over 235 quid, to put another perspective on it.

NeonHippy

Ouch, RM1,500 seems a high price by Malaysian standards whereas £235 for a couple of hours work by a UK professional is not outrageous. I guess the yardstick will be 'can they get the car delivered any quicker than a private application'. Shaving a month off of the delivery time would save RM1,500 car rental costs.

meinkl

I really would suggest that, from personal experience, a good quality reliable brand second hand car is going to be a better option and save money
...
Cheaper outlay
Any choice of car not just the CBUs
Less likely to be stolen
Less likely to be vandalised in a car park by some jealous idiot with sharp keys.
Better resale value to purchase ratio
Can sell it easily without the tax repayment if you have MM2H
No need to go through MM2H tax free paperwork and dealer/agent mark ups
You have all the main brands' agents and good workshops in Penang so no worries about servicing.

Check out autotrader
2008 PORSCHE CAYENNE CAYENNE | RM165,800 | Used Car for Sale | Motor Trader
7 years old, good as new @ 166,000 ... new price 800,000 or about 500,000 without import duty.
... a bit top of the range but shows the depreciation.

There are lots of 2 or 3 year old BMW, Lexus, Merc, Honda being imported from Japan at reasonable prices.

The only new car I ever had whilst here was provided by the company.. after that bought 4 or 5 year old ones and sold for high percentage of my original purchase price.
Just watch for clocking.. everyone does it, even big garages, so don't believe the odometer, look at the pedals, seats and brake discs.

SushiFan

Does Malaysia have a law that if the car is older than a certain age it has to be checked regularly? I know of several European countries where there is such a system and people try to get rid of their (not new anymore) car by the time this regular check starts to kick in.

meinkl

Malaysia does not have an annual MOT once 3 years old, but does have a Puspacom inspection whenever the car is sold privately. This is more of a check to ensure its not 2 half cuts joined together, rather than a safety check. This is needed to be able to change the owner. They also check the brakes work, windows not tinted, tyres and emissions, but it is nothing like as strict as the UK MOT.
You cannot get a loan for a car over 15 years old. (I think its still 15 years) but wouldn't advise getting one that old anyway.
Rust is not so much of an issue as no salt on the roads, but heat and humidity destroys all rubber components quicker than UK.
Locals prefer to show off having a new model car so wiill replace when a new model comes our rather than when MOT due (like UK). Lease companies for company cars tend to replace after 3 or 5 years depending on brand longevity. Some Japan imports are good value at 3 or 4 years old as 2nd hand car values, for likes of BMW, are very low in Japan.

SushiFan

@meinkl: thank you for sharing your knowledge. Appreciated!

eCdD

Is there a list of the cars that are "made or assembled in Malaysia" and how much this tax savings for not need to pay excise duty makes up? Is it a percentage of the price or does it vary?

InVinoVeritas

There is this:-

Latest 2014 MM2H Car Price List- Latest savings!

For some reason, Perodua is not included and yet I got about 18% off for MM2H.