The service tax scope expanded from 1 July 2025, bringing categories of business into the regime that had never previously considered it. The registration question is not answered by a single national threshold: it depends on which service is being provided, and the figures have been revised more than once since the expansion took effect.
The threshold and the rate both depend on the category
This is the point most often got wrong, and the reason a figure remembered from a briefing in mid-2025 is not safe to rely on now.
The Ministry of Finance announced revisions before the expansion commenced: the registration threshold for leasing or rental services and for fee or commission-based financial services was raised from RM500,000 to RM1 million, and the proposed expansion to beauty services — manicure and pedicure, facial services, barbers and hairdressers — was not proceeded with. Two worked illustrations from the Royal Malaysian Customs Department's own current industry guides show how far the detail varies between categories:
- Rental or leasing services (Group K, First Schedule, Service Tax Regulations 2018): the prescribed threshold is more than RM1 million over a 12-month period. The rate was 8% from 1 July 2025 to 31 December 2025, and 6% from 1 January 2026. Rental of residential accommodation is outside the taxable service.
- Construction work services (Group L): the prescribed threshold is more than RM1.5 million over a 12-month period, and the rate is 6%. Construction work for residential buildings, and public facilities related to those residential buildings, sits outside it.
Other categories carry their own thresholds and rates again. A business supplying more than one category cannot apply a single figure across all of it, and should confirm each figure against RMCD's current industry guide for the service actually supplied rather than a secondary summary.
Calculate the threshold on the taxable service element
For construction, RMCD's guide is explicit that the threshold takes into account only the elements of taxable service — so where a contract separates the value of goods and materials from the value of the work, only the service element counts. The consequence runs both ways, and the guide illustrates it:
- A contractor with a contract of RM1,550,000 on a lump-sum basis, where the value of goods and the value of services cannot be segregated, has a threshold value of the full RM1,550,000 and is liable to register.
- A subcontractor providing engineering and mechanical work valued at RM1,600,000 who is unable to separate the goods from the services has reached the threshold on the whole amount.
- A contractor whose service element falls below the figure once separable materials are excluded is not a taxable person on that contract, even though the headline contract value is far larger.
The practical point is that how a contract is priced and documented determines the threshold calculation, not the headline number on the letter of award.
Exempted services count toward the threshold; excluded services do not
This distinction inverts an intuition, and it is worth isolating.
RMCD states that construction services receiving exemptions — including business-to-business exemptions and exemptions for services provided to the Federal Government, State Governments or local authorities — are still taxable services, and their value must be taken into account when calculating the threshold for registration. The value of those exempted taxable services is also declared in box 18(c) of the SST-02 return.
A contractor who assumes exempted work simply drops out of the calculation may conclude the business sits below the threshold when, on RMCD's basis, it does not. Exemption from charging tax on a supply and exclusion from the registration calculation are different things. Services genuinely outside the taxable service — residential building construction is the clearest example — are a different matter, and do not enter the calculation at all.
Exemptions also move. RMCD records that the exemption for construction work services provided to local authorities ceased from 1 October 2025, while the value provided during the earlier exempt window still counts toward the threshold.
The 12-month test is rolling, and location does not answer it
The thresholds are expressed over a 12-month period. A business close to a threshold needs a monitoring routine rather than a year-end review, because the obligation can crystallise mid-year on a rolling basis. In practice that means identifying which supplies fall within a prescribed taxable service, tracking their cumulative value monthly, and knowing in advance what registration would require operationally — invoicing, contracts, pricing and system configuration all change.
Being established in a Designated Area or Special Area is not, by itself, an answer either. RMCD confirms that construction services provided in Designated Areas — Langkawi, Tioman, Pangkor and Labuan — and in Special Areas such as free zones, licensed warehouses, licensed manufacturing warehouses, joint development areas and petroleum bases are subject to service tax and must be charged accordingly.
Transitional relief is time-limited and category-specific
Relief for contracts signed before the expansion exists, but the conditions and the end dates differ by category, and reading one across to the other is a common error.
For rental or leasing, a non-reviewable contract is exempt from service tax for one year, from 1 July 2025 to 30 June 2026. The conditions include that the provider is a registered person; the contract contains no price-review clause or value-adjustment mechanism; the contract is in writing, signed and stamped by LHDN on or before 9 June 2025; and it states the type of service, a fixed contract value and the contract duration, and remains in force after 1 July 2025.
For construction work, RMCD's current guide records the exemption for non-reviewable contracts as running from 1 July 2025 to 30 June 2027, with services provided from 1 July 2027 subject to service tax. The conditions differ: the contract must be in writing and signed before 1 July 2025, and stamped with stamp duty by LHDN before 31 December 2025.
A contractor who assumed the rental deadline applied to construction, or who left a qualifying contract unstamped past the end of 2025, has a different exposure from the one they expect.
Some relief sits with the customer, not the supplier
Not every exemption is claimed by the person charging the tax. For rental or leasing, RMCD provides an exemption for tenants with micro, small and medium enterprise status, on conditions the tenant has to satisfy: registration and declaration through the MyPMK system developed by Customs; annual sales not exceeding RM1,500,000 based on the most recent year of assessment income declared to LHDN; and annual updating of that declared figure. Where a declaration is found to be untrue, Customs may recover the service tax that was not eligible for exemption under subsection 34(5) of the Service Tax Act 2018.
For a landlord, that means the exemption depends on a counterparty's own declaration and on evidence held by the counterparty. It is worth obtaining and retaining that evidence rather than accepting an assertion, because the recovery provision does not fall away with the assertion.
Service tax follows payment, not the invoice
Service tax is accounted for when payment is received. Section 11(2) of the Service Tax Act 2018 then adds a backstop that catches businesses with slow-paying customers: where any payment or part payment, including a retention sum, has not been received within 12 months from the date the service was rendered, the tax becomes due and payable on the day after the 12-month period expires, whether or not the customer has paid.
A registered person may apply in writing to the Director General of Customs for approval to use the invoice basis for determining the tax point, under section 11(1A). Registered persons are also required to submit the SST-02 return and pay before the due date of the prescribed taxable period, and to keep records relating to service tax transactions for seven years from the date the record is issued.
What to establish
- List every service supplied and determine, for each, whether it is a prescribed taxable service in a First Schedule group.
- Identify the current threshold and rate for each category separately, from RMCD's own material.
- Separate exempted services, which count toward the threshold, from services outside the taxable service, which do not.
- Confirm how goods and materials are separated from service value in the contracts, because that determines the threshold calculation.
- Track cumulative taxable service value on a rolling 12-month basis rather than at year end.
- Where contracts span the change, check the specific non-reviewable contract conditions and end date for that category, including the signing and stamping deadlines.
- Diarise the 12-month payment backstop for unpaid billings and retentions.
General-information limitation
This article is general information, not tax advice for a particular business, and it does not determine whether any service is taxable, whether registration is required, or how any transaction should be treated. Thresholds, rates, prescribed services and exemptions are fact-specific and have been revised repeatedly since 1 July 2025. Confirm the current position against RMCD's own published material and obtain fact-specific advice where the matter is material.
To discuss your circumstances, contact Saifudin & Co.