Malaysia's Sales and Service Tax (SST) changed significantly from 1 July 2025. The Ministry of Finance revised sales tax rates on selected goods and, more consequentially for services firms, widened the scope of service tax to bring rental and leasing, construction, financial services, private healthcare and private education into charge for the first time. Further adjustments followed into 2026, including a reduction in the rental and leasing service tax rate. For any Malaysian business that provides services, the practical question is simple: has your service become taxable, and if so, from when and at what rate?
This guide summarises the expanded scope as it stands in mid-2026, referencing the Royal Malaysian Customs Department (RMCD) guides and Ministry of Finance announcements. Rates, thresholds and exemption mechanics in this area have been amended more than once since July 2025, so we recommend confirming your specific position against the current RMCD guide for your service category, or discussing it with your tax adviser, before relying on any figure below for a filing decision.
What changed on 1 July 2025
The expansion was first announced under Budget 2025 (18 October 2024) and formally confirmed by the Ministry of Finance in a media statement on 9 June 2025, taking effect from 1 July 2025. Two separate measures were introduced together:
- A revision of sales tax rates on selected goods, with non-essential and discretionary items generally subject to sales tax at 5% or 10%, while basic necessities and everyday goods were kept at their existing treatment.
- An expansion of the service tax scope to bring new categories of services into charge, principally rental or leasing, construction, financial services, private healthcare (for non-Malaysian citizens), and private education (above a per-student threshold).
The changes were codified through subsidiary legislation, including PU(A) 172/2025, together with a series of RMCD Service Tax Policies and industry-specific guides published on the MySST portal. The Ministry of Finance also confirmed a compliance grace period: businesses that took reasonable steps to register and comply would not face prosecution or penalties up to 31 December 2025, provided registration and filing obligations were subsequently met.
Note for readers: a proposal to bring beauty services (manicure, pedicure, facial, barbering and hairdressing) into scope was withdrawn following public feedback before the 1 July 2025 effective date. These services remain outside service tax.
Which services are now taxable, by sector
The expanded scope operates through the existing Service Tax Act 2018 group structure (First Schedule, Service Tax Regulations 2018), with new items added to existing groups and, in the case of rental and leasing, a dedicated new group. The main additions service providers should be aware of are set out below.
Rental or leasing services (Group K)
Rental or leasing of tangible assets located in Malaysia — including office space, industrial and commercial premises, machinery, vehicles, equipment and similar assets — became a taxable service from 1 July 2025. Residential property rental remains outside scope. Rental of reading materials, assets located outside Malaysia, financial leases, and rental or leasing within or between Free Industrial Zones or Licensed Manufacturing Warehouses are also excluded, subject to the conditions in the RMCD Guide on Rental or Leasing Services.
Construction services
Construction work services, including for residential developments on mixed-use land, were brought into the service tax net from 1 July 2025. RMCD guidance provides transitional relief for existing non-reviewable contracts signed and stamped before the policy cut-off date, and construction of religious buildings (surau, mosque, temple, church, and similar) remains exempt.
Financial services (Group H)
Fee- or commission-based financial services became taxable from 1 July 2025 under an expanded Group H, applied to specific fees and charges listed in the RMCD Guide on Financial Services. Basic banking services and profit- or interest-based Islamic and conventional financing arrangements are generally excluded, as are certain transactions involving Bursa Malaysia and Labuan-regulated entities, subject to conditions in the relevant guide.
Private healthcare
Private healthcare, traditional and complementary medicine, and allied health services became taxable when provided to non-Malaysian citizens by providers whose taxable turnover exceeds the applicable registration threshold. Services provided to Malaysian citizens, and all public healthcare, remain outside scope.
Private education
Private education services became taxable where annual fees exceed the prescribed per-student threshold, with specific exemptions for Malaysian citizens, OKU cardholders, special-education institutions and language centres, as set out in RMCD guidance.
Professional and other services already in scope
Professional services such as legal, accounting, engineering, architectural, consultancy, information technology, management, employment and security services were already subject to service tax before 1 July 2025 under the existing Group G and related groups; the July 2025 expansion did not remove these obligations. Providers of these established taxable services should continue to apply their existing registration and charging position, adjusted for any rate change described below.
Rates and registration thresholds
Because the applicable rate and threshold depend on the specific service group, and because further amendments followed the initial July 2025 expansion, providers should verify the current position for their own category directly on the MySST portal or in the relevant RMCD guide rather than relying on a single figure in isolation. As a general orientation as at mid-2026:
- General registration threshold: the longstanding default threshold for service tax registration is RM500,000 of taxable services in any rolling 12-month period, applicable to most professional and other established taxable service categories.
- Rental or leasing services: subject to service tax at 8% from 1 July 2025. Following a Ministry of Finance announcement and subsequent RMCD Service Tax Policy amendment, the rate was reduced to 6% effective 1 January 2026. The registration threshold for rental or leasing was set at RM1,000,000 and was subsequently raised for qualifying micro, small and medium enterprises (MSMEs) under the MyPMK exemption arrangements.
- Construction services: taxable at a reduced rate as set out in the RMCD Guide on Construction Services, with a higher registration threshold than the general RM500,000 default, and transitional exemptions for existing contracts.
- Financial services: taxable at 8% on prescribed fees and charges under the expanded Group H, per the RMCD Guide on Financial Services.
- Private healthcare and private education: taxable at the rate and threshold set out in the applicable RMCD guide, with citizen and fee-level exclusions as described above.
Because RMCD has amended rental and leasing treatment more than once since July 2025 — including a rate reduction, an MSME threshold increase, and clarified group relief — service providers in this category in particular should check the current Service Tax Policy on rental or leasing services (and any amendments) before invoicing, rather than relying on the position as it stood in mid-2025.
B2B exemption mechanics
Because Sales Tax and Service Tax do not operate an input-output credit mechanism comparable to GST, bringing more services into scope raises the risk of tax cascading down a supply chain — for example, where a taxable service is bought in, incorporated into a further taxable service, and taxed again on resale. RMCD addresses this through business-to-business (B2B) exemption and group relief mechanisms, which operate differently depending on the service category and the timing of registration.
Standing B2B exemption for professional services
For certain services within Group G (professional services) and related items, a standing B2B exemption has applied since 2019: where a registered person acquires a taxable service of the same type it is itself registered to provide, from another service tax registrant, the supplier is not required to charge service tax on that supply, subject to prescribed invoicing and SST-02 return declaration requirements. A comparable exemption applies to certain imported taxable services acquired from group companies outside Malaysia. This mechanism is separate from, and predates, the July 2025 expansion.
Transitional B2B relief for newly expanded categories
For providers who newly reached the registration threshold as a direct result of the July 2025 expansion — principally in rental or leasing and construction — RMCD provided a time-limited B2B exemption facility for the period 1 July 2025 to 31 August 2025, available to providers who applied for registration within that window and met the prescribed conditions. Businesses that missed applying the exemption at the point of supply were able to claim a refund of service tax already declared and paid, subject to a claim deadline and conditions set by RMCD.
Group relief
Separately, group relief allows certain taxable services — including rental or leasing services, subject to amended conditions — to be exempted when supplied between companies within the same corporate group, subject to shareholding tests and limits on the proportion of such services supplied outside the group. This is not automatic and should be assessed against the specific conditions in the applicable RMCD guide.
Because the transitional B2B window and the standing Group G exemption are different mechanisms with different eligibility conditions, service providers should not assume that one automatically extends to the other. Confirm which mechanism, if any, applies to your specific service category and transaction structure before treating a supply as exempt.
What a service provider must do to comply
- Confirm whether your service is now taxable. Map your actual service offering against the current First Schedule groups and the relevant RMCD industry guide, rather than relying on how the service was classified before July 2025.
- Monitor your turnover against the applicable threshold on a rolling 12-month basis. Thresholds differ by service category, so the same business may need to track more than one threshold if it supplies more than one type of taxable service.
- Register within the prescribed period once the threshold is reached, and review whether voluntary early registration is beneficial where it would unlock B2B exemption treatment on inputs.
- Update pricing, contracts and invoicing systems to reflect the correct rate for each service category, including any rate changes such as the rental and leasing reduction from 8% to 6% effective 1 January 2026.
- Review existing contracts for price-revision clauses and transitional relief eligibility, particularly for rental, leasing and construction agreements signed before the relevant cut-off dates.
- Assess B2B exemption and group relief eligibility for both outbound supplies and inbound purchases, and ensure invoices carry the prescribed particulars where exemption is claimed.
- Maintain records and file SST-02 returns in accordance with RMCD's filing timelines, including correct declaration of any exempted value.
- Reassess registration status periodically, since RMCD continues to issue amendments, sector guides and clarifications; a position confirmed in 2025 may no longer reflect the current rate or threshold in 2026.
Common questions
Does the expansion apply to services I provide to overseas clients?
Treatment for cross-border supplies depends on the specific service category and the location of the recipient or the asset (for rental or leasing). This should be confirmed against the relevant RMCD guide rather than assumed.
My turnover is below RM500,000 — do I need to do anything?
If your turnover across all taxable service categories you provide remains below the applicable threshold for each category, mandatory registration is not triggered, though voluntary registration may be available and can be beneficial in some circumstances, including to access B2B exemption treatment on your own purchases.
Have the rates changed since July 2025?
Yes, in at least one significant respect: the rate on rental or leasing services was reduced from 8% to 6% effective 1 January 2026, following a Ministry of Finance announcement and subsequent RMCD Service Tax Policy amendment. Other categories should be checked individually, as RMCD continues to issue policy amendments and industry guides.
What if I supply a mix of taxable and non-taxable services?
Mixed supplies require careful classification and, where relevant, apportionment between taxable and non-taxable elements. Contract and invoice structuring can affect the outcome, so this is an area where specific advice is usually warranted.
How SNCO helps
Saifudin & Co (SNCO) supports Malaysian businesses in reviewing their service tax registration position, assessing which of their revenue streams fall within the expanded scope, and structuring compliance processes including invoicing, B2B exemption documentation, and SST-02 return preparation. Because the expanded scope has already been amended more than once since July 2025, we recommend that businesses confirm their registration and rate position periodically rather than treating an earlier assessment as final. We provide tax planning and compliance support in accordance with the relevant tax laws and regulations, and any position taken should have a credible basis in current legislation and RMCD guidance; we encourage clients to confirm their own registration position directly with RMCD or with us before relying on it for a filing decision.
If your business needs to confirm its position under the expanded SST scope, or would like support with registration, invoicing or return preparation, request a consultation with our Tax Advisory & Compliance team.
Sources
- Ministry of Finance Malaysia, "Targeted Revision of Sales Tax Rate and Expansion of Service Tax Scope Effective 1 July 2025", mof.gov.my
- Royal Malaysian Customs Department, MySST portal — Expansion of Service Tax Scope 2025, mysst.customs.gov.my
- Royal Malaysian Customs Department, Guide on Rental or Leasing Services and Service Tax Policy No. 2/2025 (and amendments), mysst.customs.gov.my/industryguides
- Royal Malaysian Customs Department, Guide on Professional Services, mysst.customs.gov.my
- Lembaga Hasil Dalam Negeri Malaysia (LHDN), hasil.gov.my
This article provides general information on the expanded SST scope and does not constitute tax advice for any specific business. Rates, thresholds and exemption conditions are subject to further amendment by the Ministry of Finance and RMCD; readers should confirm their own registration and charging position against current official guidance or with a qualified adviser before acting.
Last updated: July 2026