We’ve summarised the latest Service Tax Policy 7/2025 released by the Malaysian Customs, focusing specifically on construction companies, contractors, and developers.
1. EPCC Contracts (Engineering, Procurement, Construction & Commissioning) — SST Treatment for Shipbuilding & Offshore Platforms
Customs now allows the industry to choose whether “shipbuilding” should be treated as Manufacturing (Sales Tax) or Construction (Service Tax).
You may opt for either approach:
(A) Treat as Construction Service
✔ Falls under EPCC / Design & Build
✔ Subject to Service Tax (Construction Services)
✔ Eligible for B2B Exemption (professional services SST exemption) → e.g. engineering consultancy, surveying, architectural services
(B) Treat as Manufacturing (Sales Tax)
✔ Treated as goods supply → No Service Tax
✘ Not eligible for B2B Exemption
✘ Must use traditional construction model (not EPCC)
2. SST Treatment for Registered Sales Tax Manufacturers Who Provide Installation Services
This is the most confusing area for M&E contractors, machinery suppliers, and factory installation service providers.
If the contract separately states: Goods value + Installation service value:
✔ SST is only charged on the installation services
✔ Goods supply is not subject to SST
If the contract is lump sum (no breakdown):
(A) Service provider is a Registered Sales Tax Manufacturer:
👉 Installation is treated as part of the goods value
✔ Entire contract is subject to Sales Tax
✘ Not subject to Service Tax
(B) Service provider is not a Registered Manufacturer:
👉 Goods value is treated as part of the service
✔ Entire contract is subject to Service Tax (construction/installation service)
3. Invoice Treatment for Construction Materials & Construction Services
This is one of the most common SST audit issues for contractors.
If the invoice separately states materials + construction services:
✔ SST is charged only on the service
✔ Materials are not subject to SST
If the invoice is a total lump sum (no breakdown):
✔ The entire invoice becomes subject to Service Tax (6%)
→ including the material cost
To avoid unnecessary SST exposure, contractors should:
- Always separate materials and service charges in contracts & invoices
- Understand SST/Sales Tax differences for registered manufacturers vs. non-manufacturers
- For EPCC contracts, choose the tax method that gives the best overall benefit—but consider the impact on B2B exemption
**Last updated on 19.11.2025
**Source from MYSST
(201706002678 & AF 002133)