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Malaysia Employment Services SST Update 2026: Qualifying Disbursements and Salary No Longer Subject to Service Tax

Posted LnCoadmin

The Royal Malaysian Customs Department (RMCD) has issued an important announcement on 13 August 2026, clarifying the Service Tax treatment for Employment Services in Malaysia.

Based on the latest announcement：

  • Employment Fee / Management Fee → Subject to Service Tax
  • Qualifying Pass-through Costs / Disbursements → Not Subject to Service Tax

What Charges Are Subject to SST?

According to RMCD’s latest announcement, fees charged by Employment Service Providers for providing employment services remain subject to Service Tax.

Type of Charge SST Treatment
Employment Fee ✅ Subject to SST
Management Fee ✅ Subject to SST
Qualifying Pass-through Costs / Disbursements ❌ Not Subject to SST
Fees, Duties, Levies or Taxes paid to the Federal or State Government ❌ Not Subject to SST, subject to applicable conditions
Penalties or Punitive Payments imposed under written laws ❌ Not Subject to SST, subject to applicable conditions

Therefore, this latest update does not mean that Employment Services are fully exempt from Service Tax.

Employment Fees and Management Fees remain subject to Service Tax.

What Are Pass-through Costs / Disbursements?

In simple terms, these are qualifying costs paid by an Employment Service Provider on behalf of a client and subsequently recovered from the client.

Based on RMCD’s latest announcement, these may include:

  • Fees, duties, levies or taxes paid to the Federal or State Government
  • Penalties or punitive payments imposed under written laws
  • Other qualifying pass-through costs or disbursements

Where the relevant Disbursement / Out-of-Pocket Expense (OPE) criteria are satisfied, these amounts are not included in determining the Value of Taxable Services and are therefore not subject to Service Tax.

Example

Assume an Employment Service Provider charges a client:

  • Management Fee：RM1,000
  • Qualifying Disbursements：RM5,000

Subject to the applicable conditions:

  • RM1,000 Management Fee → Subject to SST
  • RM5,000 Qualifying Disbursement → Not Subject to SST

The RM5,000 will only qualify for the non-taxable treatment if the relevant Disbursement / OPE criteria are fulfilled.

Employment Service Providers should review their current invoicing, SST calculations and disbursement treatment to ensure that Service Tax is applied correctly in accordance with the latest RMCD clarification.

****Last updated on 17.08.2026