Malaysia’s updated service tax framework has come into effect. Contract terms, tenant status, and group structure will directly determine tax exposure. Businesses and property owners should review early to mitigate compliance risks.
Non-Reviewable Contract Exemption
Eligible written contracts may enjoy service tax exemption from 1 July 2025 to 30 June 2026.
Conditions to qualify:
- The service provider is registered for service tax
- The contract does not contain any price revision or value adjustment clause
- The contract was executed on or before 9 June 2025 and duly stamped by the Inland Revenue Board of Malaysia (LHDN)
- The contract clearly specifies: Type of service provided, Fixed (non-variable) contract value, Contract duration
- The contract remains in force after 1 July 2025
**Services provided from 1 July 2026 onwards will be subject to service tax
SME (PMK) Tenant Exemption
Rental or leasing services provided to Small and Micro Enterprise (SME/PMK) tenants are eligible for service tax exemption.
Key requirements:
- The tenant must declare and register via the MyPMK system with the Royal Malaysian Customs Department (RMCD)
- Annual sales must not exceed RM1,500,000, based on the latest assessed income by LHDN
- Annual sales figures must be updated with RMCD every year
- If any declaration is found to be inaccurate, RMCD may recover the service tax previously exempted
Group Relief for Intra-Group Rental and Leasing Services
Rental or leasing services provided between companies within the same corporate group may qualify for Group Relief.
Key criteria to determine a “group”:
- Shareholding of more than 50%
- Shareholding of 20% to 50%, with control over the appointment or removal of directors
Limitation:
The value of taxable rental or leasing services provided to parties outside the group must not exceed 5% of the total taxable services value within a 12-month period
**Last Updated on 05.02.2026
(201706002678 & AF 002133)