Malaysia Service Tax Policy Amendments for Rental and Leasing
The Royal Malaysian Customs Department (“RMCD”) issued Service Tax Policy No. 2/2025 (Amendment No. 3) on 23 January 2026, introducing further refinements to the service tax treatment of renting and leasing services, including revisions to the applicable service tax rate and the scope of relief available to the Micro, Small and Medium Enterprises (“MSMEs”).
This amendment revokes and replaces Service Tax Policy No. 2/2025 together with its earlier amendments.
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Existing Measures Under Service Tax Policy No. 2
The following measures were introduced under Service Tax Policy No. 2 and its prior amendments and are currently in effect. These measures have been effective since 1 July 2025:
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Renting or leasing services provided by the Federal Government, State Government and Local Authorities are exempted from service tax.
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Non-reviewable contracts are exempted from service tax for the period 1 July 2025 to 30 June 2026, subject to the prescribed conditions.
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Intra-group relief is applicable where renting or leasing services are provided between companies within the same group, in accordance with RMCD’s control tests.
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Rental or leasing of aircraft and sea vessels is exempted from service tax.
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B2B (business-to-business) exemption on rental or leasing services for the period from 1 July 2025 to 31 August 2025 is granted to rental or leasing service providers who newly reach the threshold value in July 2025 and have applied for service tax registration on or before 31 August 2025.
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Key Amendments Introduced under Service Tax Policy No. 2/2025 (Amendment No. 3)
The following amendments take effect under Service Tax Policy No. 2 (Amendment No. 3):
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MSME Exemption (Revised Threshold and Registration Dates)
The annual sales threshold for MSMEs qualification has been amended from RM1,000,000 to RM1,500,000, based on the annual income of the latest year of assessment (“YA”) declared to the Inland Revenue Board of Malaysia (“IRBM”).
For MSMEs registered through the MyPMK system on or before 31 December 2025, the exemption from paying service tax on rental or leasing services takes effect from 1 July 2025.
For MSMEs registered from 1 January 2026, the exemption takes effect from the date of registration in the MyPMK system.
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2% Service Tax Exemption on Rental or Leasing Services
A 2% service tax exemption applies to renting or leasing services, effectively reducing the service tax rate from 8% to 6%. This will be provided in the form of service tax exemption until amendments to the subsidiary legislation is gazetted.
Service providers shall reflect the 2% exemption on invoices using either the following methods:
Method 1:
|
|
|
Amount (RM)
|
|
Rental
services
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:
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2,000
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|
8% service
tax
|
:
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160
|
|
2% service
tax exemption
|
:
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(40)
|
|
Total
payable
|
:
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2,120
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Method 2:
|
|
|
Amount (RM)
|
|
Rental
services
|
:
|
2,000
|
|
6% service
tax
|
:
|
120
|
|
Total
payable
|
:
|
2,120
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Note: 2% service tax exemption (tax rate) with a value of RM40.
For the Form SST-02 return, service providers shall declare service tax on the value of rental services at a tax rate of 6%. Subsequently, details of the value of exempted services shall be stated and completed in field 18(c)(3) of the Form SST-02 return.
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Exemption for newly established MSMEs
This exemption applies for a period of one (1) year from the date of registration of the MSME with the Companies Commission of Malaysia (SSM) or an equivalent agency in Sabah and Sarawak, subject to the following conditions:
i. The tenant must register and declare MSME status through the MyPMK system;
ii. Newly established MSMEs must submit their income tax return to the IRBM to remain eligible for the service tax exemption after the expiry of the existing one-year exemption; and
iii. The MSME must update its income tax declaration information from IRBM in the MyPMK system in the subsequent year after the SSM registration date.
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This exemption takes effect from 1 January 2026.
For more details, please visit the official website of the Royal Malaysian Customs Department:
https://mysst.customs.gov.my/
KAIZEN Group, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professional accountants in Kaizen for further clarification.
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