Amendment to Service Tax Policy 2/2025

The Royal Malaysian Customs Department (“Customs”) has issued Service Tax Policy 2/2025 (Amendment No. 3) dated 23 January 2026, which updates and expands the Service Tax exemptions applicable to rental or leasing services. These amendments take effect from 1 July 2025, unless stated otherwise.

A summary of the salient amendments/ updates is set out below:-

1. 2% Service Tax exemption on rental or leasing services

The reduction of Service Tax rate from 8% to 6% on rental or leasing services, effective from 1 January 2026, would be in the form of a Service Tax exemption until amendments to the subsidiary legislation is gazetted.  

Generally, there are additional prescribed particulars to be stated in the invoice for taxable services that qualify for exemption, including the amount of Service Tax that is exempted. In this respect, pending further clarity from Customs, affected businesses may wish to indicate the 2% Service Tax exemption on invoices issued and maintain proper records for Service Tax reporting purposes, if required. 

2. Exemption for newly established Micro, Small and Medium Enterprises (“MSMEs”)

i) Newly established MSMEs are exempted from paying Service Tax on rental or leasing services for a period of one (1) year from their Companies Commission of Malaysia (“SSM”) registration date (or the equivalent authority for Sabah/ Sarawak), subject to the following conditions:- 

a. The lessee must register and declare the MSMEs status through the MyPMK system.

b. The newly established MSMEs must submit the income tax returns to the Inland Revenue Board of Malaysia (“IRBM”) to qualify for Service Tax exemption on rental or leasing services after the existing one (1) year period has expired.

c. The newly established MSMEs must update the IRBM income declaration information into the MyPMK system in the following year after the date of SSM registration. 

ii) This exemption takes effect from 1 January 2026.

3. Exemption for existing MSMEs (previously applicable to SMEs only)

i) The annual sales threshold for MSMEs qualification is RM1,500,000 (based on the annual income of the latest year of assessment declared to the IRBM).

ii) Any MSMEs that have registered through the MyPMK system on or before 31 December 2025, this exemption will take effect from 1 July 2025.

iii) Any MSMEs registered through the MyPMK system from 1 January 2026 onwards, this exemption will take effect from the date of registration in the MyPMK system.

4. Exemption on rental or leasing services for companies within the same group (group relief)

It has also been clarified that group relief on rental or leasing services provided to companies within the same group would be in the form of a Service Tax exemption, until amendments to the subsidiary legislation are gazetted.

Please click on the above header link for a copy of the Service Tax Policy 2/2025 (Amendment No.3) (available in Malay language only).