Public Ruling 5/2026 – Definition of Secondment of Employees for Employment Services

Outlined below are the salient points of the Public Ruling:-

• Provision of all types of employment services is a taxable service under item (j), Column 2, Group G, First Schedule of the Service Tax Regulations effective 1 September 2018, excluding:

(i) provision of employment services in the form of secondment of employees; and 
(ii) provision of employment services for employment outside Malaysia.

• To qualify as “secondment of employees”, all the following conditions must be met:

a) There is an employee secondment contract between the original employer and the company to which the employee is seconded (the seconded company);
b) The original employer's business activity is other than the provision of employment services (including employment agencies and professional employer organizations);
c) The employee is transferred temporarily by the original employer to perform duties elsewhere for a specific period, and upon completion of the duties, returns to the same employer to continue his employment;
d) The employee will remain employed by the original employer and the continuity of the employment remains continuous and unbroken;
e) During the secondment period, the employee solely works for the seconded company;
f) The seconded company has total control over the employee; 
g) The salary and any other allowances (at cost) will be paid by the seconded company either directly or indirectly and no other additional charges will be imposed; and
h) The secondment period is less than six months within the year of secondment and does not extend into the following year.

• Any secondment of employees that does not meet all the above conditions is a taxable service and shall be subject to Service Tax.

The above provides clarity on the criteria under which an arrangement may qualify as a secondment of employees, and with the effective date of 12 August 2026, businesses should look at their employment arrangements to ensure that all the above conditions can be met. It is important to maintain adequate supporting documentation to substantiate that the arrangement meets the relevant requirements. 

Please click on the above header link for a copy of the Public Ruling.