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Malaysia: Updated and expanded service tax exemptions for rental and leasing services

Generally effective from January 1, 2026

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January 26, 2026

The Royal Malaysian Customs Department on January 23, 2026, issued Service Tax Policy 2/2025 (Amendment No. 3), which updates and expands the service tax exemptions for rental and leasing services as follows:

  • The reduction in the service tax rate from 8% to 6% on rental and leasing services effective from January 1, 2026, will be in the form of a 2% service tax exemption until the relevant amendments to the legislation are gazetted. Read a January 2026 report prepared by the KPMG member firm in Malaysia
  • Newly established micro, small, and medium Enterprises (MSMEs) are exempted from paying service tax on rental and leasing services for a period of one year from their registration date (subject to the certain conditions) effective January 1, 2026. 
  • The annual sales threshold for the exemption for MSMEs is RM1,500,000 (based on the annual income of the latest year of assessment declared to the IRBM).
  • It has been clarified that group relief on rental and leasing services provided to companies within the same group will be in the form of a service tax exemption until the relevant amendments to the legislation are gazetted.

Read a January 2026 report prepared by the KPMG member firm in Malaysia

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