Malaysia Construction Service Tax Guide 2026: 6% SST Rules

A Guide by HTL & Co Chartered Accountants in Malaysia

Topic: SST | Construction Services

Construction work services in Malaysia are subject to 6% service tax. A person providing taxable construction work services generally must register when the value of those services exceeds RM1,500,000 in a 12-month period. The expanded scope took effect on 1 July 2025, and RMCD updated its construction guide on 17 March 2026.

This guide explains the registration threshold, residential exclusion, treatment of materials and practical compliance points for contractors, subcontractors, developers and project owners.

Construction service tax at a glance

Question	Current position
Service tax rate	6%
Effective date	1 July 2025
Registration threshold	More than RM1,500,000 of taxable construction work services in 12 months
Official category	Group L — Construction Work Services
Main exclusion	Construction of residential buildings and related public facilities, subject to the official definitions and conditions

What counts as construction work services?

Construction work covers work connected with buildings and civil, engineering, mechanical or electrical projects. Depending on the contract, taxable construction services may include:

construction of non-residential or commercial buildings;
civil engineering and infrastructure work;
mechanical, electrical and engineering work;
renovation, alteration or improvement work that forms part of construction work; and
work performed by a main contractor or subcontractor where the prescribed conditions are met.

The contract scope and billing are important. Project labels alone do not determine the SST treatment.

Are residential construction projects subject to SST?

Construction work for a residential building and public facilities related to that residential building is excluded from taxable construction work services. This exclusion should not automatically be applied to:

commercial property;
mixed developments containing residential and non-residential components;
standalone commercial facilities within a residential project; or
work that does not fall within the official residential-building definition.

For a mixed development, the taxable and excluded portions should be identified from the contract, drawings, bills of quantities and invoices. Where values cannot be separated, a wider amount may be included in the threshold or taxable value.

How is the RM1.5 million threshold calculated?

The threshold test considers the value of taxable construction work services using the historical or future 12-month method. The calculation generally includes taxable work for:

non-residential or commercial buildings;
the taxable portion of mixed developments; and
other taxable construction work services.

Excluded residential construction and related public facilities are not counted as taxable construction work for this purpose. However, supporting documents must clearly show why an amount has been excluded.

Are materials included in the taxable value?

The treatment depends on the contractual arrangement:

Contractor supplies and installs the materials: goods or materials that are permanently constructed or installed and billed as part of the construction work may form part of the value.
Customer buys materials separately: where the customer purchases the materials and the contractor’s contract covers only the work or service fee, the contractor generally taxes the service fee.
Goods and services cannot be separated: the whole construction amount may be taken into account under the approach in RMCD’s guide.

Contract wording, quotations, progress claims and invoices should use consistent descriptions and values.

What about repair and maintenance work?

A separate repair or maintenance contract may fall under the professional repair or maintenance rules in Group G, which can carry a different rate. Work that is part of the construction contract may instead follow the construction treatment. Businesses should review whether the activity is construction, renovation, defect rectification, repair or ongoing maintenance before invoicing.

Government projects and other reliefs

Federal Government, State Government and local authority treatment can differ from ordinary commercial projects. RMCD’s construction FAQ states that these authorities are exempt from paying service tax on construction work services. Contractors should retain the contract, award letter and supporting documents before applying an exemption.

Business-to-business and special-area rules may also apply in prescribed circumstances. These should be tested against the parties’ registration status and the exact service supplied.

Construction SST compliance checklist

Map every active project by residential, non-residential or mixed use.
Calculate taxable construction value using both 12-month threshold methods.
Separate taxable services, excluded work and customer-supplied materials.
Confirm the SST status of the contractor, subcontractor and customer.
Align the contract, bill of quantities, progress claim and invoice descriptions.
Issue SST-compliant invoices and retain project records for seven years.
Review variations, retention sums, defects and maintenance contracts separately.

Related SST guidance

For the wider rules on rates, registration, returns and payment, read HTL’s Malaysia Service Tax Guide 2026. HTL can also assist with SST registration and compliance, project reviews, invoice treatment and return preparation.