Implementation of Service Tax (SST) on Rental and Leasing Services — Effective 1 July 2025
1. SST Applicable to Rental & Leasing at 8%
As of 1 July 2025, rental and leasing services are subject to an 8% Service Tax (SST) under Group K of the Service Tax Regulations 2018.
This includes commercial rentals such as office space, machinery, vehicles, warehousing, equipment rentals, etc.
2. Registration Threshold Revised Upwards
The previous threshold of RM 500,000 annual taxable turnover has been raised to RM 1,000,000. Businesses must register once they exceed this in the last 12 months.
3. Scope of Taxable Services
Included:
- Leasing of tangible assets within Malaysia, including bundled services like maintenance.
Exemptions:
- Residential property rentals (e.g., homes, apartments) remain SST-free.
- Rental of reading materials, assets located outside Malaysia, financial leases, and rental or leasing of goods used within or between Free Industrial Zones (FIZ) or Licensed Manufacturing Warehouses (LMW).
Exemptions & Special Reliefs under Service Tax Policy No. 2/2025 (Issued 29 June 2025)
Effective 1 July 2025, the following supports are available:
1. Penalty Relief (until 31 December 2025)
Exemption from compound, prosecution, and penalties for offences such as late registration, late filing, late SST payments, incorrect declarations, errors in invoices or credit/debit notes—unless the issue involves fraud or intentional wrongdoing. A remission application must be submitted in due form.
2. Exemption for Government Entities
- The Federal and State Governments are fully exempt from charging and paying SST.
- Local Authorities (PBT) are exempt only from 1 July to 30 September 2025; from 1 October onwards, SST applies on services provided to or by them.
3. Non-Reviewable Contracts
If a rental or lease contract is non-reviewable (i.e. it contains no price-revision or value-adjustment clause) and was signed, dated, and stamped by LHDN on or before 9 June 2025, with fixed value and clear written terms, it will be exempt from Service Tax from 1 July 2025 to 30 June 2026. SST shall apply from 1 July 2026 onwards.
4. SME Tenant Exemption
Rental services provided to Small & Micro Enterprises (SMEs) (defined as annual sales not exceeding RM 1,000,000) are exempt, provided the SME registers/declaration via the MyPMK system. They must annually update their sales data, and incorrect declarations may trigger SST recovery.
5. Group Relief
Rental or leasing services among companies within the same corporate group may be exempt, subject to control/shareholding conditions and limits (e.g., not exceeding 5% of such services outside the group). Eligible entities must meet specific definitions and thresholds.
Quick Summary Table
| Aspect | Details |
| Effective Date | 1 July 2025 |
| SST Rate | 8% on rental and leasing services |
| Threshold for Registration | RM 1,000,000 annual taxable turnover |
| Exemptions | Residential rentals, reading materials, assets outside Malaysia, financial leases, special zones |
| SME Tenant Relief | Available if annual sales ≤ RM 1M and registered via MyPMK |
| Non-Reviewable Contracts | Exempt until 30 June 2026 if signed before 9 June 2025 and conditions met |
| Government Exemptions | Federal & State FULL exempt |
| Local Authorities Exemptions | Local authorities exempt until 30 Sept 2025. From 1 October 2025 onwards, rental/leasing services provided to or by local authorities are subject to 8% SST |
| Penalty Relief | Relief available until 31 December 2025 for certain administrative infractions |
| Group Relief | Applies for intra-group rentals under certain conditions |
Reference Link
GUIDE ON: RENTAL OR LEASING SERVICES
https://mysst.customs.gov.my/assets/document/Industry%20Guides/GI/5.%20GUIDE%20ON%20RENTAL%20OR%20LEASING%20SERVICES.pdf
SERVICE TAX POLICY NO. 2/2025
https://mysst.customs.gov.my/assets/document/Service%20Policy/STP%202-2025%20(Rental%20or%20Leasing).pdf
