Following the expansion of the Service Tax (SST) scope from 1 July 2025 to include construction, rental and leasing of movable and immovable property, education, healthcare, and financial services, the Royal Malaysian Customs Department (RMCD) has released four revised Service Tax Policies (STPs) dated 17 October 2025.
These updates provide wider exemptions and transitional relief for affected sectors.
Below are the key highlights 👇
1. Construction Works
Non-Reviewable Contracts
- Exemption timeline now covers contracts stamped by LHDN before 31 December 2025, provided the contract was signed before 1 July 2025 and conditions are met.
- The same timeline applies for Variation Orders (VOs) and Extensions of Time (EoT).
- Exemption applies only for the period 1 July 2025 – 30 June 2026.
Mixed Development Projects
- Construction relating to residential buildings within mixed developments is exempt, subject to specific conditions and apportionment of shared facility costs.
Design & Build Contracts
- B2B exemption now applies to consultancy services when provided under a single, integrated contract by the main contractor to the developer or landowner.
Refunds
- Businesses may claim refunds for July and August 2025 relating to B2B exemptions.
2. Rental and Leasing Services
Intragroup Relief
- Clarified to include imported rental and leasing services for both movable and immovable properties.
Refunds
- Eligible B2B refund claims are allowed for July and August 2025.
Non-Reviewable Contracts
- Cut-off date for stamping to qualify for exemption remains 9 June 2025.
3. Education Services (Including Higher Education)
Diplomatic Dependents
- Exemption applies to education services provided to children or dependents of foreign diplomats, with a confirmation letter from the Ministry of Foreign Affairs.
Sponsored Education Fees
- Exemption applies where tuition fees or service charges are fully sponsored by educational institutions, foundations, corporations, or other approved entities.
4. Financial Services
- The blanket exemption previously granted for financial services expired on 30 September 2025.
- B2B exemption scope expanded to include reinsurance services related to non-taxable insurance lines — namely medical, life, and family takaful policies.
- Effective 17 October 2025, this ensures no hidden service tax costs are embedded in premiums for policies that are otherwise exempt.
Implementation Considerations
Although these STPs were published on 17 October 2025, the effective date for most exemptions remains 1 July 2025.
Businesses should:
- Review past invoices and consider issuing credit notes where applicable.
- Reassess SST-02 filings to reflect the impact of these exemptions.
- Conduct a comprehensive SST impact assessment before taking corrective actions, especially to manage stakeholder communications and compliance exposure.
Hernancres Insight
With the Service Tax landscape evolving rapidly, proactive compliance is key. Businesses should reassess their contract terms, tax positions, and documentation to ensure smooth transition under the new SST framework — and avoid unintended tax exposures.
