Expanding SST Horizons: Malaysia’s 2025 Service Tax Updates Across Key Sectors - THK Management Advisory Sdn Bhd

As part of Malaysia's effort to enhance revenue collection and align with current economic developments, the Royal Malaysian Customs Department (RMCD) has announced new guidelines for Service Tax (SST) affecting five major sectors: Construction Work, Rental/Leasing Services, Education Services, Private Health-related Services, and Financial Services. These changes will come into effect starting 1 July 2025. Here's a comprehensive overview for businesses and individuals impacted by the updated tax regime.

📅 Effective Dates

1 July 2025: Construction, Rental, Education, Financial (Phase 1), and Health-related services become subject to SST.
1 August 2025: Health-related services – transitional period begins.
1 September 2025: Financial Services Phase 2 expansion.

📊 Key SST Rates and Registration Thresholds

Sector	SST Rate	Registration Threshold
Construction	6%	RM1.5 million/year
Rental/Leasing	8%	RM500,000/year
Education	6%	RM60,000 per student/year
Private Health Services	6%	RM1.5 million/year
Financial Services	8%	RM500,000/year (except card fees)

🔹 Construction Services
Taxable:

Commercial buildings, infrastructure, ports, mixed-use developments
Facility management during construction

Not Taxable:

Pure residential construction
Federal/State government and local authority projects

Other Notes:

Retention sums: taxable when released
Liquidated damages (LAD): not taxable
B2B exemption if subcontractor and contractor are registered
Transitional rules for ongoing projects

🔹 Rental and Leasing Services
Taxable:

Commercial property rental, machinery, vehicles
Import of lease services

Not Taxable:

Residential property
Financial leases, hire-purchase
Offshore leasing

Exemptions:

B2B exemption (subleasing use)
Fixed-term or low-value contracts (< RM500k/year)

🔹 Education Services
Taxable:

Private institutions charging > RM60,000/year per student
Higher education and language centres serving non-Malaysians

Not Taxable:

Malaysian citizens, OKU holders
Preschool and special needs education
Short courses (under 3 months/20 hours)

Note: Imported education services are taxable; scholarships do not exempt the institution from tax if fees exceed the threshold.

🔹 Private Health-Related Services
Taxable:

Services to non-Malaysians in:
- Private hospitals and clinics (medical, dental, ambulance, etc.)
- Traditional/complementary medicine (e.g., Malay, Chinese, Indian, chiropractic)
- Allied health (e.g., physiotherapy, radiography, psychology)

Not Taxable:

Services to Malaysian citizens
Services by public hospitals and exempt university medical centres

Other Notes:

Service tax applies where service is rendered to foreigners
Location rules: services within/between Designated or Special Areas may be exempt
Transitional guidance applies for services crossing 1 August 2025

🔹 Financial Services
Taxable (Phase 1 - 1 July 2025):

Loan/credit facilities, Islamic financing
Insurance and takaful (certain policies)
Investment advice, fund management, brokerage, underwriting

Expanded Scope (Phase 2 - 1 Sept 2025):

Fee-based financial services not explicitly listed

Not Taxable:

Interest/profit from loans
Late payment charges
Basic banking (ATM, account maintenance)
Services linked to exports, offshore assets
Intra-group transactions
Services to the Government

Imported Services:

Malaysian businesses receiving services from overseas must self-account for tax

📣 What Businesses Should Do

Review all services provided against SST thresholds
Register via MySST if thresholds are exceeded
Issue tax invoices with correct tax codes
Apply for exemptions (B2B, government, residential, special areas)
Comply with transitional rules and maintain proper accounting

📖 Final Thoughts
The new SST measures reflect a significant evolution in Malaysia's tax framework, impacting a wide range of industries. Whether you're in construction, education, leasing, finance, or healthcare, understanding your obligations is crucial. Timely registration and record-keeping will be essential to ensure compliance and avoid penalties when these changes come into force starting 1 July 2025.

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