<b>EFFECTIVE</b> July 1, 2025, rental and leasing <span style="font-size: 0.875rem;">services have become subject to an 8% service </span><span style="font-size: 0.875rem;">tax under Group K, First Schedule of the </span><span style="font-size: 0.875rem;">Service Tax Regulations (STR) 2018. This </span><span style="font-size: 0.875rem;">marks a significant expansion of the service </span><span style="font-size: 0.875rem;">tax regime, impacting a wide range of </span><span style="font-size: 0.875rem;">businesses engaged in leasing or renting </span><span style="font-size: 0.875rem;">tangible assets in Malaysia.</span><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;"><b>Who is affected</b></span><div>All persons providing rental or leasing <span style="font-size: 0.875rem;">services, excluding the federal government, </span><span style="font-size: 0.875rem;">state governments and local authorities, will </span><span style="font-size: 0.875rem;">be liable for service tax once their annual </span><span style="font-size: 0.875rem;">taxable turnover exceeds the registration </span><span style="font-size: 0.875rem;">threshold. The threshold, initially set at </span><span style="font-size: 0.875rem;">RM500,000, has now been revised upward to </span><span style="font-size: 0.875rem;">RM1 million over a 12-month period.</span></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">Rental or leasing services refer to any </span><span style="font-size: 0.875rem;">arrangement (written or verbal) in which one </span><span style="font-size: 0.875rem;">party grants another the right to use a tangible </span><span style="font-size: 0.875rem;">asset for a specified period.</span></div><div><br></div><div><b>What services are taxable</b></div><div>Taxable rental and leasing services include <span style="font-size: 0.875rem;">renting or leasing tangible assets located in </span><span style="font-size: 0.875rem;">Malaysia to both local and overseas </span><span style="font-size: 0.875rem;">customers; providing rental services that </span><span style="font-size: 0.875rem;">include maintenance, repairs or other related </span><span style="font-size: 0.875rem;">services; rental of animals or plants; </span><span style="font-size: 0.875rem;">importing rental or leasing services from </span><span style="font-size: 0.875rem;">overseas and operating leases.</span></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">The list is not exhaustive and covers any </span><span style="font-size: 0.875rem;">rental or leasing service integral to the </span><span style="font-size: 0.875rem;">arrangement between a registered person and </span><span style="font-size: 0.875rem;">their customer.</span></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;"><b>What services are not taxable</b></span></div><div>The following rental or leasing services fall <span style="font-size: 0.875rem;">outside the scope of service tax, namely, </span><span style="font-size: 0.875rem;">rental or leasing of housing accommodations </span><span style="font-size: 0.875rem;">(e.g. terrace houses, apartments, bungalows, </span><span style="font-size: 0.875rem;">condominiums, serviced suites, etc.); rental of </span><span style="font-size: 0.875rem;">reading materials; rental or leasing of assets </span><span style="font-size: 0.875rem;">located outside Malaysia; rental or leasing </span><span style="font-size: 0.875rem;">services between special areas or designated </span><span style="font-size: 0.875rem;">areas (e.g. free zones); financial leasing </span><span style="font-size: 0.875rem;">services, which involve the transfer of asset </span><span style="font-size: 0.875rem;">ownership at the end of the lease.</span></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;"><b>Exemptions</b></span></div><div>Several exemptions are available under the <span style="font-size: 0.875rem;">revised framework:</span></div><div><ul><li><span style="font-size: 0.875rem;">Government-related Services: The federal </span><span style="font-size: 0.875rem;">government and state governments are </span><span style="font-size: 0.875rem;">exempted from both charging and paying </span><span style="font-size: 0.875rem;">service tax. Local authorities are also granted </span><span style="font-size: 0.875rem;">an exemption from charging and paying </span><span style="font-size: 0.875rem;">service tax, but only for the period from July </span><span style="font-size: 0.875rem;">1, 2025 to Sept 30, 2025. Effective Oct 1, 2025, </span><span style="font-size: 0.875rem;">any services provided or acquired by local </span><span style="font-size: 0.875rem;">authorities will be subject to service tax.</span></li><li><span style="font-size: 0.875rem;">Business-to-Business (B2B) Subleasing: </span><span style="font-size: 0.875rem;">Under the Service Tax Order (Persons </span><span style="font-size: 0.875rem;">Exempted from Payment of Tax) 2018, </span><span style="font-size: 0.875rem;">registered persons under Group K who sublet </span><span style="font-size: 0.875rem;">or sublease the same type of taxable service </span><span style="font-size: 0.875rem;">(not for personal use) may qualify for </span><span style="font-size: 0.875rem;">exemption, provided certain conditions are </span><span style="font-size: 0.875rem;">met. Where the premises are sublet or </span><span style="font-size: 0.875rem;">sublease partially, the exemption applies </span><span style="font-size: 0.875rem;">solely to the sublet or sublease portion. In </span><span style="font-size: 0.875rem;">cases where no sublet or sublease takes place </span><span style="font-size: 0.875rem;">during a taxable period, the business must </span><span style="font-size: 0.875rem;">self-account and declare the service tax </span><span style="font-size: 0.875rem;">accordingly.</span></li><li><span style="font-size: 0.875rem;">Micro and Small Enterprises: Businesses </span><span style="font-size: 0.875rem;">with an annual turnover below RM1 million </span><span style="font-size: 0.875rem;">renting from registered persons may enjoy an </span><span style="font-size: 0.875rem;">exemption, subject to specified conditions. </span><span style="font-size: 0.875rem;">One key condition is that the tenant must </span><span style="font-size: 0.875rem;">submit a declaration and register via the </span><span style="font-size: 0.875rem;">MyPMK system developed by the Royal </span><span style="font-size: 0.875rem;">Malaysian Customs Department (RMCD). </span><span style="font-size: 0.875rem;">[Subsection 34(3) Service Tax Act (STA) 2018]</span></li><li><span style="font-size: 0.875rem;">Non-reviewable Contracts (contracts </span><span style="font-size: 0.875rem;">without price revision clause): Exemption for </span><span style="font-size: 0.875rem;">a transitional period of one (1) year [July 1, </span><span style="font-size: 0.875rem;">2025 to June 30, 2026], subject to prescribed </span><span style="font-size: 0.875rem;">conditions. Services provided from July 1, </span><span style="font-size: 0.875rem;">2026 onwards are subject to service tax. </span><span style="font-size: 0.875rem;">[Subsection 34(3) STA 2018]</span></li><li><span style="font-size: 0.875rem;">Group Relief: Rental or leasing services </span><span style="font-size: 0.875rem;">provided by one company to another within </span><span style="font-size: 0.875rem;">the same corporate group may qualify for </span><span style="font-size: 0.875rem;">group relief, whereby such services are </span><span style="font-size: 0.875rem;">exempted from service tax, subject to </span><span style="font-size: 0.875rem;">conditions.</span></li><li><span style="font-size: 0.875rem;">Exemption from Compound, Prosecution </span><span style="font-size: 0.875rem;">and Penalty (until Dec 31, 2025): </span><span style="font-size: 0.875rem;">Businesses may be eligible for an </span><span style="font-size: 0.875rem;">exemption from compound, prosecution and </span><span style="font-size: 0.875rem;">penalty for certain offences committed up to </span><span style="font-size: 0.875rem;">Dec 31, 2025. The offences covered under this </span><span style="font-size: 0.875rem;">exemption include late registration, late </span><span style="font-size: 0.875rem;">submission of returns, late payment, incorrect </span><span style="font-size: 0.875rem;">declarations (such as under-declaration or </span><span style="font-size: 0.875rem;">underpayment), as well as errors related to </span><span style="font-size: 0.875rem;">invoices, credit notes or debit notes. This </span><span style="font-size: 0.875rem;">exemption is subject to specific conditions.</span></li></ul></div></div><div><br></div><div><b>Transitional provisions</b></div><div>For lease or rental agreements spanning <span style="font-size: 0.875rem;">before and after July 1, 2025, only the portion </span><span style="font-size: 0.875rem;">of services provided from July 1, 2025 </span><span style="font-size: 0.875rem;">onwards will be subject to service tax. </span><span style="font-size: 0.875rem;">Advance payments made prior to this date for </span><span style="font-size: 0.875rem;">post- July 1, 2025 services will not be taxed.</span></div><div><br></div><div><b>Administrative responsibilities</b></div><div>For new registrants, total taxable turnover <span style="font-size: 0.875rem;">must be assessed over a rolling 12-month </span><span style="font-size: 0.875rem;">period (current month and next 11 months). If </span><span style="font-size: 0.875rem;">the total exceeds RM1 million, registration is </span><span style="font-size: 0.875rem;">mandatory by the end of the following month.</span></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">Registered persons must charge and </span><span style="font-size: 0.875rem;">collect service tax on taxable services; issue </span><span style="font-size: 0.875rem;">invoices as prescribed under the STA 2018; </span><span style="font-size: 0.875rem;">submit SST-02 returns electronically and pay </span><span style="font-size: 0.875rem;">service tax by the due date; maintain proper </span><span style="font-size: 0.875rem;">records for seven years.</span></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">Those already registered under other </span><span style="font-size: 0.875rem;">taxable services must update their registration </span><span style="font-size: 0.875rem;">to include Group K (rental or leasing </span><span style="font-size: 0.875rem;">services).</span></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;"><b>Accounting for service tax</b></span></div><div><span style="font-size: 0.875rem;">Service tax must be accounted for upon </span><span style="font-size: 0.875rem;">receiving payment; or after 12 months from </span><span style="font-size: 0.875rem;">the date of service provision if payment is not </span><span style="font-size: 0.875rem;">received, whichever comes first.</span></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">For imported services, tax is due upon </span><span style="font-size: 0.875rem;">receipt of invoice or payment made, </span><span style="font-size: 0.875rem;">whichever occurs earlier.</span></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;"><b>Sector-specific changes</b></span></div><div><span style="font-size: 0.875rem;">Several key updates have been made to </span><span style="font-size: 0.875rem;">rental-related services across different </span><span style="font-size: 0.875rem;">categories:</span></div><div><ul><li><span style="font-size: 0.875rem;">Rental of Space: Effective July 1, 2025, </span><span style="font-size: 0.875rem;">rental of space previously under Group B has </span><span style="font-size: 0.875rem;">now been reclassified under Group K.</span></li><li><span style="font-size: 0.875rem;">Passenger Vehicle Rentals: Services such as </span><span style="font-size: 0.875rem;">hire and drive car rentals, charter bus services </span><span style="font-size: 0.875rem;">and excursion bus services, previously under </span><span style="font-size: 0.875rem;">Group I, will also fall under Group K.</span></li><li><span style="font-size: 0.875rem;">Licensing Requirements Removed: </span><span style="font-size: 0.875rem;">Effective July 1, 2025, the requirement to be </span><span style="font-size: 0.875rem;">licensed under the Land Public Transport Act </span><span style="font-size: 0.875rem;">2010, the Commercial Vehicles Licensing </span><span style="font-size: 0.875rem;">Board Act 1987 or the Tourism Vehicles </span><span style="font-size: 0.875rem;">Licensing Act 1999 is no longer a condition for </span><span style="font-size: 0.875rem;">liability to register. Any person providing hire </span><span style="font-size: 0.875rem;">and drive car services, charter bus services or </span><span style="font-size: 0.875rem;">excursion bus services must register for </span><span style="font-size: 0.875rem;">service tax if the value of such services </span><span style="font-size: 0.875rem;">exceeds the prescribed threshold.</span></li><li><span style="font-size: 0.875rem;">Hire Car Services: These will no longer be </span><span style="font-size: 0.875rem;">considered taxable services effective July 1, </span><span style="font-size: 0.875rem;">2025.</span></li></ul></div><div><br></div><div><b>Additional clarifications</b></div><div><ul><li><span style="font-size: 0.875rem;">Refundable Deposits: Not subject to service </span><span style="font-size: 0.875rem;">tax unless it forms part of the payment.</span></li><li><span style="font-size: 0.875rem;">Penalties for Late Payment of Rental: These </span><span style="font-size: 0.875rem;">are not considered a provision of taxable </span><span style="font-size: 0.875rem;">services and therefore not subject to service tax.</span></li></ul></div><div><br></div><div><b>What businesses should do</b></div><div>Businesses involved in rental or leasing <span style="font-size: 0.875rem;">services should reassess their taxable </span><span style="font-size: 0.875rem;">turnover in light of the revised RM1 million </span><span style="font-size: 0.875rem;">threshold. Those meeting the criteria must </span><span style="font-size: 0.875rem;">register under the STA 2018 and begin </span><span style="font-size: 0.875rem;">complying with invoicing, filing and payment </span><span style="font-size: 0.875rem;">obligations.</span></div>

<span style="font-size: 0.875rem;"><i>Technical Insights by <b>Pugaleshwaran Raja Kumaran</b>, Executive Director, Tax and <b>Steffi Manisha Arokiam</b>, Tax Director at ThinkTx</i></span><div><span style="font-size: 0.875rem;"><i><br></i></span></div><div><span style="font-size: 0.875rem;"><b>Featured in The Sun (Biz &amp; Finance section)</b></span></div>

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Clearing Doubts on Rental and Leasing Service Tax