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Service Tax to Cover Rental and Leasing Services Starting 1 July 2025

Updated: 2 days ago

(Revised on 01 July 2025)


The Royal Malaysian Customs Department issued a Guide on Rental or Leasing Services on 9 June 2025. Effective 1 July 2025, rental and leasing services will be subject to 8% service tax under the newly added Group K, Service Tax Regulations 2018.

 

General Scope of Rental or Leasing Services

a. Any person providing rental and leasing services prescribed under Group K, First Schedule of the Service Tax Regulations 2018, with a value exceeding the threshold of RM1,000,000 per annum (revised on 27 June 2025), must register under the Service Tax Act 2018 and charge the applicable service tax.


b. Rental or leasing services provided to the Federal Government, State Governments, and Local Authorities are exempt from service tax.


c. “Rental or leasing” means granting the right to use a tangible asset from one party to another for a specific period, based on either a written or verbal agreement.


d. Rental or leasing services include agreements where a tangible asset located in Malaysia is rented or leased by a lessor to a lessee for a defined period.


Examples of Taxable Rental and Leasing Services

  1. Commercial building space rental (e.g., offices, shop lots, retail space, SOFO).

  2. Printer/equipment leasing (e.g., laptops, printers, photocopiers, machinery).

  3. Rental/leasing that includes maintenance, repair, or other bundled services (e.g., laptop rental with support, building rental with maintenance management fees).

  4. Passenger vehicle rental services (including hire and drive car services, charter bus services, and excursion bus services).

  5. Leasing of animals or plants (e.g. horses for events).

  6. Leasing of movable assets located in Malaysia to overseas customers (e.g., a Malaysian company leasing its harvesters to a company based in Thailand)

  7. Imported rental of tangible assets (e.g., renting a tunnel boring machine in Malaysia from a Singapore company is subject to service tax as an imported service, with the Malaysian service recipient required to account for and pay the tax to the RMCD under the reverse charge mechanism.

  8. Subleasing/Subletting of taxable assets.



The following services are exempt from service tax (non-exhaustive)

Exemption Type

Description

Housing accommodation

Rentals of residential properties, including SOHO, and serviced condominiums, and suites.

Reading materials

Rental of books, magazines, and periodicals.

Overseas assets

Leasing of assets located entirely outside Malaysia (e.g. a Malaysian company leasing its harvester machine located in Thailand to a Thailand company).

Finance lease

Leases where ownership transfers at the end of the lease (e.g. vehicle hire purchase contracts).

B2B sublease (peer-to-peer exemption)

Subleasing between Group K registered businesses.

Micro-SME tenants

Tenants with annual revenue below RM 1,000,000.

Non-reviewable contracts

Exemption from the payment of service tax for a period of 1 year from the effective date, subject to prescribed conditions.

Designated areas

Providing rental or leasing services between or within Special Areas or Designated Areas and between Special Areas and Designated Areas.*

Group relief

Rental or leasing services provided by one company to another company within the same group.

*"Designated area" means Labuan, Langkawi, Tioman, Pangkor, and Pulau 1 [Section 2, Service Tax Act 2018].

*"Special area" means any free zone, licensed warehouse and licensed manufacturing warehouse, Joint

Development Area, and licensed petroleum supply base under section 77B of the Customs Act 1967 [Section 2,

Service Tax Act 2018]


Registration and Responsibilities of Registered Persons

Rental or leasing service providers that exceed the threshold must register under the Service Tax Act 2018. Registered persons must:

  • Charge service tax on taxable services.

  • Issue invoices and receipts as required.

  • Submit service tax returns and pay tax on time.

  • Keep service tax records for 7 years.

Existing registrants providing other taxable services must update their registration to include Group K if offering rental or leasing services.


Impact Assessment

We advise our clients to undertake an impact assessment of the recent SST expansions to rental, leasing, and related services to evaluate how these changes may affect their business operations. This should include a review of existing and upcoming service and supply contracts, as well as current pricing strategies, to ensure compliance and manage cost implications. We also encourage clients to monitor revenue from these taxable services closely, as exceeding the prescribed threshold may trigger the need to register with the Royal Malaysian Customs Department (RMCD). Proactive planning will help mitigate risks, avoid penalties, and support smooth compliance with the new requirements.

 

Updates and Clarifications

At the time of writing, the government is considering appeals and suggestions from various stakeholders and affected parties, with clarifications still pending in certain areas of uncertainty. Readers are advised to refer to the Royal Malaysian Customs Department for the latest official updates.


Reference




Disclaimer: Every effort has been made to provide accurate information. However, the information and regulations contained in this article are subject to changes and amendments by the relevant authority at any time. As such, the information in this article may not be current.

And the information provided in this article is general commentary only and shall not be considered as advice or recommendation. As all tax situations are specific to their facts and will differ from the situations in this article - if you have specific tax questions you should consult a licensed tax agent.


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