Non-Taxable Services in Malaysia: Are Your Services One Of Them?

Published: 5 May 2025

When we talk about Service Tax landscape in Malaysia, most business owners naturally focus on what is taxable.

But understanding what services are non-taxable is just as crucial.

It can impact pricing strategies, compliance obligations, and even decisions about business structure and offerings.

As tax consultants working closely with a wide range of industries, we’ve noticed that misunderstanding service tax exemptions often leads to two consequences: 

1. either overcharging customers (losing the edge of competitiveness) or
2. undercharging (inviting penalties from the Royal Malaysian Customs Department).

This article aims to provide some clarity into non-taxable services in Malaysia—and what they mean for businesses.

🔍 What Are The Non-Taxable Services?

Under the Service Tax Act 2018, only specific prescribed services are subject to service tax. Services not listed under the First Schedule of the Service Tax Regulations, or specifically exempted by the Minister of Finance, are considered non-taxable.

Here’s a breakdown of key non-taxable services that we advise clients on regularly:

✅ 1. Healthcare and Medical Services

Services by registered clinics, hospitals, and medical professionals registered under Private Healthcare Facilities and Services Act 1998 (Act 586) are non-taxable. This includes inpatient and outpatient care, surgeries, diagnostic testing, and dental procedures.

This exemption ensures access to affordable healthcare.

💡Our Take Note Tip:
However, ancillary services—such as valet parking, cafeteria operations, wellness care centre within the hospital but not registered under Act 586 is not exempted from service tax!

Example:
A wellness centre offering vitamin scans or detox testing not licensed under Act 586 — is subject to 8% service tax.

We recommend healthcare providers to review all outsourced contracts to determine their tax treatment.

✅ 2. Educational Services

Education provided by schools, university, training centres and institutions registered with MOE, MOHE, or HRD Corp is service tax exempt.

Example:

A corporate trainer not registered with HRD Corp provides leadership training to company — 8% service tax applies.

💡Our Take Note Tip:
The exemption does not cover all training providers. Many corporate training firms, especially in soft skills or professional development, may be taxable. If you're in the education industry, your registration status with MOE, HRD Corp, or other bodies matters significantly.

✅ 3. Financial and Banking Services

The provision of digital services under item (m) Group G, first Schedule of Service Tax Regulation 2018 in relation to banking and financial services by a local service provider is exempted from Service Tax. Example of services such as online fixed deposit and loan facility.

💡Our Take Note Tip:
While digital banking services is tax exempt, non-core services such as safe deposit rentals, advisory, or outsourced IT support are taxable service. Financial institutions must segregate taxable vs non-taxable service lines for accurate reporting.

✅ 4. Public Transportation and Logistics

Passenger transport via buses, LRT, MRT, and taxis is tax exempt. Freight transport and courier services are more complex.

Logistic services has different taxable rate as follow:

• All mail products remain at 0% SST
• International deliveries remain at 0% SST
• Express delivery below 30kg remain at 6%
• Express delivery above 30kg - increase from 0% to 6%
• Domestic sea parcel - increase from 0% to 6%
• Service for motorcycle delivery - increase from 0% to 6%

The other exemptions include deliveries between and within the Free Trade Zone (FTZ) in Malaysia.

💡Our Take Note Tip:
If you're a logistics company, consider whether your delivery model overlaps with taxable zones. For example, if you are delivering from a FTZ to a non FTZ area (or vice versa) your services are taxable.

Additionally, many business owners who’s nature of business doesn’t fall under delivery or logistics services but provide some form of delivery services, is also subject to service tax.

✅ 5. Childcare and Welfare Services

Registered childcare centres and primary schools under Education Act 1996 are exempt from service tax.

💡Our Take Note Tip:
For businesses providing informal tuition class or enrichment class program that are not registered under Education Act 1996 is not tax exempt. Identifying services for taxable vs non-taxable elements in invoices is key to compliance.

✅ 6. Utilities and Essential Services

Domestic water supply is exempt, and the first 600 kWh of electricity for domestic users is tax exempt.

However, if the utilities are resupply by landlord and management companies in the form of management service, then service tax is applicable.

💡Our Take Note Tip:
If you're leasing office space or managing commercial utilities through providing of management service to the tenant, ensure that the appropriate service tax is passed on or absorbed in your pricing.

🧠 Advice We Give Our Clients (And You Should Know Too)

Understanding which services are non-taxable is more than a compliance exercise—it’s a strategic lever. For businesses:

• Don't assume all services are either fully taxable or exempt—many fall into grey areas.
• Always evaluate how services are bundled or outsourced. The structure of your service offerings can change the tax treatment.
• If in doubt, seek a formal ruling from Customs or consult with a licensed tax advisor.

Need More Help and Advice?

Whether you're a healthcare provider, training company, logistics firm or financial institution, we can help you navigate the service tax landscape. Reach out to us for a consultation!