When to Register and Start Charging Service Tax for Rental or Leasing Services

Published: 22 September 2025

Effective from 1 July 2025, the Royal Malaysian Customs Department (RMCD) has officially brought renovation and construction work into the scope of Service Tax (SST) under the Service Tax Act 2018 and its subsidiary legislation - P.U. (A) 172/2025. This marks a significant shift for contractors, project managers, and entrepreneurs engaging in physical building works.

Previously, many renovation works were not taxable under SST. That has now changed — renovation, construction, and related services are now subject to a 6% SST.

✅ What’s Now Taxable?

Under the Service Tax (Amendment) Regulations 2025 [P.U.(A) 172/2025], the scope of “construction works” includes:

“Construction, extension, installation, repair, renewal, removal, renovation, alteration, dismantling, demolition, or facility maintenance...” of buildings, roads, pipelines, and various infrastructure works.

This applies to both commercial and residential projects performed by taxable persons (contractors, companies, or subcontractors who meet the registration threshold).

🔎 Real-World Scenarios & Case Studies

🏢 Scenario 1: Commercial Renovation of Office Premises

Scenario 1

ABC Sdn Bhd, a trading company, hires a renovation contractor to revamp their Klang Valley office, including installing glass partitions, new flooring, repainting, and rewiring. The contractor is SST-registered under Group L, and the total project value is RM300,000.

✅ SST Treatment:

✅ SST Treatment:

As the renovation works fall under "construction works", the contractor must charge 6% SST on RM300,000. The total SST amounts to RM18,000. ABC Sdn Bhd cannot claim SST input credit, so this becomes a cost to the business.

📌 Key Note: SST registration is mandatory for the contractor if their total taxable services exceed RM 1,500,000 within 12 months, excluding construction work for residential buildings and public facilities related to those residential buildings.

🏠 Scenario 2: Residential Renovation for a Landlord

Scenario 2

Mr. Lim owns a residential property in Penang and engages a contractor to renovate his business rental apartment (kitchen, bathrooms, tiling, painting). The contractor’s annual taxable revenue exceeds RM 1,500,000 and he is SST-registered.

✅ SST Treatment:

Although the renovation is for a residential unit, the service provider is still required to charge 6% SST under the construction service category, unless the work is specifically exempted (e.g. performed by a non-taxable person).

💡 Important: The tax is imposed based on the nature of the service and the contractor’s SST status, not the type of property (residential vs commercial).

🧾 Who Needs to Register?

Contractors must register for SST if:

• Their total taxable turnover for construction/renovation exceeds RM 1,500,000 in any 12-month period.
• Voluntary registration is also available under Section 14 of the Service Tax Act 2018.

💡 Summary for Entrepreneurs

• ✅ Construction and renovation services are taxable at 6% SST
• 🧾 Applies to both commercial and residential property works
• 📅 Effective from 1 July 2025
• 💰 SST is a final cost — no input tax credit like GST
• 🔍 Check if your contractor is SST-registered

⚠️ Need Help?

YYC’s tax professionals are ready to guide your business through this SST expansion with:

• ✅ SST Registration & Readiness Review
• ✅ SST Classification of Goods & Services, & B2B exemption/ intragroup relief
• ✅ Custom ruling / Sales tax exemption application
• ✅ Internal SST Training for Finance Team
• ✅ Ongoing SST Compliance Consultation

Book a consultation with YYC today and ensure your business is 100% SST-ready.