Complete guide to Sales and Service Tax — rates, registration thresholds, the 1 July 2025 expansion, and 2026 enforcement reality
Updated: April 2026 · Last verified: April 2026 · By Horizon Hub Consulting
Malaysia’s SST framework underwent its most significant expansion in years on 1 July 2025 — bringing rental and leasing services, financial services, private healthcare (for non-citizens), private education (for international students), construction, and several other sectors into the Service Tax net for the first time. The grace period for new entrants ended on 31 December 2025. From 1 January 2026, full enforcement applies with penalties for non-compliance.
For foreign-owned companies operating in Malaysia, SST is one of the most common sources of unexpected compliance risk. Many assume that serving overseas clients exempts them from SST, or that their industry is not taxable. These assumptions are wrong more often than they are right.
| Critical 2026 update — what changed from the original article |
| 1 July 2025 expansion: Rental/leasing services (commercial property) now subject to 8% Service Tax (later reduced to 6% for some categories — see BDO/RMCD update January 2026); financial services 8% from July 2025; private healthcare for non-citizens 6%; private education for international students 6%; construction works at 3% |
| Grace period has ended: The penalty-free adjustment window that ran to 31 December 2025 is over. As of 1 January 2026, full penalties apply for non-registration and non-compliance. |
| e-Invoicing now mandatory: From 1 January 2026 (RM 1M–5M revenue), all invoices including SST-inclusive invoices must go through LHDN’s MyInvois portal. Invoices in foreign currency must include a currency exchange rate element (effective September 2025). |
| Title updated: This guide now covers 2026 requirements. The 8% rate referenced in the original title remains current for most services. |
1. What Is SST? How It Works
SST (Sales and Service Tax) is Malaysia’s indirect tax on goods and services. It replaced the Goods and Services Tax (GST) in September 2018. Unlike GST, which was a multi-stage tax with input tax credits, SST is a single-stage tax — it is charged once, either at manufacture/import (Sales Tax) or at the point of providing a taxable service (Service Tax).
| Component | What it taxes | Rates | Who pays | Collection agent |
| Sales Tax | Taxable goods manufactured in Malaysia or imported | 5% or 10% depending on goods type | Consumer bears the cost | Manufacturer (for local goods); customs (at import) |
| Service Tax | Specific taxable services listed in the Service Tax Regulations 2018 | 8% (most services) or 6% (selected essential services); RM 25/card/year (credit/charge cards) | Consumer bears the cost | Registered service provider (business) |
| SST is activity-based, not company-based |
| Whether you must register for and collect SST depends on what your company does, not just who owns it or where clients are located. |
| A foreign-owned company providing taxable services from Malaysia to overseas clients may still be required to register for Service Tax once the RM 500,000 threshold is exceeded — the client’s location is not the determining factor. |
| Source: Service Tax Act 2018; RMCD official guidance. |
2. Service Tax Rates — Full 2026 Schedule
These are the current Service Tax rates applicable in 2026, including all changes introduced from 1 July 2025:
| Service category | Rate (2026) | Registration threshold | Notes |
| Most taxable professional services (consulting, advisory, IT, marketing, management) | 8% | RM 500,000/year taxable turnover | Standard rate since March 2024; no change from 2025 |
| Food and beverage services | 6% | RM 500,000/year | Applies to restaurants, cafes, cloud kitchens, catering |
| Telecommunications services | 6% | RM 500,000/year | Mobile, internet, cable services |
| Parking space provision | 6% | RM 500,000/year | Commercial parking operators |
| Logistics and freight forwarding | 6% | RM 500,000/year | Core logistics/freight activities |
| Rental and leasing of commercial property (new from 1 July 2025) | 8% initially; reduced to 6% for certain categories per RMCD January 2026 guidance | RM 1,000,000/year (higher threshold for this category) | Transitional rules for existing contracts; group relief available; small enterprise exemption (< RM 1M turnover) |
| Financial services (banks, insurance, capital markets) — new from July/Oct 2025 | 8% | N/A — applies to regulated financial service providers | Phased implementation: Phase 1 July 2025, Phase 2 October 2025; extensive exemptions for B2G and certain Islamic finance |
| Private healthcare for non-citizens (new from 1 July 2025) | 6% | RM 500,000/year | Applies to private hospitals, specialist clinics for foreign patients |
| Private education for international students (new from 1 July 2025) | 6% | RM 500,000/year | Applies to private schools, universities, education institutions serving international students |
| Construction works (new from 1 July 2025, reduced from original 6%) | 3% | RM 500,000/year | Applies to construction services; rate reduced to 3% per Budget 2026 |
| Credit card and charge card services | RM 25/card/year | N/A — per card basis | Unchanged |
3. Sales Tax Rates and Scope
Sales Tax applies to taxable goods manufactured in Malaysia or imported — it is not a service tax. Most foreign-owned service companies do not need to worry about Sales Tax unless they manufacture or import physical goods.
| Sales Tax rate | What it covers |
| 10% | Standard rate for most taxable goods — electronics, household goods, luxury items, non-essential consumer products |
| 5% | Selected goods — construction materials (some categories), certain food items, petroleum-related goods, and additional goods added July 2025 |
| 0% / Exempt | Essential goods: rice, vegetables, chicken, fish, eggs, local fish, medicines, books, basic building materials; exported goods |
| July 2025 Sales Tax changes |
| From 1 July 2025, additional goods were brought into the Sales Tax net or had rates adjusted: |
| • Certain imported fruits (apples, oranges, mandarin oranges, dates) — 5% (added following public feedback; some initially at 10% then revised) |
| • Premium seafood, racing bicycles, antique artworks — added/revised rates |
| • New 5% Sales Tax on certain construction materials |
| Essential goods (rice, chicken, local fish, medicines) remain exempt. |
| Source: RMCD; ClearTax Malaysia SST guide, February 2026. |
4. Registration Thresholds and How to Register
Service Tax registration threshold
RM 500,000 in annual taxable turnover (for most taxable service categories). Note: the rental and leasing category has a higher RM 1,000,000 threshold.
Important: Once you exceed the threshold, registration must be completed within 30 days. Failure to register on time can result in backdated SST assessments from the date you should have registered, plus penalties.
| Registration type | Threshold | Portal | Processing time | Note |
| Service Tax | RM 500,000/year (most services); RM 1,000,000/year (rental/leasing) | MySST portal: mysst.customs.gov.my | Registration effective immediately upon submission | Assessment uses rolling 12-month method (current month + next 11 months for forward assessment) |
| Sales Tax (manufacturer) | No general turnover threshold — applies when you manufacture taxable goods | MySST portal | Immediate | Separate registration from Service Tax |
| Sales Tax (importer) | At point of import — no separate registration needed | RMCD Customs declaration at import | N/A | Tax paid to customs at time of import; not a separate registration obligation |
How to register
- Go to the MySST portal at mysst.customs.gov.my
- Create an account and complete the registration form with: company registration number, business activity description, taxable service categories, expected annual taxable turnover
- Upon submission, receive an SST registration number immediately
- Registration effective date is the date you exceeded the threshold, not the date of registration
5. SST by Industry — What Your Business Owes
This is the most practical section for foreign-owned companies. Use your industry to determine your SST obligations:
| Business type | Service Tax? | Rate | Common mistake to avoid |
| Management / business consulting | Yes (once RM 500,000 threshold exceeded) | 8% | Assuming overseas clients exempt you — wrong. If services are rendered FROM Malaysia, SST applies regardless of client location |
| IT services and software development | Partially — custom software often not taxable; SaaS, IT consulting, digital marketing, system integration are taxable | 8% where applicable | Assuming MDEC / MD Status exempts you from SST — it does not |
| Custom software development (bespoke) | Generally not taxable — treated as work product, not a service | N/A | Incorrectly classifying ongoing support/maintenance as non-taxable |
| SaaS / subscription platforms | Generally taxable | 8% | Not registering because clients are overseas — subscription platforms serving Malaysian users are taxable |
| Digital marketing services | Taxable | 8% | Treating offshore billing as non-taxable |
| Education (MOE-licensed) | Often exempt for local students; 6% for international students (from July 2025) | 6% (international); exempt (local) | Not distinguishing between local and international student revenue after July 2025 |
| Corporate training and short courses | Generally taxable | 8% | Assuming MOE licensing exempts training from SST |
| F&B (restaurant, cafe, cloud kitchen) | Yes | 6% | Applying 8% instead of 6% |
| Logistics and freight forwarding | Yes (core freight activities) | 6% | Incorrectly applying 8% to logistics |
| Commercial property rental (as landlord) | Yes (from 1 July 2025) | 8% (some categories reduced to 6% per Jan 2026 RMCD guidance) | Not registering if rental turnover exceeds RM 1,000,000 |
| Private healthcare (serving foreigners) | Yes (from 1 July 2025) | 6% | Not identifying that foreign patient revenue is now taxable |
| Construction services | Yes (from 1 July 2025) | 3% (reduced from 6% under Budget 2026) | Applying 6% instead of 3% for construction |
| Import/export (physical goods trading) | Sales Tax at customs for imports; export generally 0% | 5% or 10% at import | Not accounting for Sales Tax cost in import pricing |
| Financial services | Yes (for regulated providers, phased from July–October 2025) | 8% | Varies significantly — regulated providers must check RMCD Phase 1/2 implementation guides |
6. The Exported Services Rule — A Critical Nuance
This is the most common misunderstanding for foreign-owned service companies operating in Malaysia. Many assume that if their client is outside Malaysia, they are exempt from Service Tax. This is often incorrect.
The rule
Service Tax applies based on where services are rendered (performed), not where the client is located. If your Sdn. Bhd. in Kuala Lumpur provides consulting services to a client in Germany, the services are rendered from Malaysia — they may still attract Service Tax unless they qualify as truly “exported” services.
What qualifies as exported services (zero-rated)?
Under the Service Tax Act 2018, services that are genuinely performed for and consumed entirely outside Malaysia can be treated as exported and exempt. However, this exemption requires:
- The service is specifically performed outside Malaysia and consumed abroad
- There is no element of the service rendered inside Malaysia
- Documentation confirms the non-Malaysian consumption
In practice, most consulting and digital services provided by a Malaysian Sdn. Bhd. to an overseas client — even if the client never visits Malaysia — do not qualify as exported services because the work itself is performed from Malaysia. The Sdn. Bhd.’s employees sit in Kuala Lumpur, access the internet from Malaysia, and deliver outputs from Malaysia. These are Malaysia-rendered services.
| Practical advice for foreign-owned companies serving overseas clients |
| If your company is registered in Malaysia, employs staff in Malaysia, and delivers outputs (reports, code, advice, content) from Malaysia to overseas clients: |
| • Your services are likely rendered in Malaysia |
| • If your annual taxable turnover from these services exceeds RM 500,000, Service Tax registration is likely mandatory |
| • The 8% Service Tax is charged to the client (you collect it on behalf of RMCD) |
| • You can structure pricing to include SST (tax-inclusive) or add it on top of your fee |
| If you are unsure about your specific situation, seek a written ruling from RMCD (available under Section 57, Service Tax Act 2018). |
| Source: Service Tax Act 2018; RMCD guidance; EY Malaysia SST update, September 2025. |
7. Filing Obligations — SST-02 Returns
| Obligation | Frequency | Deadline | Portal | Penalty for late filing |
| SST-02 Service Tax Return | Every 2 months (bi-monthly) | Last day of the month following the end of the 2-month taxable period | MySST portal: mysst.customs.gov.my | Penalty under Section 26(1) STA 2018 — up to RM 500,000 or 2x tax amount; prosecution possible for repeat offences |
| SST-02 Sales Tax Return (manufacturers) | Every 2 months | Same as above | MySST portal | Same penalty framework |
| Payment of SST due | Due simultaneously with SST-02 return | Same deadline as return filing | MySST portal / bank transfer | Late payment interest applies |
| Even if no SST is due: file nil returns |
| If you are registered for SST but had no taxable transactions in a 2-month period, you must still file a nil SST-02 return by the due date. Failure to file — even a nil return — triggers penalties. |
| Source: Royal Malaysian Customs Department (RMCD) official SST filing requirements. |
8. e-Invoicing and SST in 2026
From 1 January 2026 (for companies with annual turnover of RM 1M–5M), all invoices — including those with Service Tax — must be validated through LHDN’s MyInvois e-invoicing system before they are issued to customers. Invoices that are not validated through MyInvois will not be recognised for tax purposes — expenses based on unvalidated invoices can be disallowed.
| e-Invoice phase | Effective date | Applies to |
| Phase 1 (completed) | 1 August 2024 | Companies with annual turnover > RM 100 million |
| Phase 2 (completed) | 1 January 2025 | Companies with annual turnover RM 25M–100M |
| Phase 3 (current) | 1 January 2026 | Companies with annual turnover RM 1M–5M (grace period to 31 December 2026 for some transactions) |
| Phase 4 | 1 July 2026 | All remaining businesses below RM 1M (grace period provisions apply) |
| SST on e-invoices |
| When issuing e-invoices through MyInvois, you must include: the correct SST registration number, the applicable SST rate (6% or 8%) and SST amount for each line item, and for invoices in foreign currency (effective September 2025), the RM exchange rate. |
| The LHDN system validates the SST fields. Incorrect SST coding will cause the e-invoice to be rejected. |
| Source: LHDN MyInvois e-invoice guidelines; EY Malaysia / BDO SST updates 2025. |
9. RMCD Enforcement — What to Expect in 2026
2026 is the first full enforcement year following the 1 July 2025 SST expansion. The grace period that protected new entrants from penalties ended on 31 December 2025. RMCD has signalled intensified compliance activity across multiple fronts:
- Non-registration: Companies that crossed the RM 500,000 threshold but did not register. RMCD uses LHDN income tax data, bank transaction information, and SSMID to identify likely non-registrants.
- Incorrect rate application: Applying 8% where 6% applies, or vice versa. Both undercharging and overcharging expose the registered person to penalties.
- Digital and cross-border services: Foreign digital service providers serving Malaysian consumers must register if threshold is exceeded — enforcement is increasing against platforms and SaaS providers.
- New July 2025 sectors: Financial services, rental/leasing, healthcare, and education companies that have not yet registered following the expansion.
- e-Invoice compliance: Non-compliant invoices (unvalidated through MyInvois for Phase 3 companies) will be a compliance focus in 2026.
| Risks of non-compliance |
| Backdated SST assessment: RMCD can issue assessments going back up to 6 years for unreported SST |
| Penalty: Under Section 26(1) STA 2018 — a fine not exceeding RM 500,000, or twice the tax amount, whichever is higher |
| Late payment surcharge: 10% of unpaid tax per month (compounding) |
| Prosecution: Criminal prosecution for wilful tax evasion |
| Audit exposure: Being placed on RMCD’s audit watchlist increases scrutiny of all future transactions |
10. SST Checklist for Foreign-Owned Companies in 2026
- Determine whether your business activities fall within any of the Service Tax categories (professional services, IT, logistics, F&B, rental, healthcare, education, construction, financial services)
- Calculate your annual taxable turnover — if approaching RM 500,000 (or RM 1,000,000 for rental/leasing), prepare to register within 30 days of crossing
- Register on the MySST portal (mysst.customs.gov.my) immediately if you have already exceeded the threshold
- Determine the correct Service Tax rate for each of your service types (6% or 8%)
- Set up bi-monthly SST-02 return filing (due last day of the month following each 2-month taxable period)
- If your annual turnover exceeds RM 1 million, implement LHDN MyInvois e-invoicing and ensure SST fields are correctly coded in every invoice
- If invoicing in foreign currencies, include the RM exchange rate in e-invoices (mandatory from September 2025)
- Review all existing contracts for the July 2025 new categories — rental agreements, healthcare provider agreements, financial service contracts
References & Sources
[1] Service Tax Act 2018 (STA 2018) — Royal Malaysian Customs Department (RMCD)
[2] EY Malaysia — SST Expansion from 1 July 2025: What Has Changed (September 2025)
[3] BDO Malaysia — Malaysia Latest Indirect Tax Updates (including Jan 2026 rental/leasing rate update)
[4] ClearTax Malaysia — SST Malaysia 2026: Registration, Rates, Exemptions (February 2026)
[5] ZIC Legal / Budget 2026 — SST Updates (construction rate reduction to 3%)
[6] LHDN — e-Invoice Implementation Timeline (Phase 3 from January 2026)
[7] Wolters Kluwer — Rental and Leasing Services Now Subject to 8% Service Tax (July 2025)
| Disclaimer |
| This article is for general informational purposes only and does not constitute tax advice. SST rates, registration thresholds, and enforcement guidance are subject to change. Always verify current requirements with RMCD or a licensed tax advisor. Last verified: April 2026. |
| Horizon Hub Consulting | info@horizonhubconsulting.com | +603-27393551 |
Need help with SST registration or compliance?
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