We give a clear answer and a practical roadmap for compliance after a major rule change. Effective July 2025, many leasing and renting arrangements fall under Group K and carry an 8% service tax.
This change affects businesses that lease tangible assets located here, bundled maintenance, imported leasing, and operating leases. The registration threshold rises to RM1 million on a rolling 12-month basis, so you must track turnover closely.
We explain who must register, which arrangements stay out of scope, and how the Royal Malaysian Customs and the Malaysian Customs Department will enforce returns and audits. You will also get guidance on pricing, invoices, and contract updates before issuing the next bill.
Our aim is to give concise, actionable steps so your business keeps operations steady and stays audit-ready when the expanded sales tax takes effect.
Key Takeaways
- Group K applies an 8% service tax on many leasing and renting services from July 2025.
- Registration threshold increases to RM1 million over a rolling 12 months; monitor turnover.
- Certain items, like housing accommodation and assets outside the country, remain exempt.
- Royal Malaysian Customs and the Malaysian Customs Department handle administration and enforcement.
- Update contracts, invoices, and pricing to reflect new service tax obligations.
Is rental subject to SST Malaysia? The short answer for July 2025 and beyond
Effective July 2025, leasing of tangible assets located here becomes chargeable at an 8% service tax when a supplier’s taxable turnover exceeds RM1 million in any rolling 12-month period.
Once your taxable receipts from rental and leasing services cross the threshold, you must register by the end of the following month and begin charging the 8% on applicable invoices. The Royal Malaysian Customs and the customs department administer this regime and expect registered persons to reflect the service tax clearly on bills and in the SST-02 return.
Certain supplies remain out of scope, including housing accommodation, reading materials, assets located outside the country, and financial leasing arrangements. Accurate classification matters—mislabeling a taxable service creates compliance risk.
- Short answer: charge 8% after RM1 million in a rolling 12-month period.
- Register promptly when the threshold is breached and update invoices.
- Ringfence rental income if you operate other lines of business.
| Key feature | Detail | Action for businesses |
|---|---|---|
| Effective date | 1 July 2025 | Review contracts and pricing |
| Rate | 8% service tax | Reflect on invoices and returns |
| Threshold | RM1 million (rolling 12-month) | Track turnover monthly |
| Administered by | Royal Malaysian Customs / customs department | Follow registration and filing rules |
Understanding rental and leasing services under Group K
Group K defines covered arrangements as transfers of usage rights for tangible assets where payment and a fixed term apply. We explain which supplies fall inside the scope and which do not, so you can map offerings correctly.
What counts as rental or leasing under the regulations
Leasing services include any grant of use for tangible assets, plus bundled maintenance or repair that forms part of the agreement. Operating leases are explicitly taxable at an 8% rate from effective July 1, 2025.
Scope, locations, and parties involved
Taxability depends on where the asset sits. Assets located in the country are within scope even when provided to overseas customers. Imported rental leasing services must be accounted for by the local recipient under imported services rules.
Key exclusions and practical steps
| Included | Excluded | Action |
|---|---|---|
| Animals, plants, bundled maintenance | Assets outside the country, financial leasing | Record asset location, term, and services provided |
| Operating leases (8% from July 2025) | Inter-zone supplies between Special/Designated Areas | Map invoices and SST-02 categories |
- Document location and contract terms to prove taxable or non-taxable status.
- Classify operating leases correctly so the 8% sales tax posts to the right return fields.
Registration rules, RM1 million threshold, and timing
From 1 July 2025, registration triggers when projected receipts for leasing and hire cross RM1 million. The change was gazetted on 9 June 2025 and moves the threshold upward. Existing suppliers may have added Group K from 20 June, effective 1 July.
Who must register follows the Service Tax Act 2018 and related Service Tax Act provisions. You assess the current month plus the next 11 months (a 12-month period); if projected taxable turnover exceeds the limit, complete registration by the end of the following month.
Voluntary registration opened late June for new registrants, with effective dates of 1 July or 1 August depending on application timing. We advise tracking contracts so that you meet deadlines and avoid penalties after the leniency window.
- Keep separate forecasts for rental and leasing income and keep board minutes for audit evidence.
- Register promptly to charge and remit service tax, and update your invoices and sales tax reporting.
What is taxable vs not taxable for rental/leasing
Not all asset use arrangements carry an 8% service tax. You must check where the asset sits, whether maintenance bundles are included, and whether the supply is imported. Accurate classification protects cash flow and audit records.
Taxable supplies
- Any leasing or rental of tangible assets located in the country, covering equipment, machinery, event gear, animals and plants.
- Bundled maintenance or repair creates a single taxable service when included in the package.
- Imported rental/leasing services received locally are taxable and must be self‑accounted under imported services rules.
- Operating leases fall within Group K from 1 July 2025.
Excluded supplies
- Housing accommodation and printed reading materials remain exempt; do not charge the service tax and segregate these items on bills.
- Assets physically located outside the country are outside scope — retain location proof and usage logs.
- Financial leasing that transfers ownership at term end is not a taxable service under Group K.
Sector reclassifications and practical steps
From 1 July 2025, rental of space and passenger vehicle rentals move into Group K. Licensing under transport laws no longer determines liability for charter and hire car services.
| Category | Example | Action |
|---|---|---|
| Taxable services | Construction equipment hire with maintenance | Charge 8%; show on invoice; record on SST-02 |
| Excluded | Long‑stay housing, books | Do not apply service tax; keep supporting docs |
| Imported services | Overseas equipment leasing used locally | Recipient to account; document import treatment |
Exemptions, reliefs, and transitional rules businesses can leverage
A mix of B2B carve-outs and short-term leniency measures gives you breathing room during the first year of change. We outline practical reliefs and steps you must document to rely on them.
B2B subletting/subleasing relief
- If you are one of the registered persons under Group K and you sublet the same type of leasing services to another business, that supply may qualify for a B2B exemption. Keep period-level proof that the sublet occurred and that the end user is a business.
- When no sublet happens in a taxable period, you must self-account and declare service tax on that period’s receipts to remain compliant.
Micro and small enterprise relief via MyPMK
- Tenants with annual sales not exceeding RM1 million can apply for exemption through MyPMK (Subsection 34(3) STA 2018). Landlords should collect and retain the MyPMK declaration.
Transitional and group relief
- Non-reviewable contracts benefit from a one-year transitional exemption from July 2025 until 30 June 2026; plan pricing updates once this period ends.
- Group relief may remove service tax on qualifying intra-group leasing or rental leasing arrangements. Document control and shareholding to substantiate the claim.
- A temporary leniency regime runs until 31 December 2025 for certain late compliance events, reducing exposure to penalties, prosecution, and compound claims.
| Relief | Who | Action |
|---|---|---|
| B2B subletting | Registered persons | Retain sublet proof; self-account if none |
| MyPMK exemption | Micro/Small tenants ≤ RM1 million | Collect MyPMK declaration |
| Transitional relief | Non-reviewable contracts | Plan post-relief pricing |
Administrative responsibilities and how to account for service tax
We recommend clear controls for billing, filing, and records so your business stays compliant under Group K.
Invoicing, SST-02 filing, payment deadlines, and seven-year recordkeeping
Issue compliant invoices that state the value of leasing or rental and the 8% service tax amount separately. Ensure your bill shows that you are one of the registered persons when applicable.
Submit SST‑02 returns electronically and pay by the statutory deadline. Late payments can trigger interest and penalties after the leniency window ends.
Keep records for seven years: contracts, invoices, delivery documents, payment proofs, and exemption certificates. These files support any future audit from the customs department.
Time of accounting: payment received, 12-month rule, and imported service timing
Account for the tax on receipt of payment. If no payment arrives within a 12-month period from service provision, you must still declare the taxable service.
For imported services, recognise liability at the earlier of invoice receipt or payment. Reconcile billed amounts to SST‑02 and bank remittances monthly.
“Treat accounting dates as the backbone of compliance — simple routines prevent costly errors.”
| Action | Why | Owner |
|---|---|---|
| Align ERP codes | Automate postings for Group K and imported services | Finance |
| Monthly reconciliation | Match billed service tax to returns and bank | Accounts |
| Engage guidance | Follow updates from malaysian customs department | Compliance |
Real-world scenarios: service tax rental and leasing impact on businesses
We walk through typical cases so you can spot when your sales from rental leasing services require registration and charging.
Core rental businesses vs traders with rental income
Scenario 1—A core operator leases heavy machinery at RM50,000 per month. The 8% service tax equals RM4,000. The invoice total reads RM54,000 and RM4,000 must be remitted to RMCD.
Scenario 2—A trading company rents 200 printers and collects RM80,000 monthly or RM960,000 yearly. That sits below the rm1 million threshold. When sales climb to RM1.2 million, monthly receipts of RM100,000 carry an RM8,000 charge and invoices must include the 8%.
Sample calculations and cash flow effects
Customer view: a client paying RM100,000 each month faces an extra RM8,000 per month, or RM96,000 annually. That change squeezes margins and working capital.
- Plan early: core businesses often hit the rm1 million mark sooner; register before july 2025.
- Track streams: traders must separate sales from rental leasing to know when liability starts.
- Cash flow: act as tax collector and align collection cycles so remittances do not harm operations.
- Contract mapping: flag renewals; include tax on new invoices once liable.
Conclusion
Prepare your teams now: the effective July expansion requires new controls for invoicing, forecasts, and turnover tracking. Treat the RM1 million threshold as a registration trigger and document calculations for every accounting period.
With the june 2025 gazettement under the service tax act, royal malaysian authorities and malaysian customs will expect clear invoices, SST-02 filing, and seven-year records.
Use available reliefs, brief your staff, and appoint a compliance owner for paying service tax and handling service tax rental or tax rental leasing matters. We can help you align systems so your business meets the expanded sales and sales tax service requirements with confidence.
FAQ
Is rental subject to SST Malaysia from July 2025?
Effective July 1, 2025, rental and leasing services classified under Group K are taxable under the Service Tax Act 2018 at 8% when the services relate to tangible assets used in Malaysia. Businesses providing these services must assess their taxable turnover and register if they meet the threshold.
What exactly falls under “rental or leasing services” in the Service Tax Regulations 2018?
Rental or leasing services include short- and long-term leases of tangible movable and immovable assets located in Malaysia. This covers operating leases for equipment, machinery, premises, and passenger vehicles when provided as a service. Bundled services such as maintenance supplied with a lease may also be taxable.
Do services supplied to overseas parties or located in Special/Designated Areas remain taxable?
Services supplied and physically performed outside Malaysia or within designated international zones may be excluded, depending on place-of-supply rules. Supplies to overseas recipients can be zero-rated or outside scope if conditions in the Service Tax Act are met. We recommend checking Royal Malaysian Customs guidance for specific Special Area rules.
How does the 8% service tax rate apply to operating leases?
The 8% is applied on the taxable value of the lease consideration for each tax period. For operating leases, tax is typically charged on periodic lease payments invoiced to the customer. Inclusive or exclusive pricing must be clearly stated on invoices issued by registered persons.
Who must register for service tax under the Service Tax Act 2018?
Any person or business supplying taxable services in Malaysia must register if taxable turnover exceeds the prescribed threshold based on a rolling 12-month period. Registration duties apply to resident and certain non-resident suppliers with Malaysian-sourced taxable services.
What changed in July 2025 regarding the registration threshold?
From July 1, 2025, the registration threshold increased from RM500,000 to RM1 million in taxable turnover over a rolling 12-month period. Businesses should monitor cumulative taxable receipts to determine timely registration dates under Royal Malaysian Customs rules.
Which rental and leasing services are clearly taxable?
Taxable services include leasing of tangible assets located and used in Malaysia, bundled maintenance or service packages tied to the lease, and imported leasing services where the recipient must self-account under reverse charge rules. Passenger vehicle rentals moved into Group K are taxable when provided locally.
What types of leasing services are not taxable?
Exempt or non-taxable items generally include residential housing accommodation, printed reading materials, assets physically situated outside Malaysia, and certain financial leasing arrangements that qualify under financial services exemptions. Specific categorization depends on contract terms and asset location.
Have any sector reclassifications affected rental categories?
Yes. The reclassification shifted rental of space and passenger vehicle rental into Group K, which brings them within the expanded scope of service tax. Businesses in these sectors should reassess compliance, pricing, and invoicing practices in light of the change.
Are there reliefs for B2B subletting or subleasing?
B2B subletting/subleasing relief exists when both parties are registered persons and the head-lessee self-accounts for the service tax. Conditions require proper documentation and matching of tax treatment between the parties. Review Royal Malaysian Customs guidelines for exact procedural steps.
What exemptions exist for micro and small enterprises?
MyPMK provides relief pathways for tenants or service providers with sales at or below RM1 million. Eligible small enterprises may qualify for simplified compliance or exemption depending on turnover and the specific service supplied. Registration status and reporting obligations still need verification.
Are there transitional or non-reviewable contract rules from July 2025?
Contracts classified as non-reviewable may benefit from a one-year transitional exemption running July 2025 to June 2026. This applies to certain pre-existing agreements and helps avoid immediate re-pricing. Businesses should document contract dates and terms carefully to claim transitional treatment.
Is there any temporary leniency for late compliance?
Royal Malaysian Customs announced temporary leniency measures extending some compliance relief and penalties through December 2025. This allows affected businesses additional time to register, amend invoices, and update accounting systems, though formal obligations remain intact.
What are the invoicing and filing requirements for service tax?
Registered persons must issue compliant tax invoices showing service tax, file SST-02 returns by specified deadlines, remit tax collected, and retain records for seven years. Invoices should show the taxable base, tax amount at 8%, and clear descriptions of supplied services.
When is service tax accounted for — at payment or invoicing?
Time of accounting depends on payment receipt and invoicing rules. Tax is generally accounted when payment is received or when the supply is invoiced, subject to the 12-month rule for advance payments. Imported services may trigger reverse charge timing on recipient accounting.
How does the 12-month rolling rule affect taxable turnover calculations?
Businesses must aggregate taxable supplies over the prior 12 months on a rolling basis to determine if they exceed the RM1 million registration threshold. This includes forecasted contracts and recurring lease receipts when assessing imminent registration needs.
How are core rental businesses affected compared with traders who earn rental income?
Core lessors with significant leasing revenue will likely hit the threshold sooner and must fully adjust pricing and compliance processes. Traders with incidental rental income must monitor cumulative turnover; isolated rental receipts may not require registration unless the aggregate crosses RM1 million.
Can you provide a simple sample calculation at 8% for lease income?
For a monthly lease payment of RM10,000, the service tax at 8% equals RM800. The customer pays RM10,800 if prices are exclusive. Over a year, taxable receipts are RM120,000 and tax collected is RM9,600. Businesses should factor this into cash flow and pricing strategies.
What documentation should businesses keep to support tax treatment?
Maintain signed contracts, invoices, proof of asset location, taxation registration records, SST-02 filings, and seven years of accounting records. These support exemptions, transitional claims, and B2B relief positions during audits by Royal Malaysian Customs.
Where can businesses get authoritative guidance and updates?
Refer to Royal Malaysian Customs (Royal Malaysian Customs Department) service tax releases, the Service Tax Act 2018, and official MyPMK portals. We also recommend consulting qualified tax advisors to interpret rules for your specific contracts and industry sector.
Disclaimer:
The information shared in this post is for general educational and reference purposes only. It does not constitute professional advice. Regulations and requirements may change from time to time. For guidance specific to your situation, please consult with our firm or a qualified professional.
