On January 5, 2026, Prime Minister Anwar Ibrahim announced a series of "New Year Relief Measures", which included changes to Malaysia's property tax system.

An expanded Service Tax, or rental SST, will introduce new compliance requirements for landlords, property investors, and businesses involved in rental or leasing services.

Read more: Real Property Gains Tax (RPGT).

 

An Overview of Rental SST in Malaysia

The Royal Malaysian Customs Department has updated the expanded sales tax on rental services to align with modern business practices.

As of 1 July 2025, rental and leasing services will be classified under Group K of the Service Tax Regulations 2018. This aims to broaden the tax base and increase government revenue.

The term "rental or leasing" now includes granting the use of tangible assets from a landlord to a tenant for a set period. This applies to:

• Commercial and Industrial Buildings: Including factories, warehouses, manufacturing plants, and offices, where commercial rental income may now be subject to Malaysia's service tax.
   
• Mobile Assets: Such as commercial vehicles, construction machinery, and heavy equipment.
   
• Operational Equipment: From manufacturing tools and office electronics to event furniture, covering assets located within Malaysia.

 

The Scope of SST on Leasing or Rental Income

SST does not apply to all types of rental income. Here are the key conditions used to determine if the tax is applicable to your specific business transactions:
 

• Lease Type: SST applies only to operating leases, where the lessor keeps ownership of the asset. Financial leases, which transfer ownership to the lessee upon completion, are exempt.
   
• Asset Location: Only rentals for assets physically located within Malaysia are subject to SST.
   
• Registration Requirement: Businesses with an annual taxable turnover from rental income exceeding the registration threshold must register for SST, regardless of their primary industry.
   
• Bundled Services: If rental fees include both property and related items (e.g., machinery or services), SST is charged on the total amount as a taxable service.

Failing to comply with the regulations can lead to serious consequences, including penalties, hefty fines, or even prosecution under the provisions of the Service Tax Act.
 

Proactive Steps for Your Business

Don't wait for a tax audit to find discrepancies. Take these steps now to ensure your operations are fully compliant:
 

• Review Tenancy Agreements: Audit your current contracts to identify which fall under the taxable "operating lease" category.
   
• Assess Your Tenant Profiles: Determine if your tenants qualify as MSMEs. This is crucial for applying the correct 6% rate versus the standard 8% rate.
   
• Update Invoicing Software: Ensure your systems are configured to handle dual-rate SST calculations accurately to avoid billing errors.
   
• Audit Service Charges: Verify that 'Service Charges' and 'Maintenance Fees' must follow the same tax rate as the primary rent.
   

Critical Numbers: Rental SST Rate and Threshold

Here are the essential figures that every business owner should be aware of to stay informed and make smarter decisions.
 

• Compliance Requirements: Registered businesses must issue SST-compliant invoices, submit returns, pay service tax (SST) on time, and maintain accurate records.
   
• Service Tax Rate: The standard SST rate is 8% on taxable rental income, unless an exemption applies.
   
• Registration Threshold: Businesses must register for SST if their annual taxable rental income exceeds RM1 million.
   

New Support Measures for MSMEs

On 5 January 2026, the Malaysian government announced key changes to the Rental SST framework for micro, small and medium enterprises (MSMEs).
 

• Reduced Tax Rate: To support micro, small, and medium-sized enterprises (MSMEs), the government will reduce the service tax rate for qualifying businesses that own light food processing plants or small electronics assembly hubs from 8% to 6%, effective January 1, 2026. This change aims to provide cost savings on industrial rentals.
   
• Expanded Threshold: The service tax exemption threshold for MSMEs has been increased. Small businesses with annual turnovers up to RM1.5 million are now exempt, a significant increase from the previous RM500,000 to RM1 million range.
   
• Deferment or Exemption: Newly established MSMEs can defer service tax payments on industrial rentals for one year from their registration date, allowing them to allocate resources toward early-stage growth.

 

 

Example: Calculating SST on Industrial Rentals

Suppose "XYZ Logistics Sdn. Bhd." leases a warehouse for RM100,000 per month. With an annual rental of RM1.2 million.

Before 1 January 2026, the business would have been subject to pay a rental SST of 8% on its monthly rental costs, as they exceed the RM1 million threshold:
 

• Monthly Rental: RM100,000
   
• SST Rate: 8%
   
• Tax Payable: RM8,000 (RM100,000 × 8%)
   
• Total Charged to Tenant: RM108,000

XYZ Logistics will collect RM108,000 from the tenant, which includes the SST.

This RM8,000 is not considered company income; it must be recorded and paid to the Royal Malaysian Customs Department.

This leaves XYZ Logistics with RM100,000 in business revenue.

However, after 1 January 2026, under the new rule, its annual turnover of RM1.2 million falls below the new RM1.5 million threshold.

This means the business is now fully exempt from paying the rental SST, resulting in 0% service tax.
 

Understanding Rental SST Exemption

The Rental SST framework includes several key exemptions designed to support specific sectors and provide relief for certain lease agreements.
 

• Residential Rentals: Rentals of residential property rentals, including worker dormitories and residential SOHOs, are exempt.
   
• Government Rentals: Leases to Federal, State, and Local Government entities are not taxable.
   
• Special or Designated Areas: Rentals within or between Special Areas (such as Free Zones) or Designated Areas (like Labuan and Langkawi) are generally exempt.
   
• Newly Registered: Newly registered MSMEs can receive a one-year service tax exemption starting from their registration date.
   
• Transitional Contracts: Non-reviewable contracts signed before June 9, 2025, are temporarily exempt from July 1, 2025, to June 30, 2026, under specific conditions.
   
• Construction Contracts: Service tax exemptions for construction contracts signed before July 1, 2025, are extended until June 30, 2027, ensuring stability for ongoing projects.
   

Optimise Your Portfolio with Industrial Malaysia

In a shifting fiscal landscape, adapting to new SST rules requires more than just foresight—it requires a partner who truly understands "The Numbers."

At Industrial Malaysia, we empower investors and business owners in guiding you towards properties in tax-advantaged zones. Our team delivers market intelligence you can trust.

Want to ensure growth and compliance in the new era of Rental SST? WhatsApp us today.

 

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