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Guideline to Service Tax on Rental and Leasing Services
Guideline to Service Tax on Rental and Leasing Services

Guideline to Service Tax on Rental and Leasing Services

TREATMENT OF SERVICE TAX ON RENTAL OR LEASING SERVICES

The service tax rate of rental or leasing services is 8% effective from 1 July 2025 and the registration threshold is RM500,000 within a 12-month period.

Taxable rental or leasing services include, but are not limited to:
  1. Providing rental or leasing services
  2. Obtaining rental or leasing services from service providers outside Malaysia
  3. Providing rental or leasing services with maintenance, repair, or related services.
  4. Providing rental services for animals or plants
  5. Providing rental or leasing services for movable assets located in Malaysia, even if the customer is outside Malaysia.
Note: The above list is illustrative and not exhaustive. Any rental or leasing services provided by a registered person to their customers may be subject to service tax.

The following remain excluded from service tax:
  1. Rental or leasing of movable assets located outside Malaysia.
  2. Rental or leasing of housing accommodations.
  3. Rental or leasing services provided between or within Special Areas and Designated Areas.
  4. Provision of financial lease services.
  5. Provision of reading material services.

SCOPE OF RENTAL OR LEASING SERVICES

Definition: Rental or leasing refers to granting the right or permission to use a tangible asset located in Malaysia from one party to another for a certain period through an agreement (either written or verbal).
  • Any person providing hire and drive car services, charter bus services, and excursion bus services—regardless of whether they are licensed under the Land Public Transport Act 2010—is liable to register if the rental services provided exceed the specified registration threshold.
  • Only operating leases are subject to service tax.
  • Financial leases are not subject to service tax, as ownership of the asset is transferred to the lessee at the end of the lease or rental period.
No. Aspect Finance Lease Operating Lease
1. Definition A contract where the lessor allows the lessee to use an asset in exchange for payments over a long-term period.
 		 A contract where the lessor allows the lessee to use an asset in exchange for payments over a short-term period.
2. Asset Ownership Ownership transferred to the lessee
 		 Ownership remains with the lessor
3. Asset Risk Lessee bears the risk
 		 Lessor bears the risk
4. Asset Maintenance Lessee is responsible
 		 Lessor is responsible
5. End of the lease period Lessee owns the asset Asset will be returned to the lessor
Note: These distinctions may vary depending on specific lease arrangements.

EXCLUSION FROM SERVICE TAX SCOPE

The following rental or leasing services are not subject to service tax:
  1. Rental or leasing of housing accommodation (e.g., terrace houses, bungalows, serviced apartments, etc., classified as residential buildings in the grant title).
  2. Rental or leasing of reading materials.
  3. Rental or leasing of tangible assets located outside Malaysia.
  4. Leasing of tangible assets through a financial lease.

EXEMPTION FROM PAYMENT OF SERVICE TAX BY GAZETTED ORDER

Exemption is applicable if the conditions specified under column (4) of the Service Tax Order (Persons Exempted From Payment of Tax) 2018 are met, as follows:
  1. Services exempted under Group K
  2. The service recipient is a registered person under Group K
  3. The service provider is a registered person under Group K
  4. The exempted taxable service is the same taxable service provided by a registered person under Group K
  5. The exempted taxable service must be used for the purpose of sublet or sublease, and not for personal consumption

A person exempted from payment of service tax must account for service tax in any taxable period where no sublet or sublease occurs. In such cases, the service tax shall be payable by that person in accordance with their taxable period.

This also applies to the provision of sublet or sublease services on a partial basis.

EXEMPTION FROM PAYMENT OF SERVICE TAX UNDER SUBSECTION 34(3) STA 2018

Service tax exemption is granted to small and micro enterprises with annual revenue of less than RM500,000.

Any rental or leasing contract classified as non-reviewable (without provision for review) is granted an exemption from service tax for a period of 1 year from the effective date, subject to prescribed conditions.

ACCOUNTING FOR SERVICE TAX

Service tax must be accounted for based on:
  1. At the time payment is received for the taxable services provided
  2. The day after a period of 12 months from the taxable service that has been provided
  3. At the time of payment or upon receiving the invoice (whichever is earlier) for imported taxable services.

REGISTRATION AND RESPONSIBILITIES OF REGISTERED PERSONS

Registered persons are responsible for:
  1. Imposing service tax on taxable services
  2. Issuing invoices and receipts as prescribed under the Act for all taxable service transactions.
  3. Submit the service tax Form SST-02 return electronically and pay the service tax before the due date
  4. Keep proper records with regards to service tax transactions for 7 years

Please do not hesitate to contact us at [email protected] for more information.
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