(TAX UPDATE) Intra-Group Billing : Is SST Required?

Introduction

Many SME groups share resources between related companies. For example, Company A may provide accounting support, IT services, engineering work, HR functions or management services to Company B within the same group.

The question is common across SME Malaysia : If Company A issues an invoice to Company B inside the same group, must the company charge 6% Service Tax (SST)?

The answer is …

In certain cases, SST can be exempted. The exemption is based on the Service Tax Regulations 2018 and Service Tax Policy No. 8/2020. However, the exemption is not automatic. It applies only when strict conditions are met.

This article explains the rules in simple professional English for SME readers.

When 6% SST Can Be Exempted

1. Companies Must Be in the Same Group

To qualify for intra-group relief, companies must show a proper shareholding relationship. The conditions are:

• Direct or indirect ownership above 50 percent, or
• Ownership between 20 percent and 50 percent with control over board appointments

This means that “same owner” does not automatically qualify as “same group”. The exemption depends on shareholding structure and control, not just having common directors or shareholders.

Supporting documents should be kept properly. These include shareholding charts, board resolutions and group structure documents. Customs Malaysia may request these during an audit or SST review.

2. Service Type Must Fall Under Category G (Professional Services)

Category G covers professional services such as legal, accounting, engineering, management, consulting, IT and other digital services. These services are common in groups that centralise administrative or technical functions into one entity.

Employment agency services and private agent services are not included in this exemption.

From May 2024 onwards, repair and maintenance services are also eligible for intra-group exemption.

3. External Clients Must Not Exceed 5 Percent

A company may provide the same service to external clients. The intra-group exemption can still apply if external revenue does not exceed 5 percent of total revenue for that service category.

The moment external revenue exceeds 5 percent, the entire service category becomes taxable, including intra-group transactions. This is a strict rule under the Service Tax framework.

Each service category is assessed separately. For example, IT services and management services must be monitored independently. A company cannot mix revenue from different service types to stay under the threshold.

4. 12-Month Forward Assessment Period

The 5 percent threshold is based on a forward projection for the next 12 months. Many SMEs only look at historical revenue, but Customs Malaysia reviews projected figures as well.

Regular monitoring, whether monthly or quarterly, is strongly recommended. If a company exceeds the 5 percent limit towards the end of the year, it risks losing the exemption and facing full SST on intra-group transactions.

If the company later qualifies for the exemption, a credit note may be issued to reverse SST previously charged.

Practical Compliance Tips for SME Groups

• Monitor external client ratio regularly
• Calculate each service category separately, not on a combined basis
• Maintain shareholding documents, contracts and invoices properly
• From May 2024, repair and maintenance services are also eligible for exemption
• If the external ratio fluctuates and may exceed the 5 percent threshold, a safer option is to charge SST first and claim back later once qualification is confirmed

Conclusion

Intra-group SST exemption is an important cost-saving tool for SME groups in Malaysia, especially where companies centralise accounting services, management fees, IT support or engineering services. However, the exemption is technical and requires strict compliance with the Service Tax Regulations.

To protect tax positions, companies should maintain complete documentation, monitor revenue ratios and review service categories regularly. Any breach of the 5 percent rule results in full SST being imposed.

If your organisation performs regular intra-group billing and is unsure of its SST exposure, a proper Service Tax review is recommended. This ensures compliance with Customs Malaysia and avoids unnecessary tax costs.

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