(TAX UPDATE) SST Update October 2025: New Service Tax Policies Every SME Must Know

(TAX UPDATE) SST Update October 2025: New Service Tax Policies Every SME Must Know

Introduction

As SME business owners and advisors in Malaysia, staying ahead of changes to the Sales and Service Tax (SST) is vital. On 17 October 2025, the Royal Malaysian Customs Department (RMCD) published several serviced tax policy amendments effective from 1 July 2025.

In this blog, we summarise the key updates, explain how they impact your business, and offer our view as your trusted adviser at KTP.

Key Summary (Main Measures for SMEs)

Here are the headline changes SMEs should note:

Financial Services (Group H)
All financial services charged by fees, commissions or similar payments are exempt from SST for the period 1 July 2025–30 Sep 2025.
From 1 October 2025, these services become subject to SST again.
For B2B (business-to-business) services, financial services acquired by a registered person are exempt from SST under specified conditions.

Rental and Leasing Services (Group K)
Exemption from SST for rental and leasing services from 1 July 2025.
For local authorities, rental and leasing services are exempt from 1 July–30 Sep 2025.
SME tenants with annual sales ≤ RM1 million may declare via MyPMK to claim exemption.
Group relief for intra-group companies on rental and leasing services under certain conditions also applies.

Construction Works Services (Group L)
Construction services are exempt for residential buildings and public facilities within mixed-development projects.
Contracts must be signed before 1 July 2025 (not on or after); stamping deadline is before 31 December 2025
B2B exemption applies for design and build consultancy services when both main contractor and consultants are SST-registered.

Education Services (Group M)
Exemption from SST on education-service fees and related charges with effect from 1 July 2025.
Charges such as books, uniforms, food and beverage, transportation, and accommodation (where related to education) are clarified as exempt items.

SME Implications (How These Measures Impact Clients)

Let’s translate these into what your SME business in Johor Bahru or across Malaysia needs to do:

Financial service users
If your business pays fees or commissions for financial services such as corporate banking or advisory, note that from 1 July until 30 Sep 2025 you may benefit from exemption. From 1 Oct 2025 the tax applies again. Review your contracts and payments now.

Rental and leasing contracts
If you lease equipment, premises or vehicles and you’re an SME tenant (annual sales ≤ RM1 million), check eligibility for the exemption via MyPMK and file the necessary declaration. If your rental or leasing contract is fixed price and meets the non-reviewable criteria, you may qualify.

Construction contractors, sub-contractors, and developers
For projects involving residential buildings or mixed developments, the exemption may apply. If your contract is non-reviewable (fixed price, no price-review clause), you may benefit until 30 June 2026. SMEs must check contracts carefully; variations or EOT (Extension of Time) may affect eligibility.

Education sector SMEs
If you provide educational services, many of your fees and charges are now clearly exempt. This may ease compliance and administrative burden, but you still need to ensure your invoicing and record-keeping reflect the correct treatment.

Intra-group services
If your company provides rental, leasing or construction services to sister companies, the group relief rules may apply. You will need to explore the control or ownership definitions and service value thresholds.

Compliance and documentation
Across all these updates, the key is documentation. Written contracts, clear fixed-price clauses, proper stamping, registration under SST when needed, and declarations via MyPMK are all crucial. Mistakes lead to recovery of tax and possible penalties.

KTP’s View

A few observations and suggestions:

The effective date for most of the exemptions is 1st July 2025. Hence, businesses have to consider issuing credit notes to customers where appropriate, with consequential impact on SST-02 reporting.

For SMEs, the risk lies in mis-applying the exemptions for example, using them without fulfilling all conditions such as price-review clauses or contract stamping. That may result in tax recovery from RMCD. We advise cautious implementation.

The rental and leasing exemption for SMEs is a welcome relief, particularly for smaller tenants. However, don’t treat it as automatic. Firm annual sales-cap requirements and registration via MyPMK are in place.

The phased approach for financial services (exempt until end-September, then taxable) means businesses should plan for increased costs from 1 October 2025. Consider budgeting for that change, or negotiating fee structures with service providers now.

Construction contracts for non-reviewable contracts give a window until June 2026 for certain projects. Developers and contractors should audit existing contracts and new ones to determine eligibility, amend where possible (for example, avoid price-review clauses) and ensure correct stamping.

Record-keeping and contract management will become more important than ever. SMEs should liaise with their tax agents or accountants to confirm whether they meet the exemption conditions and that their invoices, contracts, and declarations align with RMCD policy.

Overall, this is not a “set and forget” update. SMEs need to review services, contracts, registration obligations, and supplier arrangements now to avoid surprises.

Call to Action

At KTP, we can help you navigate these SST changes with practical, SME-friendly advice.

Ready to take action? Reach out to KTP & Company PLT today and let us help you turn SST complexity into clarity.

Thank you for reading. We look forward to supporting your business in staying tax-smart and SST-compliant.

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