Introduction
Effective July 1, 2025, Malaysia has expanded its Sales and Service Tax (SST) to include commercial rental and leasing services, introducing an 8% tax that will significantly impact the real estate market. This change presents new challenges and obligations for both landlords and tenants. Understanding the nuances of this new regulation, including its exemptions and the critical concept of “non-reviewable contracts,” is essential for navigating the evolving landscape of commercial real estate in Malaysia. This article provides a clear and comprehensive guide to the new SST, offering actionable insights for property owners, business tenants, and real estate professionals.
Understanding the New 8% Service Tax
The new 8% service tax applies to the rental and leasing of commercial properties, as well as other tangible assets like machinery and vehicles. Here’s what you need to know about the core mechanics of this new tax:
Who is Required to Register?
A key aspect of the new regulation is the registration threshold. Landlords and service providers are only required to register for and charge the 8% SST if their total annual revenue from taxable rental services exceeds RM1,000,000. This threshold is designed to primarily impact larger commercial landlords, such as Real Estate Investment Trusts (REITs) and institutional investors, while shielding smaller businesses from the immediate compliance burden.
It is important to note that this threshold applies specifically to rental income. A company’s primary business revenue is not factored into this calculation. For example, a manufacturing company that earns RM10 million in sales but only RM900,000 from leasing out a portion of its factory space is not required to register for SST on its rental income.
What Services are Taxable?
The 8% SST has a broad scope, covering a wide range of rental and leasing services within Malaysia, including:
- Commercial Real Estate: Office spaces, retail lots, factories, and warehouses.
- Industrial Assets: Heavy equipment, construction machinery, and manufacturing tools.
- Vehicles and Other Assets: Cars, vans, lorries, and other tangible goods for commercial use.
The tax also applies to imported rental services through a “reverse charge” mechanism, where the Malaysian recipient of the service is responsible for paying the SST.
Key Exemptions and Reliefs
To mitigate the impact of the new tax, the government has introduced several important exemptions and reliefs. These are crucial for both landlords and tenants to understand for effective tax planning.
Who is Exempt from the SST?
Several categories of rental services are exempt from the 8% SST:
- Residential Properties: The rental of all housing accommodations, including apartments, condominiums, and houses, is fully exempt. This is to avoid a direct impact on the cost of living.
- Government Bodies: Services provided to Federal and State Governments are exempt. Local Authorities have a temporary exemption until September 30, 2025.
- Small and Micro-Enterprises (SMEs): Tenants with an annual sales turnover of not more than RM1,000,000 are exempt from paying the SST on their rent. Tenants must declare their SME status through the MyPMK online system.
Preventing Double Taxation
The regulations also include provisions to prevent the tax from being applied multiple times in a business-to-business (B2B) context. For example, if a master tenant sublets a property to another business that is also registered for SST, the initial transaction is exempt. This ensures that the tax is only paid once by the final end-user.
The “Non-Reviewable Contract” Exemption: A Temporary Safe Harbor
For long-term leases signed before the new SST was announced, the government has provided a temporary, one-year exemption for “non-reviewable contracts.” This is a critical provision for landlords who are contractually unable to pass the new 8% tax on to their tenants.
What is a Non-Reviewable Contract?
A contract is considered “non-reviewable” if it was signed and stamped on or before June 9, 2025, and does not contain any clauses that allow for a revision of the rental price. This exemption is available from July 1, 2025, to June 30, 2026.
The legal interpretation of a “non-reviewable contract” is based on precedent from the repealed Goods and Services Tax (GST) Act 2014. The landmark High Court case, Konsortium CMC Engineering Sdn Bhd v Ketua Pengarah Kastam, established that a contract is only considered “reviewable” if it allows for a general review of the price. Clauses that permit price adjustments for specific, defined changes (such as a Variation Order) do not automatically make a contract reviewable.
Practical Implications for Landlords and Tenants
This exemption provides a temporary safe harbor for existing lease agreements. However, it is crucial for both landlords and tenants to carefully review their contracts to determine if they qualify. If a contract is deemed non-reviewable, the landlord cannot charge the 8% SST to the tenant for the one-year exemption period.
Conclusion: A New Era for Commercial Real Estate
The introduction of the 8% SST on commercial leases marks a significant shift in the Malaysian real estate landscape. While the long-term economic effects remain to be seen, it is clear that both landlords and tenants must adapt to this new reality. Proactive compliance, careful contract review, and strategic planning will be essential for navigating the challenges and opportunities that lie ahead.
As the market adjusts, we may see a shift in leasing strategies, with a greater emphasis on tenant mix and SST efficiency. The one-year exemption for non-reviewable contracts provides a crucial window for stakeholders to align their agreements with the new tax regime.
Disclaimer
This article is for informational purposes only and does not constitute legal advice.