Indirect Tax Alert
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Issue No. 19/2025 | 23 October 2025
Amendments to Service Tax Policy No. 1 to 4 of 2025
The Royal Malaysian Customs Department (RMCD) recently issued the following service tax policy amendments all dated 17 October 2025:
- Service Tax Policy No. 1/2025 (Amendment No. 3) – Financial Services
- Service Tax Policy No. 2/2025 (Amendment No. 2) – Rental or Leasing Services
- Service Tax Policy No. 3/2025 (Amendment No. 1) – Construction Works Services
- Service Tax Policy No. 4/2025 (Amendment No. 2) – Education Services
Below are the salient points of the amendments in the above service tax policies
1. Service Tax Policy No. 1/2025 (Amendment No. 3) – Financial Services
- Item 9 has been amended to clarify that the fixed price funds Amanah Saham Bumiputera (ASB) and Amanah Saham Malaysia (ASM) are managed by Amanah Saham Nasional Berhad which is a wholly owned subsidiary of Permodalan Nasional Berhad.
- New Item 11 has been added to provide exemption on acquisition of re-insurance services or re-takaful services by insurance companies or takaful companies for the purpose of providing medical insurance, medical takaful, life insurance or family takaful services.
2. Service Tax Policy No. 2/2025 (Amendment No. 2) – Rental or Leasing Services
- Item 1 and Item 2 which provide exemptions to the federal government, state governments and local authorities have been amended to clarify that these exemptions only apply to rental or leasing services that take effect from 1 July 2025.
- The conditions for exemption under Item 5 (Group Relief) have been put in Appendix A and expanded to provide better clarity.
- Item 6 has been amended to clarify that the exemption is applicable to the following:
- any aircraft except drones
- any vessel that sails or moves on or under water but exclude floating storage units (FSU) and similar vessels.
- New Item 7 has been added to provide business-to-business (“B2B”) exemption to rental or leasing service providers who reached the registration threshold in July 2025 and applied for service tax registration on or before 31 August 2025. Service providers who have paid the service tax can make a claim for refund of the service tax paid by applying to RMCD on or before 30 November 2025 on the condition that the service tax collected is refunded to the recipient of the rental or leasing service services
3. Service Tax Policy No. 3/2025 (Amendment No. 1) – Construction Works Services
- The conditions for exemption for non-reviewable contract under Item 3 have been updated in Appendix A. The contract, variation order or extension of time document must now be signed before 1 July 2025 and stamped for stamp duty by the Inland Revenue Board before 31 December 2025.
- New Item 4 has been added to provide exemption for construction of residential buildings and public facilities related to those residential buildings within a mixed development project. Apportionment is allowed for value of construction services for shared public facilities which are related to residential and non-residential buildings by using the build-up area as a basis in determining the values for residential and non-residential. The conditions of the exemption are listed in Appendix B.
- New Item 5 has been added to provide B2B exemption for consultancy services under a design-and-build construction contract where the services are provided under a single contract that covers the entire scope of work supplied by the main contractor to the developer or landowner. The qualifying consultancy services are those under items (a), (c), (d), (e), (f), (g), (i), or (n) in column (2) and provided by taxable persons under items 1, 3, 4, 5, 6, 7, 9, or 13 in column (1) of Group G, First Schedule of Service Tax Regulations 2018. This would mean that service tax is only imposed at the overall project cost level charged by the main contractor to the developer or landowner. The conditions to the exemption are stated in Appendix C.
- New Item 6 has been added to provide B2B exemption to construction service providers who reached the registration threshold in July 2025 and applied for service tax registration on or before 31 August 2025. Service providers who have paid the service tax can make a claim for refund of the service tax paid by applying to RMCD on or before 30 November 2025 on the condition that the service tax collected is refunded to the recipient of the construction service.
4. Service Tax Policy No. 4/2025 (Amendment No. 2) – Education Services
- New Item 2 has been added to provide exemption for education services received by children and dependents of foreign diplomats who have obtained confirmation letters from the Ministry of Foreign Affairs to be submitted to private educational institutions or higher education institutions.
- New Item 3 has been added to provide exemption for education fees or service charges that fully sponsored by educational institutions, higher learning institutions, companies, foundations or other organizations.
PwC comment
The above service tax policy amendments have included a few new service tax exemptions which are effective from 1 July 2025. As the exemptions are retrospective, RMCD has allowed those who have collected and paid the service tax to claim refund by submitting applications to RMCD latest by 30 November 2025. The new exemptions also come with their respective conditions which must be complied with.
If you have any enquiries on the above new service tax exemptions and the conditions or your business needs any assistance in applying for refund of service tax paid, please do not hesitate to contact us and we would be happy to assist you.
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