Malaysia has rolled out targeted relief for businesses renting or leasing premises and tangible assets. Two changes stand out:

  1. a broader MSME exemption via a higher annual sales threshold, and,
  2. a one‑year exemption for newly established MSMEs.
msme rental service tax exemption

Together, these measures ease cash‑flow pressures and compliance burdens for small enterprises.

  • MSME exemption threshold increased to RM1.5 million.
    If your business’s annual sales (per latest IRBM assessment) does not exceed RM1.5m, rental and leasing services you acquire are exempt from Service Tax.
    Ensure you declare MSME status via MyPMK (the Customs portal) for the exemption to apply.
  • New MSMEs: 12‑month rental/leasing Service Tax holiday.
    Newly formed MSMEs get a one‑year exemption starting from their Companies Commission of Malaysia (SSM) registration date (or the equivalent authority in Sabah/Sarawak).
    After that year, you must have filed your first income tax return and update IRBM info into MyPMK to continue qualifying (if still within RM1.5m threshold).

Why this matters

Rent is a major operating cost for startups and small firms.

Exempting Service Tax on rental/lease charges can cut effective occupancy costs and free up working capital.

For MSMEs above RM1.5m, the rate cut to 6% (temporarily implemented as a 2% exemption until gazetted) also provides savings relative to the 8% rate introduced in mid‑2025.

Scope and examples

The policy applies to rental or leasing services within Group K of the Service Tax Regulations 2018, covering tangible assets such as non‑residential premises, equipment, vehicles and similar taxable rentals (subject to listed exclusions and separate sector policies).

The MSME relief is lessee‑side (the tenant/customer) and hinges on proper MyPMK registration and annual sales declarations.

Checklist: How to Qualify for the MSME Service Tax Exemptions (Rental/Leasing)

Use this step‑by‑step list to avoid common pitfalls.

For existing MSMEs (ongoing businesses)

  1. Confirm MSME status and annual sales
    • Verify that total annual sales is less than RM1,500,000 based on the latest year of assessment filed with IRBM.
  2. Register and declare via MyPMK (RMCD)
    • Log into MyPMK and declare MSME status; the exemption is tied to this declaration.
    • Keep records of the declaration and any acknowledgments.
  3. Keep IRBM filings up to date
    • Ensure your latest income tax return is filed; the sales figure used for the RM1.5m test must come from IRBM’s latest assessed year.
  4. Update annual sales in MyPMK every year
    • MyPMK requires annual updates of your sales figure; failure can jeopardize the exemption.
  5. Coordinate with your landlord/service provider
    • Inform them that your MSME rental/lease qualifies for Service Tax exemption and provide any invoice particulars Customs requires (e.g., noting exempted tax).
  6. Maintain robust documentation
    • Keep contracts, invoices, MyPMK confirmation, IRBM evidence and any correspondence to substantiate exemption claims if needed for RMCD review.

For newly established MSMEs (startups)

  1. Check your incorporation date
    • The one‑year exemption runs from your SSM registration date (or equivalent in Sabah/Sarawak). Record the exact date.
  2. Register MSME status on MyPMK immediately
    • Exemption requires MyPMK declaration and registration of MSME status. Do this as soon as you commence renting/leasing.
  3. Plan for the post‑exemption year
    • After the first year, you must have submitted your first IRBM tax return and updated IRBM data into MyPMK to continue enjoying the MSME exemption (if you remain within the RM1.5m threshold).
  4. Verify invoices show exemption treatment
    • Ask your landlord/service provider to reflect the exemption properly on invoices.

If you exceed RM1.5m annual sales

  • You will no longer qualify for the MSME rental/lease exemption and should expect Service Tax at 6% (operationalized as 2% exemption pending gazette). Ensure systems are updated for rate changes in billing and reporting.

Practical tips and compliance notes

  • Rate transition handling: For tenants above RM1.5m, the 6% rate applies from 1 Jan 2026, but appears administratively as a 2% exemption until the amended rate order is gazetted.
    Discuss with your landlord how credit notes or invoice adjustments are managed if there are overlaps with pre‑2026 billing.
  • Accuracy matters: RMCD can recover Service Tax if declarations are inaccurate or conditions are unmet; keep evidence and update MyPMK annually.
  • Group relief & other carve‑outs: Additional reliefs (e.g., intra‑group rental/leasing; specific assets like aircraft/ships) exist under Service Tax Policy 2/2025 and subsequent amendments. If relevant, review those policies with your advisor.

Sales Tax and Services Tax 2018

Goods and services tax