Employment services are a taxable service under Malaysian service tax law. A company that supplies workers to another business is generally required to charge service tax on that arrangement.

There is one common exception. When an employer temporarily places its own worker with another company, instead of supplying manpower as a business, this is called secondment and it is not taxed. The same applies when the employment service is for work done outside Malaysia.

The tricky part has always been telling a real secondment apart from what is actually outsourcing in disguise, which stays taxable. The Royal Malaysian Customs Department has now issued a new ruling, Ketetapan Umum Bil. 5/2026, to set out exactly what makes an arrangement a genuine secondment.

Under the ruling, all of the following must be true. There must be a loan of employee agreement between the original employer and the receiving company. The original employer must not be in the business of supplying workers, such as an employment agency. The worker is moved temporarily for a fixed period and returns to the same employer after. Employment with the original employer continues without any break. During the loan, the worker works only for the receiving company, which has full control over him. Salary and allowances are paid by the receiving company, with no extra charges added. The secondment must last less than six months in that year, and cannot spill over into the next year.

If even one condition is not met, the arrangement is treated as a taxable employment service.

Companies that lend staff to related companies or business partners should check their arrangements against these conditions, since missing even one can turn a tax free arrangement into a taxable one.

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