Construction Firms Get Service Tax Exemption on Offshore Projects for Foreign Clients

Service Tax Policy No. 5/2026, issued by the Royal Malaysian Customs Department on 8 September 2026, introduces a service tax exemption for construction work carried out for clients based outside Malaysia. This covers construction services for offshore and onshore facilities, as well as the conversion of ships into floating structures.

Under this policy, two groups benefit. Clients outside Malaysia no longer need to pay service tax on these construction services, based on paragraph 34(3)(a) of the Service Tax Act 2018. Construction service providers in Malaysia also no longer need to charge or collect service tax on these services when supplied to clients outside Malaysia, based on subsection 34(4) of the same Act. The exemption takes effect from 1 July 2025.

Several conditions apply. The service provider must be registered under Group L of the First Schedule to the Service Tax Regulations 2018. The contract must be in writing, signed with the client outside Malaysia, and stamped with stamp duty by LHDN. The exemption lasts from 1 July 2025 until the project is completed or the contract expires, whichever comes first.

Every invoice issued must carry a statement confirming the exemption, referencing the relevant provisions and Service Tax Policy No. 5/2026. If a service provider has already collected service tax from customers from 1 July 2025 onwards, this amount must still be paid to the Customs Department, and no refund will be given for tax already collected.

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