How Many Types of Service Agreements Are There, and Does Stamp Duty Differ?

According to the stamp duty guideline for service agreements, covering any agreement under which one party performs work for another, such as construction, maintenance, security, consultancy and advisory services. The guideline shows that the duty payable depends largely on the type of agreement.

A service agreement is chargeable with duty at RM5 for every RM1,000 or part of the contract value. On a RM27.5 million construction contract, that comes to RM137,505. Most service agreements, however, qualify for a remission that reduces this significantly.

The first type is a contract between a main service provider and a private client. Duty is limited to 0.1% of the contract value, so the RM27.5 million contract pays RM27,501.

The second type is a contract with the Federal or State Government or a local authority. Where the government party is liable to pay the duty, the agreement is exempt.

The third type is a sub-contract under a government project. When a main contractor holding a government contract awards the work to a sub-contractor, that sub-contract bears duty at 0.1%.

The fourth type covers sub-contracts further down the chain, where duty is capped at RM50. A RM25 million sub-contract that would otherwise attract RM125,000 pays only RM50. If the normal calculation is below RM50, the actual amount applies, so a RM9,000 sub-contract pays RM45. In a multi-tier arrangement, the 0.1% rate is charged at one tier only.

The fifth type is an agreement with no fixed total, such as land filling charged at RM115 per lorry load until completion. The remission does not apply, and a fixed duty of RM10 is payable by the party who prepares or executes the document.

The sixth type is an agreement with no fixed duration, such as a panel clinic paid RM2,000 a month and terminable on three months' notice. This also falls outside the remission, and LHDN's example arrives at RM20, at RM1 for every RM100.

Apart from the fifth type, duty is payable by the party receiving the service, subject to a minimum of RM10. To qualify for the RM50 rate, a sub-contract should state the parties to and date of the upper-tier agreement, its subject matter, and that the upper-tier agreement has been duly stamped.

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