The Royal Malaysian Customs Department has released an updated guide on service tax for motor vehicle service or repair, dated 10 June 2026. This replaces the earlier 2021 version and brings important changes that workshop owners and vehicle repair operators should pay attention to.

One major update relates to branches operating in Designated Areas like Langkawi, Labuan, Tioman and Pangkor. Tax treatment is now based on where the registered person's principal place of business is located, not where the branch operates. So if your workshop is registered in Kedah and has a branch in Langkawi, repair services provided by that Langkawi branch are now subject to service tax. The location of the head office determines the tax treatment, regardless of where the actual service takes place.

Alongside this, the guide adds clearer rules on Special Areas, such as free zones and licensed warehouses, explaining how service tax applies when services are provided between Special Areas and Designated Areas. This gives more clarity for businesses operating across these different zones.

The guide also provides a clearer example on how free servicing arrangements should be billed and taxed. Take a customer who buys a car from a dealership, where the purchase price already includes one year of free servicing at any authorised service centre. When the customer brings the car in for servicing, the centre does not charge the customer directly, since this cost has already been absorbed into the original sale price. Instead, the service centre bills the dealership for the servicing cost, and this amount is subject to service tax. In other words, even when a customer pays nothing out of pocket, service tax still applies to the transaction between the service centre and the dealership.

If you wish to focus on running and growing your business, our CFO advisory team can take care of your accounting, payroll, tax planning and compliance matters for you. Feel free to WhatsApp us at 010-246 2151.

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