Customs just released a revised version of its Employment Services Guide under the Service Tax 2018 framework. Version 4, dated 9 June 2026, replaces the previous edition from May 2024. If your business uses manpower agencies, labour suppliers, or HR outsourcing firms, this update is worth reading.

The guide confirms that employment services have been a taxable service since 1 September 2018, sitting under Group G of the First Schedule of the Service Tax Regulations 2018. Any provider crossing RM500,000 in taxable turnover must register and charge 8% service tax.

What counts as employment services is broad. It covers supplying workers on a permanent or contract basis, recruitment and placement, executive search, and HR management. Even if you charge based on hourly rates or daily wages, the full amount is still subject to service tax. Customs has made clear that salary reimbursements and cost recovery without markup do not escape the tax. Levy payments, work permits, and insurance are all included in the taxable value.

There are two key exemptions. First, temporary secondments between companies are not taxable, but only if all seven conditions are met. This includes having a written secondment contract, the lending company's core business not being employment services, the employee returning to the original employer after the secondment, and the borrowing company bearing all salary costs without any markup or service fee. Second, employment services performed outside Malaysia are not taxable, regardless of where the agency is based.

One point that catches businesses off guard: group relief does not apply to employment services. Neither does the B2B exemption. Even if two companies are within the same corporate group, service tax still applies when one supplies workers to another.