The Royal Malaysian Customs Department has issued Service Tax Policy No. 2/2025 (Amendment No. 5), replacing all earlier versions of the rental or leasing services policy under Group K, First Schedule, Service Tax Regulations 2018.

The main change concerns Micro, Small, and Medium Enterprise tenants, whose exemption now follows two tiers instead of one. Tenants with annual sales below RM1 million continue to qualify from 1 July 2025. Tenants with annual sales between RM1 million and RM1.5 million, however, only qualify from 1 January 2026, six months later.

Beyond the sales threshold, two new conditions have also been introduced. MSMEs must have paid up ordinary share capital not exceeding RM2.5 million. Where an MSME is established by a company within the same group, that company's shareholding must not exceed 20 percent. These conditions apply not only to existing MSMEs but also to newly established MSMEs claiming the one year exemption.

Alongside these tightened conditions, the MyPMK registration deadline for MSMEs to enjoy the exemption has been extended to 31 December 2026, giving businesses more time to register before the cut off.

Separately, the amendment confirms that the service tax rate on rental or leasing services is now permanently fixed at 6 percent. Businesses had already been paying this rate through a temporary 2 percent discount off the standard 8 percent rate. With the Service Tax (Rate of Tax) (Amendment) Order 2026 gazetted on 13 March 2026, that temporary discount is no longer needed and has been withdrawn, since 6 percent is now the official rate in law. There is no change to the amount businesses actually pay.

With both the eligibility criteria and the registration timeline now changed, businesses that lease out property or equipment, and tenants relying on MSME status, should check their eligibility against these updated conditions.

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