Complete Guide to SST Malaysia: Sales & Service Tax Updates for 2025
Malaysia’s SST (Sales and Service Tax) system, governed by the Sales Tax Act 2018 and Service Tax Act 2018, is a dual-track indirect tax framework that replaced the former Goods and Services Tax (GST). For businesses operating in Malaysia, understanding the nuances of SST Malaysia is crucial for compliance, effective cash flow management, and long-term strategic planning. This blog post breaks down the key elements of SST Malaysia, the latest updates, and actionable steps to ensure businesses stay compliant and thrive.
With AutoCount Accounting you can easily set up Malaysia’s SST modules and remain compliant. Learn more in our detailed guide in AutoCount SST feature overview.
The Dual Structure of SST Malaysia: Sales Tax vs. Service Tax
SST Malaysia comprises two distinct taxes, each with separate rules, thresholds, and accounting methods:
Sales Tax Malaysia
Scope:
- Sales Tax is imposed on manufactured goods (by registered manufacturers) and imported goods. It does not apply to services.
Key Points:
Registration Threshold
RM500,000 annual turnover for manufacturers.
Tax Rates
Standard 10% rate, with a 5% rate for essential items (e.g., construction materials).
Accounting Basis
Sales tax liability arises when goods are sold, disposed, or first used internally (even before payment is received).
Cash Flow Impact
Businesses must remit tax before receiving payment, creating a potential mismatch in cash flow.
Service Tax Malaysia
Scope:
- Service Tax is levied on prescribed taxable services, which have been expanded significantly with the July 2025 updates.
Newly Taxable Services (2025 Expansion):
- Leasing & rental services
- Construction services
- Fee-based financial services
- Private healthcare and education for non-citizens
- Club membership, wellness, and recreation services
Key Points:
Registration Threshold
RM500,000 for most industries, RM1,500,000 for F&B businesses.
Tax Rates
6% standard rate, 8% for select services (effective 2024).
Accounting Basis
Cash Basis — Tax liability is triggered only when payment is received.
Time of Supply: When SST Malaysia Becomes Payable
Knowing when SST Malaysia becomes payable is critical for accurate reporting and avoiding penalties.
Sales Tax Malaysia Timing
- Trigger: Sales tax is due at the point of sale, disposal, or first use.
- Cash Flow Mismatch: Since tax is payable before receiving payment from customers, this creates a potential liquidity challenge for businesses.
Service Tax Malaysia Timing
- Trigger: Service tax is payable only when payment is received.
12-Month Deemed Paid Rule (Service Tax Malaysia)
- If an invoice remains unpaid for 12 months, service tax is deemed paid on the 13th month and must be reported and remitted during the next filing period.
Example:
- Invoice issued: 1 January 2024
- No payment received by: 1 January 2025
- The service tax must be reported and paid in January–February 2025 SST return.
Bad Debt Relief in SST Malaysia: Recovering Tax on Unpaid Invoices
In SST Malaysia, both Sales Tax and Service Tax provide mechanisms for businesses to claim relief on bad debts.
Sales Tax Malaysia Bad Debt Relief
Eligibility Criteria:
- Debt must be older than 12 months
- Written off in the company’s accounts
- Reasonable collection efforts documented
Refund Claim Process:
- Form JKDM No.2 should be filed to claim a refund of tax already paid on bad debts.
- Formula for Refund:
Service Tax Malaysia Bad Debt Relief
Eligibility Criteria:
- Applies after tax has been paid under the 12-month deemed rule.
- Claim Process: Businesses can claim via SST-02 (Item 13d) or JKDM No. 2.
- If payment is eventually received, the business must repay the corresponding service tax to the authorities.
Exemptions in SST Malaysia: Avoiding Cascading Taxes
SST Malaysia includes targeted exemptions to help businesses avoid double taxation. Here’s how they work:
Sales Tax Malaysia Exemptions
- Schedule A: Exempts specific entities such as government bodies and duty-free shops.
- Schedule B: Allows manufacturers to buy certain tax-exempt goods without sales tax.
- Schedule C: Enables registered manufacturers to buy raw materials tax-free for production.
Service Tax Malaysia Exemptions
- B2B Exemptions: Services between businesses that are both registered under SST Malaysia (e.g., accounting, logistics).
- Group Relief: Intra-group services are exempt for qualifying corporate groups.
Out-of-Scope Services:
- Exported services
- Services related to land or goods outside Malaysia
- Some education and healthcare services for Malaysian citizens
Key Updates in SST Malaysia for 2025: What You Need to Know
A significant shift is coming to SST Malaysia with new taxable services and compliance requirements set to take effect on 1 July 2025.
What’s Changing?
1. Newly Taxable Services:
- Leasing & rental of tangible goods and property
- Construction services
- Fee-based financial services (e.g., advisory, management)
- Private healthcare and education for non-citizens
- Wellness, recreation, and club membership services
2. Expanded Reporting on SST-02:
- New requirements for bad debt relief, B2B exemptions, and group relief.
- Businesses will need to properly track and report taxes on mixed supplies (e.g., hotels offering both accommodation and F&B).
3. Sales Tax Changes:
- Certain consumer goods previously exempt will now be subject to sales tax under SST Malaysia.
- New rates and exemptions to address changing consumer habits and regulatory demands.
Strategic Recommendations for Businesses Navigating SST Malaysia
Here are some strategic steps your business can take to manage SST Malaysia effectively:
1. Monitor Accounts Receivable
- Regularly track aging invoices to anticipate the potential for 12-Month Deemed Paid Rule application.
2. Leverage Exemptions
- Use Schedule C for raw material exemptions (Sales Tax Malaysia) and apply B2B exemptions for services to reduce tax costs.
3. Update Accounting Systems for Multi-Rate Scenarios
- Ensure that your accounting software (AutoCount, Million Accounting) is set up to handle multiple tax rates, such as 6% and 8% for different services, and supports the SST-02 form.
4. Document Diligently
- Keep thorough records of debt write-offs, collection efforts, export documents, and contracts for both Sales Tax Malaysia and Service Tax Malaysia.
Conclusion
SST Malaysia is evolving, with significant changes on the horizon in 2025. By understanding the interplay between Sales Tax and Service Tax, strategically applying exemptions, and staying on top of updates, businesses can navigate SST Malaysia compliance more smoothly and avoid unexpected costs.
Proactively adjusting your accounting systems, understanding new taxable services, and leveraging tax relief will not only ensure compliance but also position your business to operate efficiently in a complex tax environment.
Disclaimer
The content of this article is provided for general informational purposes only and does not constitute professional tax or legal advice. While every effort has been made to ensure accuracy and timeliness, the laws and regulations governing SST in Malaysia may change, and individual circumstances can differ. You should not rely solely on the information here when making decisions related to SST registration, pricing, invoicing, or compliance. For advice tailored to your specific situation, please consult a qualified tax professional or contact the Royal Malaysian Customs Department (RMCD) directly. We disclaim any liability for losses or damages arising from reliance on this content.
Need more help with SST Malaysia compliance?
Consult a qualified tax advisor to ensure your business is ready for the upcoming changes in 2025.
