SST Expansion for Construction in Malaysia Effective 1 July 2025 : What Foreign Investors Should Know
Foreign investors should be aware that Malaysia’s Sales and Service Tax (SST) now covers construction services starting 1 July 2025. This expansion has direct implications for investment projects, as it affects project costs, contracts, and financial planning. Understanding how SST applies to construction is essential for smooth and predictable project execution.
Brief Introduction to SST
The Sales and Service Tax (SST) in Malaysia is administered by the Royal Malaysian Customs Department (RMCD). SST applies to certain goods and services and is an important consideration for financial planning for investment in Malaysia.
Expanded SST Effective 1 July 2025
Starting 1 July 2025, Malaysia expanded the scope of its service tax to cover more sectors, including:
Rental and leasing services
Construction services
Education services
Financial services
Health care services
Other selected services
This expansion broadens Malaysia’s tax base and ensures that key sectors contribute fairly to government revenue.
SST on Construction: Coverage and Exclusions
Included:
Commercial construction projects such as factories, office buildings, industrial facilities, and commercial renovations.
Services provided by contractors, sub-contractors, and related service providers.
Excluded:
Residential properties remain exempt from SST.
SST Rate for Construction Services
The standard SST rate for construction services is 6%, applied to the taxable value of services provided.
Impact on Investors
The expanded SST affects both local and foreign investors in similar ways:
Project Costs: Investors must include SST in the budget for construction projects.
Contract Considerations: Investment agreements should account for SST to avoid unexpected costs.
Key Insight: Investors involved in substantial projects should plan for SST from the start, as it is unavoidable for large-scale construction.
Exemption for Small-Scale Contractors
SST provides exemptions for small-scale contractors under certain thresholds. However, for large-scale investment projects, it is not feasible to engage small-scale contractors, as they generally lack the technical expertise and financial capacity to handle such projects. Moreover, if a small-scale contractor were to undertake a large-scale project, they would immediately be classified as a contractor subject to SST. As a result, all large-scale investment projects are fully subject to SST.
Conclusion
The SST expansion in Malaysia, effective 1 July 2025, now includes construction services. This affects project costs and investment agreements for both local and foreign investors. Understanding the coverage, rate, and implications of SST helps investors plan better and avoid unexpected costs, ensuring smoother execution of construction projects in Malaysia.