Service Tax Expansion 2025 Updates

Service Tax Exemption on Acquisition of Re-Insurance and Re-Takaful Services.

The Minster of Finance (MOF) has granted an exemption from payment of Service Tax on the acquisition of re-insurance services or re-takaful services by insurance and takaful companies.

1. Service Provider
   The service provider must be either:
   
   • a person registered under the Service Tax Act 2018; or
   • a financial service provider located outside Malaysia.
2. Recipient
   The recipient of the service must be a registered person under Group H in the First Schedule to the Service Tax Regulations 2018.
3. Purpose of Service Acquired
   The re-insurance or re-takaful services acquired must be used solely for the purpose of providing medical insurance, medical takaful, life insurance or family takaful services.

1. Amendment on Timeline for Signing and Stamping of Non-Reviewable Contracts

Non-reviewable contracts are exempted from the payment of Service Tax for a period of one (1) year,  from 1 July 2025 to 30 June 2026.

Previously, one of the conditions to qualify as a Non-Reviewable Contract required that the contract be made in writing, signed and stamped by the Inland Revenue Board of Malaysia (IRBM) on or before 9 June 2025.

Under the revised policy, the timeline has been extended as follows:

• The contract must be made in writing, signed before 1 July 2025, and
• The contract must be duly stamped with stamp duty by the IRBM before 31 December 2025.

The timeline for Variation Order (VO) and Extension of Time (EOT) has also been amended to align with the revised dates.

2. New Service Tax Exemption for Construction of Residential Buildings and Related Public Facilities within Mixed Developments

An exemption from the payment of Service Tax is granted to developers or landowners undertaking the construction of residential buildings and public facilities related to those residential buildings within a mixed development project, subject to fulfillment of the prescribed conditions.

Where public facilities are shared between residential and non-residential buildings, apportionment is allowed using the following formula:

3. New B2B Exemption for Consultancy Services Under a Design and Build Construction Contract

Exemption from the payment of Service Tax is granted to the main contractor appointed by the developer or landowner for the following consultancy services under Group G, subject to the fulfillment of specified conditions:

• Legal services;
• Accounting, auditing and book-keeping services;
• Surveying services including valuation, appraisal and estate agency;
• Engineering consultancy services;
• Architectural services;
• Consultancy services;
• Management services; and
• Maintenance or repair services.

4. New B2B Exemption for Construction Works from July 2025 to August 2025

The B2B exemption for construction works is granted for the period from 1 July 2025 to 31 August 2025. This exemption applies to construction service providers who:

• Newly reached the Service Tax registration threshold in July 2025, and
• Have applied for Service Tax registration on or before 31 August 2025.

A refund claim for any Service Tax declared and paid in the SST-02 return is allowed, provided that the claim is submitted on or before 30 November 2025 and the relevant conditions are fulfilled.

5. Clarification on Sales Tax and Service Tax Treatment for Engineering, Procurement, Construction and Commissioning (EPCC) Contracts for the Construction of Ships or Platforms

EPCC contracts for construction of ships and platforms are granted the option to determine the tax treatment of shipbuilding, whether it is classified as manufacturing activities under Sales Tax or construction works under Service Tax, subject to the fulfillment of the prescribed conditions. 

6. Clarification on Sales Tax and Service Tax Treatment for Contracts related to Installation Works 

1. Contracts with separate value components for goods and installation work:
   • Service Tax is imposed only on the installation work.
   • Supply of goods is not subject to Service Tax.
2. Contracts without separate value components for goods and installation work:
   • If the service provider is a registered manufacturer under Sales Tax Act 2018:
     • The installation work is treated as part of the value of the goods supplied.
     • Sales Tax is imposed on the entire contract value.
   • If the service provider is not a registered manufacturer under Sales Tax Act 2018:
     • The value of the goods supplied is treated as part of the installation work.
     • Service Tax is imposed on the entire contract value.

7. Clarification on Service Tax Treatment for Supply of Materials under Construction Works

1. Invoices with Separate or Itemised Billing
   If the construction service provider issues separate invoices or itemised billing for the value of construction materials or goods and construction works, Service Tax is imposed only on the value of construction works. The supply of construction materials or goods is not subject to Service Tax.
2. Invoices without Separate or Itemised Billing
   If the invoice does not separate the value of construction materials or goods and construction works, Service Tax is imposed on the total value of the invoice.

1. New Service Tax Exemption for Doctor’s Consultation Fees  

Consultation fees charged by professional doctors at registered private healthcare facilities, practitioners of traditional and complementary private medical practices, and private allied health services are exempted from the imposition of Service Tax, provided that the consultation fees are separately shown from other medical treatment charges in the same invoice. 

2. New Service Tax Exemption for Health Screening Services 

The MOF has granted the following Service Tax exemptions:

• Health screening management services for non-citizen workers provided by service providers, such as FOMEMA; and
• Health screening services for non-citizen workers provided by private healthcare facilities through health screening management service providers such as FOMEMA.

3. New Service Tax Exemption for Non-Healthcare Services Provided by Private Healthcare Providers until 30 June 2025

An exemption from the imposition of Service Tax is granted to private healthcare service providers registered or licensed under the Private Healthcare Facilities and Services Act 1998, whether or not registered under the Service Tax Act 2018.

This exemption applies to other services listed in the First Schedule of the Service Tax Regulations 2018, excluding healthcare services, for the period from 1 September 2018 to 30 June 2025.

4. Clarification on Service Tax Treatment for Private Hospitals Using Third-Party Healthcare Services 

No B2B exemption is granted for private hospitals that obtain healthcare services from third parties (such as other private healthcare facilities or allied health facilities).

The Service Tax treatment depends on whether the patient walks in directly to a third-party facility. 

• If the patient walks in directly to the third-party facility, the healthcare service provided by a third-party facility to the private hospital is subject to Service Tax.
  
  Example: Private healthcare facility A refers a non-citizen patient to private healthcare facility B, but facility A bills the patient. Facility B’s invoice to facility A is subject to Service Tax. 
• If the patient does not walk in directly to the third-party facility, the healthcare service provided by a third-party facility to the private hospital is not subject to Service Tax. 
  
  Example:  Private healthcare facility A sends a non-citizen patient’s fluid samples (e.g. blood or urine) to private healthcare facility B, but facility A bills the patient. Facility B’s invoice to Facility A is not subject to Service Tax.

5. Clarification on Service Tax Treatment for Other Services 

The Service Tax policy clarifies that the following supplies are considered part of healthcare services and therefore subject to Service Tax: 

• Healthcare treatment invoices that include medical aids, whether charged on the same invoice or on a separate invoice;
• Ancillary services such as luggage storage; and
• Rental of medical machines or equipment used for delivering healthcare treatment to patients. 

6. Clarification on Service Tax Treatment for Payments under Government Guarantee Letter (GL)

For non-citizen patients who have Malaysian spouses and are employed by the Government, and whose treatment payments are made though a GL, the Government does not bear the Service Tax under a GL arrangement.

The non-citizen patient is responsible for paying Service Tax. Therefore, the private healthcare facilities must collect the Service Tax from the non-citizen patient upon discharge.