Malaysia SST Expansion 2025–2026: The Complete Royal Malaysian Customs Guide for Foreign Companies — New Service Categories, Sales Tax Rates, Import Rules, Registration Thresholds and Full Enforcement from January 2026

1. Background: Why Malaysia Expanded SST — and Why It Matters to Foreign Investors

Malaysia replaced its Goods and Services Tax (GST) with the narrower Sales and Service Tax (SST) in September 2018. Unlike GST — which was levied at every stage of the supply chain — SST operates as a single-stage tax: Sales Tax applies once at the manufacturing or importation stage for goods, and Service Tax applies at the point of service delivery for designated services. This architecture means that only registered businesses at the "first point" of the chain account for the tax — a simpler system, but one that historically left large swathes of the economy outside the tax net.

By 2024, the government's fiscal position and the need to reduce reliance on petroleum-related revenue prompted a rethink. Under Budget 2025 (tabled October 2024), the government announced a material expansion of SST scope aimed at broadening the national revenue base. The Ministry of Finance projected that the expanded SST would generate an additional RM 5 billion in revenue in 2025 and RM 10 billion in 2026 — a signal of just how significant the reform is. The total projected SST collection for 2025 was set at RM 51.7 billion.

Importantly, the government's stated design principle was progressivity: tax the non-essential, the luxury, and the high-income service sectors, while protecting daily necessities and lower-income households. That principle has direct implications for which categories of foreign-business activity are caught and which are not.

2. The Sales Tax Expansion: What Imported Goods Are Now Taxable?

Sales Tax is a single-stage tax applied either at the point of importation (for imported goods) or at the point of first sale by a registered manufacturer (for locally produced goods). The July 2025 reform focused heavily on imported goods that were previously classified as exempt.

2.1 The 5,145 Tariff Lines Review

Prior to July 2025, RMCD had identified 5,145 tariff lines that were exempted from Sales Tax. The expansion review classified these into three outcomes: (1) remain exempt (essential items); (2) become taxable at 5% (non-essential/processed goods); or (3) become taxable at 10% (discretionary/luxury goods). Businesses importing any goods into Malaysia must now check the updated Harmonized System (HS) code classification of their products against the revised Sales Tax schedule.

2.2 The Dual-Tier Sales Tax Structure

After the expansion, Malaysia's Sales Tax for goods operates across three tiers:

The legislation was gazetted on 9 June 2025 and implementation began on 1 July 2025. For importers, Sales Tax is due at the point of customs clearance — meaning the tax is collected upfront when goods cross the Malaysian border. This directly affects landed cost calculations for businesses bringing goods into Malaysia from China, Taiwan, or elsewhere in the region.

2.3 What Was Removed After Public Consultation

The original announcement included Sales Tax on certain imported fruits and beauty services. Following public feedback and stakeholder representations, the Ministry of Finance confirmed that imported apples, oranges, mandarin oranges and dates would be exempt from Sales Tax. Beauty services (manicures, pedicures, facials, hairdressing) were also withdrawn from the Service Tax expansion. These adjustments illustrate that the RMCD framework is responsive — but businesses must monitor official MySST portal announcements closely, as further refinements can occur between Budget cycles.

2.4 Low-Value Goods (LVG) and the RM 500 Threshold

A parallel regime applies to e-commerce: goods valued at RM 500 or below (excluding tobacco and alcohol) entering Malaysia from overseas are subject to a flat 10% Low-Value Goods (LVG) Sales Tax. If your foreign business sells more than RM 500,000 worth of such low-value shipments to Malaysian consumers annually, you must obtain a Low-Value Goods Registration Number (LRN) and collect the tax at the point of sale. This regime is particularly relevant for cross-border e-commerce operators shipping from China or other regional hubs.

3. The Service Tax Expansion: 30+ New Categories That Catch Most Foreign Companies

The most far-reaching element of the July 2025 reform is the Service Tax expansion. Malaysia's Service Tax framework was already organised into Groups A through J. The July 2025 expansion materially widened the scope within several of these groups and introduced completely new taxable service categories. The impact on typical foreign-company operations is significant.

3.1 The New Service Groups at a Glance

For foreign companies, three categories deserve special attention: financial services (if you operate or use regulated/unregulated financial intermediaries), leasing and rental (if you lease commercial premises, warehouses, or equipment), and construction (if you are developing property or undertaking major fit-out works).

3.2 The Leasing Tax and What It Means for Foreign Tenants

One of the most practically impactful changes for any foreign company setting up a Malaysian office, warehouse or factory is the new Service Tax on commercial leasing and rental. If your landlord's annual rental income from commercial property exceeds RM 1,000,000, they are required to register for SST and charge you Service Tax on your rent. Since January 2026, that rate is 6% (reduced from the initial 8%). On a RM 20,000/month office lease, this adds RM 1,200/month (RM 14,400/year) in non-recoverable tax cost — a number that should be factored into initial budget planning.

Residential rental of apartments and houses is explicitly exempt, so expatriate housing allowances are not affected. But commercial shoplots, office units, industrial warehouses, and retail kiosks are all within scope if the landlord is a registered person. When signing a commercial lease in Malaysia, always confirm your landlord's SST registration status and whether Service Tax has been included in or added to the quoted rent.

3.3 Financial Services and the Credit Card Tax

From 1 July 2025, an 8% Service Tax applies to financial services — covering both regulated and unregulated providers. This encompasses banking service charges, fund management fees, brokerage commissions, and insurance premiums (fee/commission component). Additionally, credit and charge cards now attract a RM 25 per card per year Service Tax levy. For a foreign company operating multiple corporate cards and using a range of financial services, these costs aggregate meaningfully across the year.

4. Import Duty, the Full Landed-Cost Picture and Key Exemption Routes

Sales Tax sits on top of — not instead of — import duty. Understanding the full landed-cost stack is essential for any foreign company importing goods into Malaysia.

4.1 The Landed Cost Stack

When goods are imported into Malaysia, the total tax burden is calculated in sequence. Import Duty (also called Customs Duty) under the Customs Act 1967 is applied first to the CIF (Cost, Insurance and Freight) value of the goods. The rate ranges from 0% to 60% on an ad valorem basis, with Malaysia's simple average applied tariff for industrial goods at approximately 6.1%. Sales Tax (5% or 10%) is then applied on top of the duty-inclusive value. Excise Duty applies additionally to specific categories such as motor vehicles, tobacco and alcohol. This compounding effect means the effective tax burden on a luxury import can be substantially higher than any single rate implies.

4.2 Export Duties

Most goods exported from Malaysia are not subject to export duty. The exceptions are specific commodities — principally crude petroleum, palm oil, timber, and certain minerals — where export duties of 5%–20% may apply to manage domestic supply and resource exports. For foreign manufacturers using Malaysia as a regional production and export hub, this generally means export costs remain competitive.

4.3 Key Exemption Mechanisms for Foreign Manufacturers

Several official mechanisms can significantly reduce or eliminate the SST and import duty burden for qualifying businesses:

• Free Trade Zones (FTZs) / Free Industrial Zones (FIZs): Businesses operating within these designated areas benefit from duty and tax exemptions on most imported inputs. FIZs are designed for manufacturing and export-oriented industries. To establish in an FTZ, a business must register as a private limited company, meet capital and permit requirements, and register with Customs.
• Licensed Manufacturing Warehouse (LMW): LMWs operate under the Customs Act 1967 and offer tax exemptions on imported raw materials, components, machinery and equipment used directly in manufacturing. Companies typically need to export at least 80% of production to qualify.
• RCEP and CPTPP Preferential Tariffs: Malaysia is a member of both the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Goods originating from member countries — including China, Japan, South Korea, Australia and New Zealand under RCEP — may attract 0% or reduced import duty rates if proper Certificates of Origin are presented.
• MIDA / MOF Exemptions for Manufacturers: Qualified manufacturers can apply for import duty and Sales Tax exemptions on manufacturing aids, raw materials and capital equipment. Applications are made to MIDA and RMCD jointly.
• Zero-Rating of Critical Agricultural Inputs: Animal feed, fertilisers and pesticides used by registered manufacturers are zero-rated for Sales Tax purposes — directly relevant to agri-food processors.

5. SST Registration: The Process Step by Step for Foreign-Owned Companies

Registration for SST in Malaysia is mandatory once any applicable threshold is crossed. There is no discretionary element — if your company's taxable revenue in any 12-month period exceeds the relevant threshold, you must register. Foreign ownership does not create any exemption or deferral right.

5.1 Registration Thresholds Summary

• Sales Tax (manufacturing/importation): RM 500,000 of taxable manufacturing turnover per 12 months.
• Service Tax (most groups): RM 500,000 of taxable service revenue per 12 months.
• Leasing / Financial Services: RM 1,000,000 per 12 months.
• Construction / Private Healthcare: RM 1,500,000 per 12 months.
• F&B services: RM 1,500,000 per 12 months.
• Private Education: RM 60,000 per student per academic year (threshold based on fee level, not total revenue).
• Digital Services (Foreign Registered Persons): RM 500,000 of annual revenue from Malaysian customers.

Note that Sales Tax and Service Tax registrations are separate processes on the MySST portal, each with its own submission and approval workflow. A company may need to register for one, both, or neither, depending on its activities.

5.2 Step-by-Step Registration on the MySST Portal

1. Threshold check: Confirm your company's taxable revenue against the applicable threshold for your activity. Monitor on a rolling 12-month basis — registration is required by the end of the following calendar month after the threshold is crossed.
2. Gather documents: You will need your company's SSM registration certificate, business activity description, financial records evidencing threshold breach, director/company secretary details, and bank account information.
3. Visit the MySST portal (mysst.customs.gov.my) and complete the online registration form for either Sales Tax (Schedule A/B) or Service Tax (Schedule C), or both where applicable.
4. Upload supporting documents and submit. RMCD typically verifies applications within 5–10 working days.
5. Receive your SST registration number by email. This number must appear on every tax invoice you issue.
6. Set your effective date: Service Tax is charged from the date RMCD approves your registration (or from the date you crossed the threshold — RMCD may backdate). Do not charge SST before registration is confirmed.
7. File SST-02 returns bi-monthly via the MySST portal, remit the tax collected, and maintain transaction records for at least 7 years.

5.3 Invoicing Requirements

Every SST-registered company must include the following on invoices: the SST registration number; the SST amount expressed both as a percentage and as a ringgit figure; and a clear separation of taxable and exempt line items where mixed supplies exist. Common errors — such as stating only the percentage without the ringgit amount, or applying 8% to F&B/parking/logistics services that carry 6% — will attract scrutiny during RMCD audits. RMCD also released a new Guide on Completing the SST-02 Return (Manual/Amendment) as recently as 31 May 2026, reflecting ongoing refinement of the system. Given that Malaysia's e-invoicing system (MyInvois) runs separately under LHDN and applies to income tax reporting, businesses must manage both SST compliance (under Customs) and e-invoice compliance (under LHDN) as distinct obligations.

6. Post-July 2025 Refinements: What Has Changed Since the Initial Expansion

The initial July 2025 expansion was followed by a series of targeted adjustments as RMCD and the Ministry of Finance incorporated industry and public feedback. Understanding these refinements is critical for accurate planning:

• Rental/Leasing Rate Reduction (effective 1 January 2026): The Ministry of Finance announced on 5 January 2026 that the Service Tax rate on rental and leasing services for industrial use would be reduced from 8% to 6%. This is projected to save tenants approximately RM 500 million per year. The formal amendment — Service Tax Policy 2/2025 (Amendment No. 3), dated 23 January 2026 — also raised the annual sales threshold for MSME exemption from RM 1 million to RM 1.5 million.
• Construction Contract Exemption Extended (effective 5 January 2026): The Service Tax exemption on construction contracts signed before 1 July 2025 (non-reviewable contracts) has been extended by one year — it now runs until 30 June 2027, giving eligible contractors a total of two years of exemption from the transition date.
• Sales Tax Policy No. 2/2026 — Reimportation Exemption: RMCD issued Sales Tax Policy No. 2/2026 covering interim exemption of import duty and Sales Tax on the reimportation of Malaysia-made goods — relevant for exporters who temporarily send goods overseas for processing or repair.
• New Service Tax Guides issued in 2026: RMCD published sector-specific guides covering parking space services (4 June 2026), employment services (9 June 2026), motor vehicle services/repair (10 June 2026), electricity transmission and distribution (April 2026), and a comprehensive Refund, Drawback and Review Guide (15 June 2026). These indicate that RMCD is actively firming up implementation rules across the expanded service scope.
• Public Ruling No. 2/2026: Clarifies the meaning of the word "used" under Subregulation 17(1)(g) of the Sales Tax Regulations 2018 — relevant for manufacturers claiming exemptions on manufacturing aids.

7. Enforcement Landscape: What Foreign Companies Face from January 2026

The grace period — during which the RMCD offered temporary waivers of penalties and prosecution for businesses adapting to the new scope — ran from 1 July to 31 December 2025. Full enforcement began on 1 January 2026. This means the RMCD is now actively auditing newly registered and eligible-but-unregistered businesses.

7.1 Penalty Structure

• Failure to register: Fine up to RM 50,000, imprisonment up to 3 years, or both.
• Failure to file SST-02 returns: Fine up to RM 50,000, imprisonment up to 3 years, or both.
• Late payment surcharge: 10%–15% of the outstanding tax amount.
• Voluntary disclosure: Businesses that self-identify errors can file an amended return or submit a voluntary disclosure to RMCD to mitigate penalty exposure.

7.2 RMCD Audit Triggers

Common triggers for RMCD audit attention include: businesses in newly taxable sectors (leasing, finance, construction) that have not registered despite exceeding thresholds; invoicing errors (wrong rate, missing SST number, no ringgit amount); failure to separate taxable and exempt supplies; and inconsistencies between SST-02 returns and e-invoice records submitted to LHDN. For foreign companies with principals or parent companies overseas, transfer pricing and intra-group service fee arrangements may also receive scrutiny for SST treatment on Imported Taxable Services (ITS).

8. A Practical Scenario: A Chinese Manufacturing Company Setting Up in Malaysia

Consider a Chinese manufacturer — call it GreenTech Sdn Bhd — that sets up a 100% foreign-owned company in Malaysia to import components from China, assemble finished goods locally, and sell to Southeast Asian markets. Here is how the July 2025 SST expansion affects its operations:

• Importing components from China: Some components that were previously Sales Tax-exempt may now attract 5% Sales Tax at the point of customs clearance, depending on their HS code. GreenTech must reclassify all imported SKUs against the updated Sales Tax schedule and renegotiate landed-cost budgets accordingly. It should also assess whether LMW status or FIZ location would eliminate this liability entirely, given that it exports the finished product.
• Commercial premises: GreenTech leases a warehouse in Selangor at RM 30,000/month. If the landlord's annual rental income exceeds RM 1,000,000 (which a commercial landlord almost certainly does), the landlord will charge 6% Service Tax — adding RM 1,800/month (RM 21,600/year) to GreenTech's occupancy cost. This should be reviewed at lease negotiation and budgeted from year one.
• Financial services: GreenTech uses a Malaysian bank for trade financing, letters of credit and FX services. Bank charges now attract 8% Service Tax. On RM 200,000/year of banking service fees, this adds RM 16,000/year in non-recoverable tax.
• Sales of finished goods (manufacturing): If GreenTech manufactures and sells locally-assembled products that are taxable goods under the Sales Tax schedule, it must register as a manufacturer for Sales Tax purposes once its taxable manufacturing turnover exceeds RM 500,000. It then charges Sales Tax (5% or 10% depending on the product) on first sale to Malaysian buyers.
• SST-02 filing: Once registered (for both Sales Tax as a manufacturer and potentially Service Tax if it provides any taxable services), GreenTech must file bi-monthly SST-02 returns via the MySST portal, remit the net tax collected, and maintain records for 7 years.

The net result: SST compliance is now an integral part of GreenTech's Malaysian operating model from day one — not an afterthought. Proper corporate tax planning, including SST, is a core function. Our Corporate Tax Filing service can help newly established foreign companies structure their SST registration, filing calendar and documentation framework correctly from the outset.

9. Common Mistakes Foreign Companies Make — and How to Avoid Them

• Assuming foreign ownership means exemption. It does not. The SST thresholds and obligations apply equally to all companies incorporated in Malaysia, regardless of shareholder nationality.
• Charging SST before registration is approved. Collecting SST without a valid registration number is illegal. Wait for RMCD's approval letter and SST number before issuing any tax invoices.
• Applying the wrong rate. The most common error is applying 8% to services that carry 6% — F&B, telecommunications, parking, and logistics. Always verify the correct rate for your service group in the official Service Tax regulations and RMCD's sector-specific guides.
• Failing to separate taxable and exempt supplies on invoices. Mixed supplies (e.g., a lease that includes both taxable commercial space and an exempt residential component) must be disaggregated on the invoice.
• Missing the rolling 12-month threshold trigger. Registration is required by the end of the following calendar month after you cross the threshold — not at financial year end. Monitor your revenue on a rolling basis.
• Not factoring in SST on imports during business planning. Landing costs for goods previously treated as exempt have increased materially. Failing to account for the new 5% or 10% Sales Tax at the point of importation leads to budget overruns and pricing miscalculations.
• Treating SST and e-invoicing as the same system. SST is administered by Customs (RMCD) via the MySST portal; e-invoicing is administered by LHDN via the MyInvois system. They are separate obligations with separate portals, separate submission formats and separate enforcement bodies.
• Overlooking the Imported Taxable Services (ITS) regime. If your Malaysian company pays foreign service providers — for management fees, software licences, consulting, or IP royalties — the ITS rules may require you to self-account for Service Tax on those payments at 8%. This is a frequently missed compliance gap for foreign-owned companies with overseas parent entities.

10. What to Do Now: Your Action Plan

If your company is already operating in Malaysia, or if you are planning market entry, the SST expansion demands immediate attention. Here is a practical action checklist:

1. Conduct an SST exposure review. Map all your activities — goods imported, services provided, services received from both local and overseas providers — against the expanded SST schedule. This identifies whether you are below threshold, at threshold, or already overdue for registration.
2. Register on the MySST portal without delay. Full enforcement is in effect. If you have already crossed any applicable threshold and have not registered, you are currently non-compliant. RMCD has signalled active audits in 2026. Voluntary self-registration before an audit is far preferable to being assessed with backdated tax, interest and penalties.
3. Review all commercial contracts. Leases, construction agreements, service contracts and supply agreements may need to be amended to clarify SST treatment — whether the stated price is SST-inclusive or exclusive, and which party bears the tax.
4. Update your accounting and invoicing systems. ERP, accounting software and point-of-sale systems must be configured to apply the correct SST rate, generate compliant invoices, and produce the data needed for bi-monthly SST-02 filings.
5. Assess FTZ / LMW eligibility. If you are an export-oriented manufacturer importing raw materials or components, evaluate whether operating inside a Free Industrial Zone or as a Licensed Manufacturing Warehouse would eliminate your Sales Tax and import duty burden entirely.
6. Review intra-group service arrangements. If your Malaysian entity pays management fees, IP royalties, or receives services from an overseas parent or related party, assess whether Imported Taxable Services rules apply and whether 8% Service Tax must be self-accounted.
7. Get professional tax support. The SST landscape — with bi-monthly filings, multiple rates, ongoing policy updates from RMCD, and the interplay with e-invoicing — is too complex to manage ad hoc. Engage qualified tax professionals who understand both the SST and the broader corporate tax framework.

At ONEKEY BIZ, our Corporate Tax Filing service covers SST registration advisory, bi-monthly SST-02 return preparation and submission, RMCD correspondence management, and import/export tax structuring for foreign-owned companies. We work with clients from China, Taiwan, Hong Kong and Singapore who are navigating Malaysian indirect tax for the first time. Contact our team for a no-obligation SST exposure review tailored to your business model.

This article is general information only, not legal, tax or immigration advice. Policies, thresholds and official fees are set by the relevant Malaysian authorities and may change. Talk to our consultants about your specific situation.