Malaysia’s Expanded Sales and Service Tax (SST) framework, effective from 1 July 2025, has introduced key changes that significantly impact business operations, from higher service costs to new sales tax obligations on various goods. A grace period for non-fraudulent compliance is in place until 31 December 2025, offering businesses time to adapt.
For Singapore-based businesses with operations in Malaysia, navigating these changes is not just about compliance but a strategic necessity.
This article highlights how proactive planning can protect your interests and support long-term growth.
Key highlights of the SST expansion
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1. Dual-Tier System: Sales Tax rates are maintained at – 0% for exempted items, 5% for near-essential imported goods and 10% for discretionary goods.
2. Items such as daily essentials (e.g. rice, chicken, beef, vegetables, eggs and local frozen, chilled or fresh fish varieties) remain tax-exempt
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1. Rate Increase: The general Service Tax rate has risen from 6% to 8% for most taxable services.
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3. Most goods will now be taxed at either 5% or 10% based on the Harmonised System (HS) classification.
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2. Expanded Scope: Over 30 new categories of services are now taxable, including:
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Financial services (fee or commission-based)
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Education services (for international students)
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Rental or leasing of tangible services
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Logistics and warehousing
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Software development and IT services
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Broking services
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Advertising services
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Repair and maintenance services
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Construction services
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Private healthcare services (for non-Malaysian citizens)
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Wellness and aesthetic services
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4. The new Sales Tax rate will be charged and levied on:
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all taxable manufactured goods sold, used or disposed of in Malaysia;
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goods imported into Malaysia;
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5. Businesses manufacturing newly taxable goods that fall under the new scope must register for Sales Tax and begin charging accordingly.
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- Business-to-Business (B2B) Exemptions: To mitigate cascading tax effects, certain B2B exemptions and group reliefs are available, subject to conditions.
The Direct Impact on Singaporean Businesses in Malaysia
For Singaporean companies operating within Malaysia, particularly those in services sector, the expanded SST introduces new compliance obligations, registration requirements and tax exposure across a wider range of business activities. Companies that were previously not affected by SST may now fall under its scope.
Key areas affected:
- Higher operating costs: Businesses relying on newly taxable third-party services like logistics, warehousing, IT support, or commercial leasing may see an increase in their operational costs due to the new applied 8% service tax.
- Pricing strategy review: Companies importing or manufacturing goods now subject to new sales tax rates must re-evaluate their pricing strategies. This involves careful analysis of product classifications under the Harmonised System (HS) and possibly adjusting retail prices to protect profit margins.
- More compliance work: Medium-sized retailers, importers, and service providers that now fall within the SST net must register with the Royal Malaysian Customs Department (RMCD) via the MySST portal. Even if your business hasn’t hit the threshold yet, regular monitoring of revenue is necessary.
- Supply chain optimisation: Businesses may need to restructure their supply chains to reduce SST costs. Options include bonded warehousing, local sourcing or reviewing supplier agreements.
- Financial planning and reporting: Companies will need to update budgets, cash flow forecasts, accounting and billing systems to include SST calculations and reporting. Contracts with customers and suppliers should also be reviewed to include the correct tax treatment.
How to ensure compliance for your business
To align with the new SST framework and avoid penalties, businesses should consider the following steps:
- Conduct a comprehensive review: Assess your products and services against the new SST classifications and rates to identify any new obligations.
- Verify registration obligations: Determine if your business now exceeds the SST registration threshold, or if your existing registrations needs to be updated.
- Update systems and contracts: Ensure that your accounting, invoicing and ERP systems can accurately capture, process and report SST. Review contracts with vendors and customers to include appropriate tax clauses.
- Train internal teams: Equip your finance, sales and operations teams with up-to-date knowledge of the new SST framework to ensure consistent compliance across departments.
- Seek expert guidance: Engage with tax and business advisors with specific expertise in Malaysia SST regulations to guide your business through registration, implementation and strategic response.
Conclusion
Malaysia's expanded SST regime is more than a routine tax revision, it marks a strategic turning point for businesses. For Singaporean companies with operations in Malaysia, it presents an opportunity to realign business models, strengthen tax governance and improve cost efficiency.
Asia Experts Global Expansion
Navigating cross-borders tax reforms can be daunting. As a member of RSM International, the world’s sixth-largest accounting and consulting network, RSM Singapore offers the capabilities and insights needed to support your expansion in Malaysia and beyond.
From compliance and cost optimisation to restructuring and reporting, our experienced professionals help you overcome regulatory, cultural and operational challenges, so you can focus on growth while we handle the complexity.
Reach out now to stay compliant with Malaysia’s SST, safeguard your business, and expand across Asia with confidence.
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