RMCD Service Tax Policy 7/2025: New SST Rules for Malaysian Construction Industry

 

Key Policy Change: Material Costs Can Now Be Excluded from SST

Attention construction industry professionals! The Royal Malaysian Customs Department has issued Service Tax Policy No. 7/2025, creating a significant opportunity to reduce your tax burden.

The major change: You can now completely exclude construction materials from your Service Tax calculations by using separate, itemized invoices for materials and services.

When invoices clearly separate materials from services:

• ✅ Service tax applies ONLY to construction work services
• ✅ NO service tax on construction materials/goods

However, with non-separated invoices:

• ⚠️ Service tax applies to the ENTIRE invoice value (including all materials)

E-Invoicing Timeline & Compliance Risk

This policy change coincides with Malaysia's mandatory e-invoicing implementation:

Annual Turnover
Implementation Date
RM100M+
Since August 2024
RM25M-RM100M
Since January 2025
RM5M-RM25M
Since July 2025
RM1M-RM5M
From January 2026
Below RM1M
From July 2026

Important compliance alert: RMCD now has unprecedented visibility into your material purchases through the e-invoicing system. This creates a digital audit trail that makes detecting artificial cost inflation straightforward.

High-Risk Practices to Avoid

1. Inflated Material Allocations: Material costs inconsistent with e-invoice records
2. Unusual Markup Patterns: Significantly higher markups on materials versus services
3. Incomplete Documentation: Inability to substantiate material/service separation
4. Inconsistent Treatment: Different approaches across similar projects

Action Steps for Tax Optimization

1. Update Invoicing Systems: Implement itemized billing templates that clearly separate materials from services
2. Establish Documentation Protocols: Create systems linking material e-invoices to specific projects
3. Develop Markup Policies: Document consistent, defensible markup methodologies
4. Review Subcontractor Agreements: Ensure subcontractors also separate materials from services
5. Conduct Internal Compliance Review: Assess readiness for the July 2025 implementation

Need help implementing these changes? Our construction industry tax specialists offer complimentary 30-minute consultations to ensure you maximize savings while staying compliant.

Policy No. 7/2025 offers legitimate tax savings for construction companies through proper invoicing. With e-invoicing now mandated, RMCD can easily verify material costs. Implement compliant documentation systems now to maximize benefits while avoiding audit risks.

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