This 72-page document replaces the outdated June 2025 version. At KS Chia & Associates, we have analysed the updated guide. Here are the key policies you need to apply to your business right now.
1. Residential Units in Mixed Developments Are Exempt
This is the biggest change that was announced last year and is now officially in the guide. RMCD has completely reversed its previous ruling.
Under the old June 2025 guide, the entire contract value for a mixed development (residential + commercial + public facilities) was subject to the 6% service tax. A 25-storey building with 15 residential floors and 10 commercial floors? The whole thing was taxable.
That is no longer the case.
Under the updated March 2026 guide, the residential portion and related public facilities are exempt. Only the non-residential (commercial) built-up area is taxable. Shared public facilities like car parks and lobbies must be split between residential and commercial based on built-up area ratios.
What you need to do:
• Get an architect or surveyor to certify the built-up area apportionment.
• Make sure your construction contract is in writing, signed, and stamped by LHDN.
• The contract must describe the mixed development scope and pricing.
• Keep copies of the planning permission and pre-computation plan.
If you have been paying service tax on the residential portion of mixed developments since July 2025, contact us to discuss possible adjustments.
2. Non-Reviewable Contract Exemption Extended to 30 June 2027
Good news if you signed a construction contract before 1 July 2025.
As announced in late 2025, the government extended the service tax exemption for non-reviewable contracts by one year. The new deadline is 30 June 2027 (previously 30 June 2026).
To qualify, your contract must meet all three conditions:
1. Signed before 1 July 2025.
2. Does not contain a price review clause.
3. Stamped by LHDN before 31 December 2025.
What about Variation Orders?
VOs that do not change the contract value are exempt until 30 June 2026, provided the VO was signed and stamped before the deadlines.
What about Extensions of Time?EOTs that do not add costs are exempt until 30 June 2027, subject to conditions.
From 1 July 2027, all construction services under these contracts become fully taxable.
3. Your Invoices Could Be Costing You Money
This is a compliance trap that many contractors are not aware of, and the updated guide highlights it clearly.
The March 2026 guide makes it very clear: if your invoice does not separately list building materials and construction services, RMCD will charge the 6% service tax on the entire lump-sum amount.
Here is a simple example. On a RM1 million contract where RM400,000 is materials and RM600,000 is services:
- Lump sum invoice: 6% on RM1,000,000 = RM60,000 in service tax.
- Itemised invoice: 6% on RM600,000 = RM36,000 in service tax.
That is RM24,000 you are throwing away by not itemising your invoices.
The rules are strict:
- Building materials must be stated at actual cost with no mark-up.
- You must keep supplier invoices as supporting documents.
- f you cannot separate goods from services, the entire amount is taxable.
Update your invoicing templates today.
4. B2B Exemption for Design and Build Contracts
Main contractors working under Design and Build contracts can claim B2B exemptions when hiring professional services. This covers architects, engineers, surveyors, lawyers, accountants, and consultants who are registered under Group G.
The planning permission reference number must appear on the consultant's invoice. This is a self-compliance basis — you do not need to apply for approval, but you must keep proper records.
5. Places of Worship — Fully Exempt
Building or renovating a mosque, temple, church, or gurdwara? The construction is fully exempt from service tax, effective 1 July 2025.
But there is a catch. If the development includes commercial buildings (like shop lots) on the same site as the place of worship, the exemption does not apply automatically. You would need to make a separate application to the MOF Tax Division.
Renovation of existing non-residential buildings (shops, offices, warehouses) that are being converted into places of worship is also exempt. But no refund is available for service tax already paid on the original building.
6. Other Changes You Should Know About
Local Authorities (PBT) are no longer exempt. The exemption expired on 30 September 2025. If you provide construction services to PBT, you must charge the 6% service tax. Statutory bodies (EPF, SOCSO, MARA, LHDN, public universities) and GLCs were never exempt.
Repair and maintenance during construction. If maintenance is part of your original construction contract, it falls under Group L at 6%. If it is a separate maintenance contract, it falls under Group G at 8%.
EPCC contracts for ships and platforms. Contractors can choose whether to classify these as construction work (6% service tax, B2B eligible) or manufacturing (sales tax). Pick one and stick with it.
Record keeping. You must keep all records for 7 years from the date of issuance.
Key Dates at a Glance
Get Expert Help
These updated guidelines create real opportunities to save on service tax — but only if you get the compliance right. Wrong invoicing, missing documentation, or incorrect apportionment can cost you.
Our indirect tax team at KS Chia & Associates has been advising construction and property development clients on SST since the expansion took effect. We can help you: •
- Calculate your mixed development apportionment.
- Update your invoicing templates.
- Review your contracts for exemption eligibility.
- Prepare supporting documentation for RMCD audits.
Disclaimer: This article is based on the RMCD Guide on Construction Work Services updated as at 17 March 2026 and related Service Tax Policies. It is for general information only and does not constitute formal tax advice. Please consult a qualified tax professional for advice specific to your situation.
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