Service Tax on Commercial Rental: 6% from 2026, Residential Outside Scope
Service tax on rental and leasing was charged at 8% from 1 July 2025 and reduced to 6% from 1 January 2026 (applied as a 2% exemption). Residential lettings are outside scope. When handling shop or office leases, agents should remind both sides to confirm whether the landlord is registered and the invoice is correct.
Rate and dates
KPMG reported on 26 January 2026 that Customs issued Service Tax Policy 2/2025 (Amendment No. 3) on 23 January: the rate on rental and leasing services falls from 8% to 6% from 1 January 2026, applied as a 2% exemption until legislation is amended. Newly established MSMEs are exempt for one year from registration, with an annual sales threshold of RM1,500,000, and rentals between companies in the same group are exempt.
Residential lettings are outside scope
Customs issued the second edition of its rental or leasing guide on 14 May 2026. BDO's summary says it raised the registration threshold from RM500,000 to RM1,000,000. L&Co's 5 June summary says the guide defines housing accommodation in more detail: terrace houses, bungalows, apartments, flats and affordable housing are generally outside the scope of service tax; a SOHO used as a residence is not taxable, while a SOFO used as an office is, so actual use is key. For specific cases, rely on the official MySST guide.
Agent insight: questions for commercial leases
This is agent analysis. When comparing shop or office rents, ask whether quotes include service tax, whether the landlord is registered and how invoices will be issued. Business tenants should ask their accountant how the tax is treated. Registration thresholds and specific exemptions should be confirmed by the landlord with Customs or a tax adviser, not judged by the agent.
FAQ
Is service tax charged on renting out a condo?
Housing accommodation is outside scope. Confirm unusual uses against the official guide.
What is the current rate on commercial rent?
6% from 1 January 2026, applied as a 2% exemption.
An agent’s follow-up message
For this shop's rent quote, I will confirm with the landlord whether service tax is included, whether they are registered and how invoices will be issued. The current rate on commercial rent is 6%, while residential lettings are outside scope. Shall I add these points to the draft lease?