Service Tax Policy (STP) No. 7/2025 – Construction Works Services

The Royal Malaysian Customs Department has released Service Tax Policy (STP) No. 7/2025, outlining the service tax treatment for construction works services under Group L, First Schedule of the Service Tax Regulations 2018.

This policy provides updated guidance on how service tax applies to construction-related activities, particularly in cases involving both the supply of goods and the provision of services.

Engineering, Procurement, Construction & Commissioning (EPCC) Contracts for Ships or Platforms

Companies involved in ship or platform construction may choose how to classify their activities for tax purposes:

1. As construction services → taxed under Service Tax and eligible for Business-to-Business (B2B) exemption for professional services.
2. As manufacturing (sale of goods) → taxed under Sales Tax instead, but not eligible for B2B exemption under Service Tax.

Registered Sales Tax Manufacturers Undertaking Installation Works

When a contract involves both goods supply and installation services:

1. If the contract separates goods and service values:
   • Only the installation service is subject to Service Tax
   • The supply of goods is not subject to Service Tax
2. If the contract does not separate the values:
   • Registered sales tax manufacturer: treated as sale of goods → Sales Tax applies on the full value
   • Non-registered manufacturer: treated as installation service → Service Tax applies on the full value.

Invoices for Construction Materials/Goods and Construction Work Services

1. If invoices are itemised (separate values for goods and services):
   • Service Tax applies only to the value of construction work services
   • Goods/materials are not subject to Service Tax
2. If invoices are combined (no separation of goods and services):
   • Service Tax applies on the total invoice value

Effective Date

All clarifications and treatments stated in STP No. 7/2025 take effect from 1 July 2025.

Disclaimer

This Service Tax Policy is subject to future amendments should there be any change in the relevant tax legislation or Customs policies. For the official policy document, please visit the Royal Malaysian Customs Department’s MySST Portal at https://mysst.customs.gov.my.