Service tax on rentals for Malaysian MSMEs reduced to 6%

• The tax exemption threshold for MSMEs will be increased to include those with an annual turnover of up to RM1.5 million.

KUALA LUMPUR (Jan 5): The service tax on rentals for micro, small and medium enterprises (MSMEs) has been reduced to 6% from 8%, said Prime Minister Datuk Seri Anwar Ibrahim.

The 8% tax was implemented on July 1, 2025, and applied to the rental of non-residential premises such as offices, warehouses and commercial assets.

“The service tax on rentals has indeed been an issue because it rose from zero to 8%.

“So far, I am only able to reduce it to 6%, with a loss of nearly half a billion ringgit in revenue annually,” Anwar said in his New Year’s address on Monday.

Anwar, who is also the finance minister, said newly established MSMEs will enjoy one-year deferment of the service tax on rentals.

The tax exemption threshold for MSMEs will be increased to include those with an annual turnover of up to RM1.5 million. Previously, tax exemptions applied only to businesses with an annual turnover of RM500,000 to RM1 million.

“We have decided to exempt MSMEs with annual sales ranging from RM500,000 to RM1 million, and we are now extending the exemption to those with total annual sales of up to RM1.5 million,” he said.

Unlock Malaysia’s shifting industrial map. Track where new housing is emerging as talents converge around I4.0 industrial parks across Peninsular Malaysia. Download the Industrial Special Report now.