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In his New Year's address on Monday, 5 January, Prime Minister Datuk Seri Anwar Ibrahim announced measures to ease the cost of doing business, particularly for micro, small, and medium enterprises (MSMEs)
The measures, which will cost the government nearly RM500 million in annual revenue, include a lower service tax rate on non-residential rentals and a higher exemption threshold for smaller businesses.
Rental service tax reduced to 6% from 1 January 2026
The service tax on non-residential rentals, such as offices and warehouses, was first introduced on 1 July 2025 at a rate of 8%.
Acknowledging concerns from the business community over the sharp rise from 0% to 8%, Anwar announced that the rate will be reduced to 6%, effective 1 January 2026.
Businesses earning under RM1.5 million will be fully exempted
In a bigger win for smaller players, the government has also raised the exemption threshold.
Previously, only businesses with an annual turnover of up to RM1 million were exempt from paying service tax on rentals. Under the new policy, the threshold has been increased to RM1.5 million.
This means businesses earning below RM1.5 million a year will pay 0% service tax on rental, effectively placing them outside the tax net for this category.
An estimated 70% of MSMEs will benefit from both the higher rental service tax exemption and the reduced tax rate.
Image via Aswadi Alias/New Straits TimesImage viaTo clear up any confusion, SAYS sought clarification from the Ministry of Finance (MOF) on how the new rules will apply
Here's how it breaks down:
- Businesses with turnover below RM1.5 million: Pay 0% service tax on rental.
- Businesses with turnover of RM1.5 million and above: Subject to the new 6% service tax rate.
- Non-MSMEs and large corporations: Will also benefit from the rate cut and pay 6%, down from 8%.
While the tax exception is a huge win, the MOF told SAYS that MSMEs with an annual turnover of below RM1.5 million must still register with the Royal Malaysian Customs Department (RMCD) and meet certain conditions to officially qualify for the exemption.
Businesses are advised to monitor updates on the MySST website, as systems and guidelines are expected to be updated following the prime minister's announcement.
Meanwhile, Anwar also announced a one-year deferment of the rental service tax for newly established MSMEs
This means new businesses will enjoy a full year without paying service tax on rentals, giving them breathing room to stabilise operations before the tax applies.
TL;DR: How the new rules affect your rental costs
Annual turnover Service tax rate Status Below RM1.5 million 0% Exempted RM1.5 million and above 6% Payable Newly established MSME 0% Deferred for one year
