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Frequently Asked Questions (FAQ)
Sales and Service Tax - SST
Sales and Service Tax (SST) in Malaysia is a key indirect tax system regulated by the Royal Malaysian Customs Department (RMCD). SST is divided into two components: Sales Tax, which is levied on taxable goods that are manufactured locally or imported into Malaysia, and Service Tax, which is applied to prescribed taxable services provided within Malaysia.
Implemented on 1 September 2018, SST replaced the Goods and Services Tax (GST) as part of Malaysia’s efforts to streamline the taxation system and reduce the burden on consumers and businesses. Businesses operating in Malaysia must comply with SST registration, collection, and reporting requirements to avoid penalties.
SST is an important aspect of Malaysian tax law, affecting sectors such as manufacturing, retail, hospitality, professional services, and imported goods. Understanding SST is essential for business owners, accountants, and taxpayers to ensure full compliance and optimize tax management in Malaysia.
Implemented on 1 September 2018, SST replaced the Goods and Services Tax (GST) as part of Malaysia’s efforts to streamline the taxation system and reduce the burden on consumers and businesses. Businesses operating in Malaysia must comply with SST registration, collection, and reporting requirements to avoid penalties.
SST is an important aspect of Malaysian tax law, affecting sectors such as manufacturing, retail, hospitality, professional services, and imported goods. Understanding SST is essential for business owners, accountants, and taxpayers to ensure full compliance and optimize tax management in Malaysia.
Difference Between Sales Tax and Service Tax in Malaysia
In Malaysia, Sales Tax and Service Tax are two components of the Sales and Service Tax (SST) system, each targeting different types of economic activities:
- Sales Tax Malaysia is imposed on taxable goods that are either manufactured locally or imported into Malaysia. This tax is generally paid by manufacturers and importers and is included in the price of goods sold to consumers.
- Service Tax Malaysia applies to prescribed taxable services, which include sectors such as food and beverages, professional services, logistics, digital services, and telecommunications. Businesses providing these services are responsible for collecting Service Tax from their customers and remitting it to the Royal Malaysian Customs Department (RMCD).
Understanding the difference between Sales Tax and Service Tax is crucial for business owners, accountants, and taxpayers to ensure proper SST compliance, avoid penalties, and manage tax obligations effectively.
In Malaysia, Sales Tax and Service Tax are two components of the Sales and Service Tax (SST) system, each targeting different types of economic activities:
- Sales Tax Malaysia is imposed on taxable goods that are either manufactured locally or imported into Malaysia. This tax is generally paid by manufacturers and importers and is included in the price of goods sold to consumers.
- Service Tax Malaysia applies to prescribed taxable services, which include sectors such as food and beverages, professional services, logistics, digital services, and telecommunications. Businesses providing these services are responsible for collecting Service Tax from their customers and remitting it to the Royal Malaysian Customs Department (RMCD).
Understanding the difference between Sales Tax and Service Tax is crucial for business owners, accountants, and taxpayers to ensure proper SST compliance, avoid penalties, and manage tax obligations effectively.
In Malaysia, SST registration is mandatory for businesses whose annual taxable turnover exceeds the Sales and Service Tax (SST) registration threshold set by the Royal Malaysian Customs Department (RMCD). Businesses required to register include:
- Manufacturers producing taxable goods locally
- Service providers offering prescribed taxable services in Malaysia
- Foreign digital service providers supplying taxable digital services to Malaysian customers
Registering for SST ensures legal compliance, proper tax collection, and timely remittance of Sales Tax or Service Tax to the RMCD. Failure to register can result in penalties and fines under Malaysian tax law.
Proper understanding of SST registration requirements is essential for business owners, accountants, and e-commerce operators to avoid compliance issues and optimize tax management in Malaysia.
- Manufacturers producing taxable goods locally
- Service providers offering prescribed taxable services in Malaysia
- Foreign digital service providers supplying taxable digital services to Malaysian customers
Registering for SST ensures legal compliance, proper tax collection, and timely remittance of Sales Tax or Service Tax to the RMCD. Failure to register can result in penalties and fines under Malaysian tax law.
Proper understanding of SST registration requirements is essential for business owners, accountants, and e-commerce operators to avoid compliance issues and optimize tax management in Malaysia.
In Malaysia, Sales Tax applies to taxable goods that are manufactured locally by a registered manufacturer or imported into Malaysia for domestic consumption. Under the Sales Tax Order issued by the Royal Malaysian Customs Department (RMCD), any goods that are not specifically exempted in the Sales Tax (Goods Exempted From Sales Tax) Order are subject to Sales Tax.MySST+1
Key points on goods subject to Sales Tax Malaysia:
- Taxable goods include all locally manufactured or imported products that are of a class or kind not exempted from tax under the applicable Sales Tax Orders.Customs Malaysia
- Sales Tax is a single‑stage indirect tax levied at the point of manufacture (for local goods) or at customs clearance (for imported goods).PwC
- Taxable goods are classified under various Harmonized System (HS) tariff codes, and Sales Tax rates normally range from 5% to 10% or specific rates on certain categories (e.g., petroleum‑related products).RÖDL
Examples of taxable goods subject to Sales Tax Malaysia:
- General consumer goods manufactured in Malaysia, unless exempted
- Imported goods brought into Malaysia for local sale or use
- Low Value Goods (LVG) imported via e‑commerce platforms if sold at a price not exceeding RM500 (subject to specific LVG Sales Tax rules)lmc.com.my
- Consumer products not listed in the exemption order, such as non‑essential items like certain luxury goods or specialised equipment (as classified in current Sales Tax Order schedules)RÖDL
Goods not subject to Sales Tax are those expressly listed as exempt under the Sales Tax (Goods Exempted From Sales Tax) Order — which often includes basic necessities such as certain food commodities, essential medical items, books, and other designated exempt goods.RÖDL
Understanding the scope of taxable goods under Malaysia’s Sales Tax regime is crucial for business compliance, tax planning, and SST registration obligations for manufacturers, importers, and online sellers.
Key points on goods subject to Sales Tax Malaysia:
- Taxable goods include all locally manufactured or imported products that are of a class or kind not exempted from tax under the applicable Sales Tax Orders.Customs Malaysia
- Sales Tax is a single‑stage indirect tax levied at the point of manufacture (for local goods) or at customs clearance (for imported goods).PwC
- Taxable goods are classified under various Harmonized System (HS) tariff codes, and Sales Tax rates normally range from 5% to 10% or specific rates on certain categories (e.g., petroleum‑related products).RÖDL
Examples of taxable goods subject to Sales Tax Malaysia:
- General consumer goods manufactured in Malaysia, unless exempted
- Imported goods brought into Malaysia for local sale or use
- Low Value Goods (LVG) imported via e‑commerce platforms if sold at a price not exceeding RM500 (subject to specific LVG Sales Tax rules)lmc.com.my
- Consumer products not listed in the exemption order, such as non‑essential items like certain luxury goods or specialised equipment (as classified in current Sales Tax Order schedules)RÖDL
Goods not subject to Sales Tax are those expressly listed as exempt under the Sales Tax (Goods Exempted From Sales Tax) Order — which often includes basic necessities such as certain food commodities, essential medical items, books, and other designated exempt goods.RÖDL
Understanding the scope of taxable goods under Malaysia’s Sales Tax regime is crucial for business compliance, tax planning, and SST registration obligations for manufacturers, importers, and online sellers.
In Malaysia, service Tax is a consumption tax levied on prescribed taxable services provided in Malaysia by a registered service provider (taxable person). Service Tax is charged on services that are explicitly listed under the Service Tax Regulations and includes both domestic services and imported digital services provided to Malaysian consumers.
1. Hospitality and Accommodation Services
- Hotel and lodging services including inns, serviced apartments and homestays.
- Accommodation premises and related hospitality services. PwC
2. Food and Beverage Services
- Restaurants, cafés, bars and food outlets providing dine‑in or takeaway dining services. PwC
3. Professional and Business Services
- Professional services such as legal services (lawyers), accounting, auditing, architectural, engineering and consultancy services.
- Business management, training, and corporate advisory services.
- Information technology and digital platform services. PwC
4. Telecommunications and Digital Services
- Telecommunication services such as mobile and internet services.
- Digital services including streaming, software, online platforms and imported digital services supplied to Malaysian customers. PwC
5. Logistics, Parking and Transportation‑Related Services
- Logistics, freight forwarding, and cargo handling.
- Provision of parking space at commercial establishments. PwC
6. Financial and Insurance Services (Expanded Scope)
- Fee‑based financial services including brokerage, insurance, takaful and similar financial service fees subject to certain conditions. Grant Thornton Malaysia
7. Rental, Leasing and Construction Services
- Rental or leasing services for tangible assets (with specific exemptions for residential property and other qualifying exclusions).
- Construction and building services, including certain contract work. Grant Thornton Malaysia
8. Healthcare and Education Services
- Private healthcare services provided by licensed healthcare facilities (with exemptions for Malaysian citizens in specific cases).
- Private education services for international students or institutions with fee thresholds. Grant Thornton Malaysia+1
9. Beauty, Wellness, and Personal Care Services
- Beauty and wellness treatments, spa services, hairstyling, slimming, facial treatments and related services. Grant Thornton Malaysia
1. Hospitality and Accommodation Services
- Hotel and lodging services including inns, serviced apartments and homestays.
- Accommodation premises and related hospitality services. PwC
2. Food and Beverage Services
- Restaurants, cafés, bars and food outlets providing dine‑in or takeaway dining services. PwC
3. Professional and Business Services
- Professional services such as legal services (lawyers), accounting, auditing, architectural, engineering and consultancy services.
- Business management, training, and corporate advisory services.
- Information technology and digital platform services. PwC
4. Telecommunications and Digital Services
- Telecommunication services such as mobile and internet services.
- Digital services including streaming, software, online platforms and imported digital services supplied to Malaysian customers. PwC
5. Logistics, Parking and Transportation‑Related Services
- Logistics, freight forwarding, and cargo handling.
- Provision of parking space at commercial establishments. PwC
6. Financial and Insurance Services (Expanded Scope)
- Fee‑based financial services including brokerage, insurance, takaful and similar financial service fees subject to certain conditions. Grant Thornton Malaysia
7. Rental, Leasing and Construction Services
- Rental or leasing services for tangible assets (with specific exemptions for residential property and other qualifying exclusions).
- Construction and building services, including certain contract work. Grant Thornton Malaysia
8. Healthcare and Education Services
- Private healthcare services provided by licensed healthcare facilities (with exemptions for Malaysian citizens in specific cases).
- Private education services for international students or institutions with fee thresholds. Grant Thornton Malaysia+1
9. Beauty, Wellness, and Personal Care Services
- Beauty and wellness treatments, spa services, hairstyling, slimming, facial treatments and related services. Grant Thornton Malaysia
Sales and Service Tax (SST) exemptions are available in Malaysia. The Royal Malaysian Customs Department (RMCD) provides exemptions for certain goods and services through official Sales Tax and Service Tax Exemption Orders.
Key points about SST exemptions:
- Goods Exempted from Sales Tax: Certain essential goods, basic necessities, and other specified products are exempt from Sales Tax Malaysia under the Sales Tax (Goods Exempted From Sales Tax) Order. This can include items like specific food products, medical supplies, and raw materials used in manufacturing.
- Services Exempted from Service Tax: Certain prescribed services may be exempted from Service Tax Malaysia under the Service Tax (Persons Exempted From Tax) Order, depending on the service type, recipient, or industry sector.
- Eligibility Criteria: Exemptions are subject to eligibility conditions, such as the type of business, type of goods or services, and compliance with RMCD regulations.
- Application Requirements: Businesses seeking SST exemptions must submit proper applications to RMCD and maintain documentation to demonstrate compliance and eligibility.
Understanding SST exemptions is essential for business owners, manufacturers, service providers, and taxpayers to optimize tax planning, avoid overpayment, and ensure full compliance with Malaysian tax laws.
Key points about SST exemptions:
- Goods Exempted from Sales Tax: Certain essential goods, basic necessities, and other specified products are exempt from Sales Tax Malaysia under the Sales Tax (Goods Exempted From Sales Tax) Order. This can include items like specific food products, medical supplies, and raw materials used in manufacturing.
- Services Exempted from Service Tax: Certain prescribed services may be exempted from Service Tax Malaysia under the Service Tax (Persons Exempted From Tax) Order, depending on the service type, recipient, or industry sector.
- Eligibility Criteria: Exemptions are subject to eligibility conditions, such as the type of business, type of goods or services, and compliance with RMCD regulations.
- Application Requirements: Businesses seeking SST exemptions must submit proper applications to RMCD and maintain documentation to demonstrate compliance and eligibility.
Understanding SST exemptions is essential for business owners, manufacturers, service providers, and taxpayers to optimize tax planning, avoid overpayment, and ensure full compliance with Malaysian tax laws.
What happens if you exceed the SST threshold but do not register in Malaysia?
In Malaysia, any business whose annual taxable turnover exceeds the SST registration threshold is legally required to register with the Royal Malaysian Customs Department (RMCD). Failure to register can lead to serious consequences under Malaysian tax law.
Key consequences of not registering for SST when required:
1. Penalties and Fines:
- RMCD may impose monetary penalties on businesses that fail to register for Sales Tax or Service Tax despite exceeding the threshold.
- Penalties can be substantial, depending on the amount of uncollected or unpaid tax.
2. Interest on Unpaid SST:
- Businesses may be liable to pay interest on any Sales Tax or Service Tax that should have been collected from customers.
3. Legal Enforcement:
- Non-compliance can result in legal action, including prosecution under the Sales Tax Act 2018 or Service Tax Act 2018.
- This can lead to additional fines or even criminal liability for business owners in severe cases.
4. Business Reputation Risk:
- Failure to comply with SST obligations can damage a business’s credibility with customers, suppliers, and financial institutions.
To avoid penalties and legal complications, businesses that exceed the SST registration threshold must register promptly with RMCD, collect and remit SST on taxable goods or services, and maintain accurate SST records. Compliance ensures smooth operations and protects your business from unnecessary fines and legal issues.
In Malaysia, any business whose annual taxable turnover exceeds the SST registration threshold is legally required to register with the Royal Malaysian Customs Department (RMCD). Failure to register can lead to serious consequences under Malaysian tax law.
Key consequences of not registering for SST when required:
1. Penalties and Fines:
- RMCD may impose monetary penalties on businesses that fail to register for Sales Tax or Service Tax despite exceeding the threshold.
- Penalties can be substantial, depending on the amount of uncollected or unpaid tax.
2. Interest on Unpaid SST:
- Businesses may be liable to pay interest on any Sales Tax or Service Tax that should have been collected from customers.
3. Legal Enforcement:
- Non-compliance can result in legal action, including prosecution under the Sales Tax Act 2018 or Service Tax Act 2018.
- This can lead to additional fines or even criminal liability for business owners in severe cases.
4. Business Reputation Risk:
- Failure to comply with SST obligations can damage a business’s credibility with customers, suppliers, and financial institutions.
To avoid penalties and legal complications, businesses that exceed the SST registration threshold must register promptly with RMCD, collect and remit SST on taxable goods or services, and maintain accurate SST records. Compliance ensures smooth operations and protects your business from unnecessary fines and legal issues.
Manufacturers in Malaysia can apply for Sales Tax exemptions under certain conditions. The Royal Malaysian Customs Department (RMCD) allows registered manufacturers to request exemptions on specific taxable goods, subject to the Sales Tax (Goods Exempted From Sales Tax) Order.
Key points for manufacturers seeking Sales Tax exemptions:
- Eligibility: Manufacturers must be registered with RMCD for Sales Tax and produce goods that meet the criteria specified in the exemption orders.
- Scope of Exemption: Exemptions may apply to raw materials, components, machinery, or intermediate goods used in the production process, which are considered essential for manufacturing or export purposes.
- Application Process: Manufacturers must submit an application to RMCD, providing detailed documentation about the goods, production process, and intended use to demonstrate eligibility.
- Compliance: Approved manufacturers must maintain accurate records and reports to ensure compliance with RMCD regulations and to avoid penalties.
Applying for Sales Tax exemptions helps manufacturers reduce production costs, improve cash flow, and remain competitive in the Malaysian market while ensuring full SST compliance.
Key points for manufacturers seeking Sales Tax exemptions:
- Eligibility: Manufacturers must be registered with RMCD for Sales Tax and produce goods that meet the criteria specified in the exemption orders.
- Scope of Exemption: Exemptions may apply to raw materials, components, machinery, or intermediate goods used in the production process, which are considered essential for manufacturing or export purposes.
- Application Process: Manufacturers must submit an application to RMCD, providing detailed documentation about the goods, production process, and intended use to demonstrate eligibility.
- Compliance: Approved manufacturers must maintain accurate records and reports to ensure compliance with RMCD regulations and to avoid penalties.
Applying for Sales Tax exemptions helps manufacturers reduce production costs, improve cash flow, and remain competitive in the Malaysian market while ensuring full SST compliance.
Any person providing taxable services in Malaysia is liable to be registered for Service Tax if:
- They provide prescribed taxable services (as listed in the Service Tax Regulations), and
- The total value of taxable services provided by them in any rolling 12‑month period exceeds the prescribed threshold applicable to their service category. MySST
Under the Service Tax Act and MySST portal guidelines:
- A person becomes liable to be registered at the earlier of the following:
(a) the end of any month where the total taxable services in that month and the preceding 11 months exceeds the prescribed threshold, or
(b) where it is reasonably expected that the total taxable services in that month and the next 11 months will exceed the threshold.
🧾 Thresholds for Mandatory Registration
Although MySST’s main guideline states that liability arises when the 12‑month taxable service value exceeds a threshold, the exact threshold values vary by service category (not explicit in MySST online page, but covered in official practice and industry regulations). Below are the commonly referenced thresholds based on current Malaysian SST rules:
đź“Ś Standard Threshold (General Services)
✔️ RM500,000
- Applicable to most taxable services (e.g., professional services, advertising, logistics, courier, IT services). Kaizen CPA
đź“Ś Higher Thresholds for Certain Service Categories
(These are recognised in official RMCD guidelines and explanatory guides referenced by MySST and Customs Regulation documents.)
✔️ RM1,000,000
- Applies to certain services such as financial services, insurance/takaful services, and sometimes rental or leasing services (subject to conditions). Kaizen CPA+1
✔️ RM1,500,000
- Applies to some services such as food & beverage (F&B), private healthcare, and other specified segments. HL Khoo Group
✔️ No Threshold (Compulsory Registration)
- Some prescribed taxable services (e.g., provision of credit card/charge card services, private education, and similar categories) may require registration from commencement of business regardless of turnover
- They provide prescribed taxable services (as listed in the Service Tax Regulations), and
- The total value of taxable services provided by them in any rolling 12‑month period exceeds the prescribed threshold applicable to their service category. MySST
Under the Service Tax Act and MySST portal guidelines:
- A person becomes liable to be registered at the earlier of the following:
(a) the end of any month where the total taxable services in that month and the preceding 11 months exceeds the prescribed threshold, or
(b) where it is reasonably expected that the total taxable services in that month and the next 11 months will exceed the threshold.
🧾 Thresholds for Mandatory Registration
Although MySST’s main guideline states that liability arises when the 12‑month taxable service value exceeds a threshold, the exact threshold values vary by service category (not explicit in MySST online page, but covered in official practice and industry regulations). Below are the commonly referenced thresholds based on current Malaysian SST rules:
đź“Ś Standard Threshold (General Services)
✔️ RM500,000
- Applicable to most taxable services (e.g., professional services, advertising, logistics, courier, IT services). Kaizen CPA
đź“Ś Higher Thresholds for Certain Service Categories
(These are recognised in official RMCD guidelines and explanatory guides referenced by MySST and Customs Regulation documents.)
✔️ RM1,000,000
- Applies to certain services such as financial services, insurance/takaful services, and sometimes rental or leasing services (subject to conditions). Kaizen CPA+1
✔️ RM1,500,000
- Applies to some services such as food & beverage (F&B), private healthcare, and other specified segments. HL Khoo Group
✔️ No Threshold (Compulsory Registration)
- Some prescribed taxable services (e.g., provision of credit card/charge card services, private education, and similar categories) may require registration from commencement of business regardless of turnover
Registered businesses must charge SST, issue SST-compliant invoices, file SST returns bimonthly, and make SST payments through MySST.
The provision of any construction work services, including construction work services for residential buildings built on land designated or approved for mixed development by the local authority, is subject to service tax effective from 1 July 2025, under Group L, First Schedule, Service Tax Regulations 2018.
However, the provision of construction work services for residential buildings and public facilities related to such residential buildings is not subject to service tax.
In short, anyone who provides construction work services, excluding residential building construction and public areas related to that residential building and where the value of the service exceeds the threshold value of RM1,500,000, must apply for registration online via the link: www.mysst.customs.gov.my.
However, the provision of construction work services for residential buildings and public facilities related to such residential buildings is not subject to service tax.
In short, anyone who provides construction work services, excluding residential building construction and public areas related to that residential building and where the value of the service exceeds the threshold value of RM1,500,000, must apply for registration online via the link: www.mysst.customs.gov.my.
Construction work services for residential buildings and public facilities related to those residential buildings are not subject to service tax.
Those who are exempted from paying service tax under construction work services are the Federal Government, the State Governments and the Local Authorities.
Besides that, in accordance with the provisions stated in item 9 of the Service Tax (Persons Exempted from Payment of Tax) (Amendment) Order 2025, exemption from the payment of service tax for business-to-business (B2B) services is eligible to be granted if the following prescribed conditions are met:
(i) both the provider and recipient of the construction services are registered persons;
(ii) the construction services are provided to a registered person;
(iii) both the provider and recipient of the construction services provide the same construction services as specified in the taxable services under Group L, First Schedule, PCP 2018; and
(iv)the exempted construction services are not for own consumption.
This exemption from service tax payment is specifically granted to recipients of construction services obtained from providers of construction services within the same category under Group L, First Schedule, PCP 2018
Besides that, in accordance with the provisions stated in item 9 of the Service Tax (Persons Exempted from Payment of Tax) (Amendment) Order 2025, exemption from the payment of service tax for business-to-business (B2B) services is eligible to be granted if the following prescribed conditions are met:
(i) both the provider and recipient of the construction services are registered persons;
(ii) the construction services are provided to a registered person;
(iii) both the provider and recipient of the construction services provide the same construction services as specified in the taxable services under Group L, First Schedule, PCP 2018; and
(iv)the exempted construction services are not for own consumption.
This exemption from service tax payment is specifically granted to recipients of construction services obtained from providers of construction services within the same category under Group L, First Schedule, PCP 2018
No, you do not need to register because construction services for residential buildings are not taxable services.
Machinery rental, equipment leasing, vehicle rental, and asset leasing services are taxable under Service Tax once annual taxable turnover exceeds RM500,000.
The effective date for the implementation of service tax on rental or leasing services is 1 July 2025. The tax rate for rental or leasing services is 8%
The service tax threshold for rental and leasing services is RM1,000,000 annual taxable turnover. Once this threshold is exceeded within a 12-month period, the service provider must register for Service Tax via MySST.
The service tax threshold for rental and leasing services is RM1,000,000 annual taxable turnover. Once this threshold is exceeded within a 12-month period, the service provider must register for Service Tax via MySST.
Taxable Rental or Leasing Services example:
1. Providing rental or leasing services on commercial property.
2. Obtaining rental or leasing services from service providers outside Malaysia
3. Providing rental or leasing including maintenance or repair services and other services.
4. Providing rental services for animals or plants.
5. Providing rental or leasing services for a moveable asset located in Malaysia to customers outside Malaysia.
6. Providing rental or leasing services for a moveable asset located in Malaysia.
The above example is limited and does not cover all rental or leasing services provided by a registered person to their customers that are subject to service tax.
Non Taxable Rental or Leasing Services example:
The following rental or leasing services are excluded from the scope of service tax:
i. Providing rental or leasing services for moveable asset located outside Malaysia
ii. Providing rental or leasing services for housing accommodations (terrace houses, bungalows, serviced apartments, flats, condominiums etc)
iii. Providing rental or leasing services between or within Special Areas or Designated Areas and between Special Areas and Designated Areas
iv. Providing financial lease services
v. Providing rental reading material services
1. Providing rental or leasing services on commercial property.
2. Obtaining rental or leasing services from service providers outside Malaysia
3. Providing rental or leasing including maintenance or repair services and other services.
4. Providing rental services for animals or plants.
5. Providing rental or leasing services for a moveable asset located in Malaysia to customers outside Malaysia.
6. Providing rental or leasing services for a moveable asset located in Malaysia.
The above example is limited and does not cover all rental or leasing services provided by a registered person to their customers that are subject to service tax.
Non Taxable Rental or Leasing Services example:
The following rental or leasing services are excluded from the scope of service tax:
i. Providing rental or leasing services for moveable asset located outside Malaysia
ii. Providing rental or leasing services for housing accommodations (terrace houses, bungalows, serviced apartments, flats, condominiums etc)
iii. Providing rental or leasing services between or within Special Areas or Designated Areas and between Special Areas and Designated Areas
iv. Providing financial lease services
v. Providing rental reading material services
Deposits collected for security purposes and refundable are not subject to service tax. However, if the deposit is considered part of the payment for the service, it is subject to service tax.
Effective 1 July 2025, service tax exemption is granted to taxable persons specified in column (1), Group K, of the First Schedule to the Service Tax Regulations 2018. This exemption is applicable if the conditions specified under column (4), Service Tax Order (Persons Exempted From Payment Of Tax) 2018 are met as follows:
i. Services exempted under Group K;
ii. The service recipient is a registered person under Group K;
iii. The service provider is a registered person under Group K;
iv. The exempted taxable service is the same taxable service provided by a registered person under Group K;
v. The exempted taxable service must be used for the purpose of sublet or sublease and not for personal consumption.
Besides that, service tax is exempted on rental or leasing services provided to the Federal Government, State Governments and Local Authorities.
i. Services exempted under Group K;
ii. The service recipient is a registered person under Group K;
iii. The service provider is a registered person under Group K;
iv. The exempted taxable service is the same taxable service provided by a registered person under Group K;
v. The exempted taxable service must be used for the purpose of sublet or sublease and not for personal consumption.
Besides that, service tax is exempted on rental or leasing services provided to the Federal Government, State Governments and Local Authorities.
The provision of legal services in relation to matters outside Malaysia is not subject to service tax.
Manufacturing License
The Industrial Co-ordination Act 1975 (ICA 1975) defines manufacturing activities in Malaysia as “…the making, altering, blending, ornamenting, finishing, or otherwise treating or adapting any article or substance for use, sale, transport, delivery, or disposal.”
This definition also includes assembly of parts and ship repairing, making it relevant for businesses seeking manufacturing licenses in Malaysia. Activities normally associated with retail or wholesale trade are excluded under the ICA 1975.
Understanding this definition is essential for compliance with Malaysia’s manufacturing regulations and for companies operating under the Ministry of International Trade and Industry (MITI) guidelines and accessing tax incentives, customs duty exemptions, and Sales and Service Tax (SST) relief for manufacturing projects in Malaysia.
This definition also includes assembly of parts and ship repairing, making it relevant for businesses seeking manufacturing licenses in Malaysia. Activities normally associated with retail or wholesale trade are excluded under the ICA 1975.
Understanding this definition is essential for compliance with Malaysia’s manufacturing regulations and for companies operating under the Ministry of International Trade and Industry (MITI) guidelines and accessing tax incentives, customs duty exemptions, and Sales and Service Tax (SST) relief for manufacturing projects in Malaysia.
A company must apply for a manufacturing license if it engages in manufacturing activities in Malaysia and meets any of the following thresholds:
- Shareholders’ funds of RM 2.5 million or more
- Employs 75 or more full-time paid employees
Obtaining a manufacturing license ensures compliance with the Industrial Co-ordination Act 1975 and MITI manufacturing regulations. License holders are eligible for customs duty exemptions, sales tax exemptions and other tax and investment incentives for manufacturing projects in Malaysia.
- Shareholders’ funds of RM 2.5 million or more
- Employs 75 or more full-time paid employees
Obtaining a manufacturing license ensures compliance with the Industrial Co-ordination Act 1975 and MITI manufacturing regulations. License holders are eligible for customs duty exemptions, sales tax exemptions and other tax and investment incentives for manufacturing projects in Malaysia.
Certain manufacturing activities in Malaysia are automatically exempt from a manufacturing license, even if they exceed the standard thresholds of RM 2.5 million in shareholders’ funds or 75 full-time employees. Exempt activities include the milling of paddy into rice, milling of oil palm fresh fruit bunches into crude palm oil, and the production or processing of raw natural rubber in all un-vulcanised forms.
These exemptions are recognized under the Industrial Co-ordination Act 1975 and are essential for MITI manufacturing compliance.
These exemptions are recognized under the Industrial Co-ordination Act 1975 and are essential for MITI manufacturing compliance.
Eligibility Criteria for a Manufacturing License in Malaysia
- Companies with shareholders’ funds of RM2.5 million and above or engaging 75 or more full-time paid employees
- Capital Investment Per Employee (CIPE): Minimum RM 140,000 for manufacturing projects
- Malaysian workforce requirement: At least 80% full-time Malaysian employees
- Managerial, Technical, and Supervisory (MTS) staff: At least 25% of full-time workforce must hold degree, diploma, technical qualification, or equivalent, supporting skilled manpower development
- Value Added (VA) requirement: Minimum 40% of factory price after raw material or component costs, promoting high-value manufacturing
- Alignment with national economic and social objectives: Projects must support Malaysia’s industrial development, orderly manufacturing growth, and MITI compliance
- Companies with shareholders’ funds of RM2.5 million and above or engaging 75 or more full-time paid employees
- Capital Investment Per Employee (CIPE): Minimum RM 140,000 for manufacturing projects
- Malaysian workforce requirement: At least 80% full-time Malaysian employees
- Managerial, Technical, and Supervisory (MTS) staff: At least 25% of full-time workforce must hold degree, diploma, technical qualification, or equivalent, supporting skilled manpower development
- Value Added (VA) requirement: Minimum 40% of factory price after raw material or component costs, promoting high-value manufacturing
- Alignment with national economic and social objectives: Projects must support Malaysia’s industrial development, orderly manufacturing growth, and MITI compliance
A company may be exempt from applying for a Manufacturing License if it meets both of the following criteria:
- Employs fewer than 75 full-time employees
- Has shareholders’ funds below RM 2.5 million
Exempt companies are recognized under the Industrial Co-ordination Act 1975 and MITI manufacturing regulations. While they do not require an ML, these companies may still engage in manufacturing activities in Malaysia can apply for exempted manufacturing license and can access certain customs duty exemptions, Sales and Service Tax (SST) relief, and other tax incentives for manufacturing SMEs.
- Employs fewer than 75 full-time employees
- Has shareholders’ funds below RM 2.5 million
Exempt companies are recognized under the Industrial Co-ordination Act 1975 and MITI manufacturing regulations. While they do not require an ML, these companies may still engage in manufacturing activities in Malaysia can apply for exempted manufacturing license and can access certain customs duty exemptions, Sales and Service Tax (SST) relief, and other tax incentives for manufacturing SMEs.
Exempted Manufacturing License
- Applicants do not meet the thresholds for a full Manufacturing License but are exempted under ICA10.
- Eligible for customs duty exemption, Sales and Service Tax (SST) exemption, and tax incentives such as Pioneer Status or Investment Tax Allowance.
- Typically applicable to small and medium-sized manufacturing enterprises (SMEs) in Malaysia.
Full Manufacturing License
- Applicants must meet strict criteria including Capital Investment Per Employee (CIPE), Malaysian workforce percentage, Managerial, Technical, and Supervisory (MTS) staff, Value Added (VA), and other requirements.
- ML holders enjoy customs duty exemption, Sales and Service Tax (SST) relief, and investment incentives similar to EML, while supporting MITI manufacturing compliance and industrial development in Malaysia.
- Applicants do not meet the thresholds for a full Manufacturing License but are exempted under ICA10.
- Eligible for customs duty exemption, Sales and Service Tax (SST) exemption, and tax incentives such as Pioneer Status or Investment Tax Allowance.
- Typically applicable to small and medium-sized manufacturing enterprises (SMEs) in Malaysia.
Full Manufacturing License
- Applicants must meet strict criteria including Capital Investment Per Employee (CIPE), Malaysian workforce percentage, Managerial, Technical, and Supervisory (MTS) staff, Value Added (VA), and other requirements.
- ML holders enjoy customs duty exemption, Sales and Service Tax (SST) relief, and investment incentives similar to EML, while supporting MITI manufacturing compliance and industrial development in Malaysia.
According to MIDA’s Client Charter, a Manufacturing License approval is typically completed within:
- 7 days for fast-track applications
- 60 days for normal-track applications
This applies once complete documentation is submitted. Timely approval ensures compliance with Malaysia’s Industrial Co-ordination Act 1975 and supports MITI manufacturing projects, investment in Malaysian manufacturing, and business licensing requirements.
- 7 days for fast-track applications
- 60 days for normal-track applications
This applies once complete documentation is submitted. Timely approval ensures compliance with Malaysia’s Industrial Co-ordination Act 1975 and supports MITI manufacturing projects, investment in Malaysian manufacturing, and business licensing requirements.
Currently, the Manufacturing License or ICA10 exemption letter does not have a fixed expiry date according to current MITI guidelines. It generally remains valid unless there is a significant change in the company’s business operations such as capital investment, workforce size or nature of manufacturing activities.
Companies holding an Manufacturing License or ICA10 exemption must maintain compliance with Malaysian manufacturing regulations, Industrial Co-ordination Act 1975 and MITI licensing requirements to continue enjoying tax incentives, customs duty exemptions and Sales Tax (SST) relief.
Companies holding an Manufacturing License or ICA10 exemption must maintain compliance with Malaysian manufacturing regulations, Industrial Co-ordination Act 1975 and MITI licensing requirements to continue enjoying tax incentives, customs duty exemptions and Sales Tax (SST) relief.
Companies with a Manufacturing License or Exempted Manufacturing License may be eligible for a variety of tax and investment incentives, including:
- Import duty exemptions on machinery, equipment, and raw materials under the Customs Duties (Exemption) Order 2017.
- Sales Tax (SST) exemptions under the Sales Tax (Persons Exempted From Payment of Tax) Order 2018.
- Access to tax incentives under the Promotion of Investments Act 1986 and the Income Tax Act 1967, subject to relevant conditions.
These incentives support MITI manufacturing compliance, industrial development in Malaysia, high-value manufacturing projects and SME growth in the manufacturing sector.
- Import duty exemptions on machinery, equipment, and raw materials under the Customs Duties (Exemption) Order 2017.
- Sales Tax (SST) exemptions under the Sales Tax (Persons Exempted From Payment of Tax) Order 2018.
- Access to tax incentives under the Promotion of Investments Act 1986 and the Income Tax Act 1967, subject to relevant conditions.
These incentives support MITI manufacturing compliance, industrial development in Malaysia, high-value manufacturing projects and SME growth in the manufacturing sector.
Operating a manufacturing business without a valid Manufacturing License or Exempted Manufacturing License is an offence under the Industrial Co-ordination Act 1975 (ICA 1975). Penalties for non-compliance include:
- Fine up to RM 2,000
- Imprisonment up to 6 months
- Additional fine up to RM 1,000 for each day the offence continues
Non-compliant companies may also risk losing eligibility for customs duty exemptions, Sales Tax relief, and other tax or investment incentives for Malaysian manufacturing projects. Ensuring MITI manufacturing compliance and obtaining the appropriate Manufacturing License or Exempted Manufacturing License is essential for legal and operational compliance in Malaysia.
- Fine up to RM 2,000
- Imprisonment up to 6 months
- Additional fine up to RM 1,000 for each day the offence continues
Non-compliant companies may also risk losing eligibility for customs duty exemptions, Sales Tax relief, and other tax or investment incentives for Malaysian manufacturing projects. Ensuring MITI manufacturing compliance and obtaining the appropriate Manufacturing License or Exempted Manufacturing License is essential for legal and operational compliance in Malaysia.
The application fees for Malaysian Manufacturing Licenses are as follows:
- New Manufacturing License: RM 1,500
- Exempted Manufacturing License: RM 1,000
Paying the application fee ensures processing of Manufacturing License applications under MITI guidelines and compliance with the Industrial Co-ordination Act 1975.
Fees are part of the requirements for manufacturing licensing in Malaysia, including access to customs duty exemptions, Sales Tax (SST) relief and other tax and investment incentives for Malaysian manufacturing projects.
- New Manufacturing License: RM 1,500
- Exempted Manufacturing License: RM 1,000
Paying the application fee ensures processing of Manufacturing License applications under MITI guidelines and compliance with the Industrial Co-ordination Act 1975.
Fees are part of the requirements for manufacturing licensing in Malaysia, including access to customs duty exemptions, Sales Tax (SST) relief and other tax and investment incentives for Malaysian manufacturing projects.
Import Duty or Sales Tax Exemption
Eligibility for import duty and/or sales tax exemption applies to the following categories of businesses and activities:
- Manufacturers located in the Principal Customs Area (PCA) – including small-scale manufacturers under ICA 1975 thresholds, light industries, SMEs, and new start-up production facilities.
- Companies engaged in hotel operations – covering hotel operators, resort operators, serviced residences, hospitality management companies, and tourism-related accommodation service providers.
- Haulage operators – including logistics companies involved in container haulage, inland transportation, trucking services, freight distribution, and integrated logistics support.
- Aerospace Maintenance, Repair & Overhaul (MRO) companies – including aircraft maintenance facilities, component repair centers, aviation engineering service providers, and aerospace technical support companies.
- Selected agriculture sector operations – such as agro-processing companies, plantation-based activities, livestock operations, aquaculture facilities, and agro-food processing businesses.
- Selected service sector activities – including warehousing and distribution centers, 3PL/4PL logistics providers, engineering services, technical services, ICT-enabled services, and other approved service-related activities that support industrial supply chains.
- Manufacturers located in the Principal Customs Area (PCA) – including small-scale manufacturers under ICA 1975 thresholds, light industries, SMEs, and new start-up production facilities.
- Companies engaged in hotel operations – covering hotel operators, resort operators, serviced residences, hospitality management companies, and tourism-related accommodation service providers.
- Haulage operators – including logistics companies involved in container haulage, inland transportation, trucking services, freight distribution, and integrated logistics support.
- Aerospace Maintenance, Repair & Overhaul (MRO) companies – including aircraft maintenance facilities, component repair centers, aviation engineering service providers, and aerospace technical support companies.
- Selected agriculture sector operations – such as agro-processing companies, plantation-based activities, livestock operations, aquaculture facilities, and agro-food processing businesses.
- Selected service sector activities – including warehousing and distribution centers, 3PL/4PL logistics providers, engineering services, technical services, ICT-enabled services, and other approved service-related activities that support industrial supply chains.
The following approved service-sector activities may qualify for import duty exemption and/or sales tax exemption on machinery, equipment, spare parts, and related items:
Research & Development (R&D) Services
– including scientific research centers, technology innovation labs, product testing facilities, industrial research organizations, prototype development, biotechnology R&D, engineering R&D, and applied research providers that support manufacturing and industrial growth.
Private Higher Education Institutions
– covering private universities, colleges, university-colleges, postgraduate education centers, technical institutes, and institutions offering accredited academic programs supporting national talent development.
Private Higher Training Institutions Focused on Science, Technical, or Vocational Training (TVET)
– including vocational training centers, technical skills academies, industrial training institutes, STEM-focused training providers, professional certification centers, and specialized skills development organizations aligned with workforce upskilling and Industry 4.0 needs.
Tourism Projects (Without Accommodation Components)
– such as theme parks, adventure tourism activities, cultural attraction centers, recreational parks, eco-tourism projects, tourism experience service providers, sports and leisure facilities, and other non-accommodation tourism services that enhance Malaysia’s tourism value chain.
Research & Development (R&D) Services
– including scientific research centers, technology innovation labs, product testing facilities, industrial research organizations, prototype development, biotechnology R&D, engineering R&D, and applied research providers that support manufacturing and industrial growth.
Private Higher Education Institutions
– covering private universities, colleges, university-colleges, postgraduate education centers, technical institutes, and institutions offering accredited academic programs supporting national talent development.
Private Higher Training Institutions Focused on Science, Technical, or Vocational Training (TVET)
– including vocational training centers, technical skills academies, industrial training institutes, STEM-focused training providers, professional certification centers, and specialized skills development organizations aligned with workforce upskilling and Industry 4.0 needs.
Tourism Projects (Without Accommodation Components)
– such as theme parks, adventure tourism activities, cultural attraction centers, recreational parks, eco-tourism projects, tourism experience service providers, sports and leisure facilities, and other non-accommodation tourism services that enhance Malaysia’s tourism value chain.
The import duty and/or sales tax exemption does not automatically apply to all manufacturers. Only applicants who meet the specific eligibility criteria under the Industrial Co-ordination Act 1975 (ICA 1975) and RMCD regulations can qualify.
Eligibility Criteria for Manufacturers
To be eligible for the exemption, a manufacturer must meet the following requirements:
1. Location in the Principal Customs Area (PCA)
- The manufacturer must operate within the designated PCA zones.
- This includes licensed industrial premises, approved manufacturing facilities, registered factories, and manufacturing hubs recognized by the authorities.
- Applies to SMEs, large-scale manufacturers, start-ups, and industrial clusters operating within PCA.
2. Valid Manufacturing License or Exempt Manufacturing License
- The manufacturer must hold a current Manufacturing Licence (ML) issued under ICA 1975.
- Alternatively, manufacturers may qualify if they have an official exemption from the Manufacturing License requirement (e.g., small-scale manufacturers, SMEs below the statutory thresholds).
- Covers light industries, high-tech manufacturing, agro-processing units, machinery & equipment manufacturers, electronics assembly, and other approved industrial activities.
3. Compliance with ICA 1975 and RMCD Guidelines
- All applicants must comply with industrial licensing laws, customs import/export regulations, tax laws, and approved manufacturing operations.
- Failure to comply may result in revocation of exemption privileges or other enforcement actions.
Eligibility Criteria for Manufacturers
To be eligible for the exemption, a manufacturer must meet the following requirements:
1. Location in the Principal Customs Area (PCA)
- The manufacturer must operate within the designated PCA zones.
- This includes licensed industrial premises, approved manufacturing facilities, registered factories, and manufacturing hubs recognized by the authorities.
- Applies to SMEs, large-scale manufacturers, start-ups, and industrial clusters operating within PCA.
2. Valid Manufacturing License or Exempt Manufacturing License
- The manufacturer must hold a current Manufacturing Licence (ML) issued under ICA 1975.
- Alternatively, manufacturers may qualify if they have an official exemption from the Manufacturing License requirement (e.g., small-scale manufacturers, SMEs below the statutory thresholds).
- Covers light industries, high-tech manufacturing, agro-processing units, machinery & equipment manufacturers, electronics assembly, and other approved industrial activities.
3. Compliance with ICA 1975 and RMCD Guidelines
- All applicants must comply with industrial licensing laws, customs import/export regulations, tax laws, and approved manufacturing operations.
- Failure to comply may result in revocation of exemption privileges or other enforcement actions.
Manufacturers may qualify for import duty exemption and/or sales tax exemption on specific items used in approved manufacturing activities. Eligible items are categorized based on the relevant customs and sales tax legislation.
1. Import Duty Exemption [Item 112 of the Customs Duties (Exemption) Order 2017]
- Eligible items include:
- Industrial machinery and equipment used directly in manufacturing operations.
- Excludes spare parts, consumables, and non-production materials.
- Items must be imported or purchased from:
- Licensed Manufacturing Warehouse (LMW)
- Bonded Warehouse
- Free Zone facilities
2. Sales Tax Exemption [Item 55 Schedule A of the Sales Tax (Persons Exempted from Payment of Tax) Order 2018]
- Eligible items include:
- Machinery, equipment, and spare parts essential for the manufacturing process.
- Items must be imported or purchased from:
- Licensed Manufacturing Warehouse (LMW)
- Bonded Warehouse
- Free Zone facilities
- Manufacturers approved by the Director General of Customs
1. Import Duty Exemption [Item 112 of the Customs Duties (Exemption) Order 2017]
- Eligible items include:
- Industrial machinery and equipment used directly in manufacturing operations.
- Excludes spare parts, consumables, and non-production materials.
- Items must be imported or purchased from:
- Licensed Manufacturing Warehouse (LMW)
- Bonded Warehouse
- Free Zone facilities
2. Sales Tax Exemption [Item 55 Schedule A of the Sales Tax (Persons Exempted from Payment of Tax) Order 2018]
- Eligible items include:
- Machinery, equipment, and spare parts essential for the manufacturing process.
- Items must be imported or purchased from:
- Licensed Manufacturing Warehouse (LMW)
- Bonded Warehouse
- Free Zone facilities
- Manufacturers approved by the Director General of Customs
Only brand-new and unused machinery, equipment, and spare parts that are directly involved in the manufacturing process are eligible for import duty exemption and/or sales tax exemption.
The import duty and/or sales tax exemption process typically takes approximately 10 to 30 working days from the date all required documentation and information are submitted.
- Processing time may vary depending on:
- Completeness and accuracy of your application
- Verification and evaluation by Malaysian Investment Development Authority (MIDA)
- Approval and processing by the Royal Malaysian Customs Department (RMCD)
- Companies are strongly advised to plan ahead and submit applications well in advance of the intended import or purchase.
- Early preparation ensures compliance with ICA 1975, customs regulations, and tax exemption guidelines, helping avoid delays in importing machinery, equipment, or spare parts.
- Processing time may vary depending on:
- Completeness and accuracy of your application
- Verification and evaluation by Malaysian Investment Development Authority (MIDA)
- Approval and processing by the Royal Malaysian Customs Department (RMCD)
- Companies are strongly advised to plan ahead and submit applications well in advance of the intended import or purchase.
- Early preparation ensures compliance with ICA 1975, customs regulations, and tax exemption guidelines, helping avoid delays in importing machinery, equipment, or spare parts.
The import duty and/or sales tax exemption must be applied for and approved prior to the importation or purchase of machinery, equipment, or spare parts. Retrospective claims are not allowed under this mechanism.
If machinery, equipment or spare parts are imported or purchased before receiving official approval from Malaysian Investment Development Authority (MIDA) and the Royal Malaysian Customs Department (RMCD):
- The exemption cannot be claimed for items imported or purchased without prior approval.
- Full import duty and/or sales tax must be paid according to standard customs regulations.
- No reimbursement, retroactive claim, or backdating of the exemption is permitted under the law.
- Non-compliance may affect future applications for tax exemptions or customs privileges.
- The exemption cannot be claimed for items imported or purchased without prior approval.
- Full import duty and/or sales tax must be paid according to standard customs regulations.
- No reimbursement, retroactive claim, or backdating of the exemption is permitted under the law.
- Non-compliance may affect future applications for tax exemptions or customs privileges.
Applicants are required to pay application fees to the relevant local authorities when applying for import duty and/or sales tax exemption on machinery, equipment, or spare parts.
Applicable Fees:
1. Digital Certificate
- Required for online submissions via the Sales Tax portal.
- Fee: RM 1,000
- Validity: 2 years
2. New Application for Import Duty and/or Sales Tax Exemption (Tariff)
- Fee: RM 2,000 (Materials, spare parts)/ RM700 (Plant and machinery)
- Applicable for first-time applications covering eligible machinery, equipment, or spare parts
3. Additional Services (Extension, Additional Quantity, Appeal, or Amendment)
- Fee: RM 700 per service
Applicable Fees:
1. Digital Certificate
- Required for online submissions via the Sales Tax portal.
- Fee: RM 1,000
- Validity: 2 years
2. New Application for Import Duty and/or Sales Tax Exemption (Tariff)
- Fee: RM 2,000 (Materials, spare parts)/ RM700 (Plant and machinery)
- Applicable for first-time applications covering eligible machinery, equipment, or spare parts
3. Additional Services (Extension, Additional Quantity, Appeal, or Amendment)
- Fee: RM 700 per service
If the machinery is custom-built, modular, or imported in separate components, you may still qualify for import duty and/or sales tax exemption, provided certain requirements are met:
1. Provide Detailed Technical Specifications
- Include complete drawings, schematics, and descriptions for each part or module.
- Clearly indicate how the machinery functions as a single integrated system in the manufacturing process.
2. Submit an Itemized List
- List all individual components and spare parts in the application submitted to MIDA and the Royal Malaysian Customs Department (RMCD).
- Each part should be clearly linked to the overall system or machinery.
3. Demonstrate Direct Use in Manufacturing
- Clearly show that the assembled machinery or system is directly involved in production, processing, assembly, or quality control.
4. Approval Considerations
- Approval will depend on your ability to demonstrate:
- Purpose and function of the machinery in production
- Integration of all parts into a single operational system
- Compliance with ICA 1975 and Customs regulations
1. Provide Detailed Technical Specifications
- Include complete drawings, schematics, and descriptions for each part or module.
- Clearly indicate how the machinery functions as a single integrated system in the manufacturing process.
2. Submit an Itemized List
- List all individual components and spare parts in the application submitted to MIDA and the Royal Malaysian Customs Department (RMCD).
- Each part should be clearly linked to the overall system or machinery.
3. Demonstrate Direct Use in Manufacturing
- Clearly show that the assembled machinery or system is directly involved in production, processing, assembly, or quality control.
4. Approval Considerations
- Approval will depend on your ability to demonstrate:
- Purpose and function of the machinery in production
- Integration of all parts into a single operational system
- Compliance with ICA 1975 and Customs regulations
To qualify for import duty exemption and/or sales tax exemption, all machinery, industrial equipment, and spare parts must comply with the following key conditions:
1. The items must be new and unused
- Machinery and equipment must be brand new at the time of import or purchase.
- Refurbished, reconditioned, second-hand, or previously used items are not eligible.
- Applies to production machines, assembly line equipment, manufacturing tools, factory automation systems, and industrial robotics.
2. The items must be directly used in the manufacturing process
- Equipment must actively support the manufacturer’s core production activities, including:
- Processing and fabrication of goods
- Assembly, packaging, and labeling operations
- Quality control and product testing
- Automation systems and industrial automation equipment
- Industry 4.0–enabled manufacturing processes such as robotics, IoT-enabled machines, smart factory systems, digital production lines, and AI-assisted manufacturing
- Ensures that tax incentives are used to enhance productivity, innovation, and competitiveness in the manufacturing sector.
3. The items must be used only at the approved manufacturing premises
- All machinery, equipment, and spare parts must be installed and operated within the licensed or exempted manufacturing facility.
- The items cannot be transferred to another company, used at a different site, or deployed for non-manufacturing purposes.
- Supports compliance with Industrial Co-ordination Act 1975, customs regulations, and tax authority guidelines
1. The items must be new and unused
- Machinery and equipment must be brand new at the time of import or purchase.
- Refurbished, reconditioned, second-hand, or previously used items are not eligible.
- Applies to production machines, assembly line equipment, manufacturing tools, factory automation systems, and industrial robotics.
2. The items must be directly used in the manufacturing process
- Equipment must actively support the manufacturer’s core production activities, including:
- Processing and fabrication of goods
- Assembly, packaging, and labeling operations
- Quality control and product testing
- Automation systems and industrial automation equipment
- Industry 4.0–enabled manufacturing processes such as robotics, IoT-enabled machines, smart factory systems, digital production lines, and AI-assisted manufacturing
- Ensures that tax incentives are used to enhance productivity, innovation, and competitiveness in the manufacturing sector.
3. The items must be used only at the approved manufacturing premises
- All machinery, equipment, and spare parts must be installed and operated within the licensed or exempted manufacturing facility.
- The items cannot be transferred to another company, used at a different site, or deployed for non-manufacturing purposes.
- Supports compliance with Industrial Co-ordination Act 1975, customs regulations, and tax authority guidelines
Automation Capital Allowance
The Automation Capital Allowance (ACA) is a tax incentive introduced by the Malaysian Investment Development Authority (MIDA) to encourage companies in the manufacturing and services sectors to invest in automation, digitalisation, and Industry 4.0 technologies.
This incentive aims to boost productivity, reduce reliance on manual labour, and strengthen Malaysia’s industrial competitiveness in line with national digital transformation goals.
Key Objectives of the ACA Incentive
Encourage innovative and productivity-driven activities
- Promotes investment in advanced machinery, robotics, automation equipment, digital systems, and smart manufacturing technologies to enhance operational efficiency.
Accelerate the adoption of automation in labour-intensive sectors
- Helps businesses reduce dependency on low-skilled labour and transition toward high-value, automated production processes.
Support automation initiatives across the manufacturing and services industries
- Facilitates companies in upgrading to automated solutions such as robotic arms, CNC machines, automated inspection systems, and other Industry 4.0 technologies.
Improve productivity and strengthen business competitiveness
- Enhances output quality, reduces production costs, and increases overall business competitiveness in domestic and global markets.
This incentive aims to boost productivity, reduce reliance on manual labour, and strengthen Malaysia’s industrial competitiveness in line with national digital transformation goals.
Key Objectives of the ACA Incentive
Encourage innovative and productivity-driven activities
- Promotes investment in advanced machinery, robotics, automation equipment, digital systems, and smart manufacturing technologies to enhance operational efficiency.
Accelerate the adoption of automation in labour-intensive sectors
- Helps businesses reduce dependency on low-skilled labour and transition toward high-value, automated production processes.
Support automation initiatives across the manufacturing and services industries
- Facilitates companies in upgrading to automated solutions such as robotic arms, CNC machines, automated inspection systems, and other Industry 4.0 technologies.
Improve productivity and strengthen business competitiveness
- Enhances output quality, reduces production costs, and increases overall business competitiveness in domestic and global markets.
The Automation Capital Allowance (ACA) is open to companies that meet specific criteria set by MIDA. To qualify for this automation capital allowance tax incentive, applicants must fulfil the following requirements:
Eligibility Criteria
Companies incorporated under the Companies Act 2016 and resident in Malaysia
- Eligible applicants must be legally registered entities operating in Malaysia, including locally incorporated manufacturing companies, service providers, and automation-driven businesses.
Companies engaged in manufacturing or services activities for at least 36 months
- Applicants must have a minimum operational track record of three years, demonstrating active involvement in manufacturing, processing, engineering, or approved service-related activities.
Companies applying for ACA for the first time, or companies previously approved but now investing in different qualifying assets. This includes:
- Businesses that have never received ACA approval
- Companies that previously obtained ACA but are now making new investments in different automation equipment, machinery, or Industry 4.0 technologies
Eligibility Criteria
Companies incorporated under the Companies Act 2016 and resident in Malaysia
- Eligible applicants must be legally registered entities operating in Malaysia, including locally incorporated manufacturing companies, service providers, and automation-driven businesses.
Companies engaged in manufacturing or services activities for at least 36 months
- Applicants must have a minimum operational track record of three years, demonstrating active involvement in manufacturing, processing, engineering, or approved service-related activities.
Companies applying for ACA for the first time, or companies previously approved but now investing in different qualifying assets. This includes:
- Businesses that have never received ACA approval
- Companies that previously obtained ACA but are now making new investments in different automation equipment, machinery, or Industry 4.0 technologies
The Automation Capital Allowance (ACA) offers significant tax and operational advantages for companies aiming to modernize their operations. By promoting automation, digitalisation, and Industry 4.0 transformation, this incentive helps businesses improve efficiency, reduce costs, and stay competitive.
Key Benefits of the ACA Incentive
Enjoy a Higher Capital Allowance Deduction (Up to 200%)
- Eligible companies can claim a 200% tax deduction on qualifying capital expenditure for approved automation machinery, equipment, and technologies. This increased deduction reduces taxable profit, resulting in substantial tax savings and a faster return on investment.
Accelerates Adoption of Automation and Industry 4.0 Technologies
- The ACA encourages businesses to upgrade to automated production systems, robotics, smart manufacturing tools, and digital process integration, helping companies transition towards Industry 4.0-ready operations.
Boosts Productivity and Operational Efficiency
- Automated systems help reduce errors, minimize downtime, and increase output, enabling companies to achieve higher productivity, better quality control, and more consistent production performance.
Enhances Competitiveness in Local and Global Markets
- By adopting advanced automation technologies, companies can reduce operational costs, improve product quality, and strengthen their competitive position in both domestic and international markets.
Supports Business Growth and Long-Term Sustainability
- Automation investments promote scalability, resilience, and long-term growth—especially important for companies looking to remain competitive amid rising labour costs and evolving market demands.
Key Benefits of the ACA Incentive
Enjoy a Higher Capital Allowance Deduction (Up to 200%)
- Eligible companies can claim a 200% tax deduction on qualifying capital expenditure for approved automation machinery, equipment, and technologies. This increased deduction reduces taxable profit, resulting in substantial tax savings and a faster return on investment.
Accelerates Adoption of Automation and Industry 4.0 Technologies
- The ACA encourages businesses to upgrade to automated production systems, robotics, smart manufacturing tools, and digital process integration, helping companies transition towards Industry 4.0-ready operations.
Boosts Productivity and Operational Efficiency
- Automated systems help reduce errors, minimize downtime, and increase output, enabling companies to achieve higher productivity, better quality control, and more consistent production performance.
Enhances Competitiveness in Local and Global Markets
- By adopting advanced automation technologies, companies can reduce operational costs, improve product quality, and strengthen their competitive position in both domestic and international markets.
Supports Business Growth and Long-Term Sustainability
- Automation investments promote scalability, resilience, and long-term growth—especially important for companies looking to remain competitive amid rising labour costs and evolving market demands.
- For the years of assessment 2023 through 2027, eligible companies can claim a 200% capital allowance on up to RM 10 million of qualifying capital expenditure within year of assessment.
- In other words, if the business incurs up to RM 10 million in approved automation-related investments (machinery, robotics, Industry 4.0 equipment, etc.), can deduct twice that amount from the taxable profit, helping maximize tax savings.
- Expenditures exceeding RM10 million are not eligible for the 200% allowance; however, they remain eligible for the normal capital allowance rate.
- In other words, if the business incurs up to RM 10 million in approved automation-related investments (machinery, robotics, Industry 4.0 equipment, etc.), can deduct twice that amount from the taxable profit, helping maximize tax savings.
- Expenditures exceeding RM10 million are not eligible for the 200% allowance; however, they remain eligible for the normal capital allowance rate.
To qualify for the Automation Capital Allowance (ACA) tax incentive, the machinery, equipment, systems, or software must directly support automation, productivity improvement and Industry 4.0 adoption within manufacturing or services operations. All qualifying items must also comply with SIRIM’s verification requirements.
Eligible Machinery, Equipment, and Software Must:
Be used directly in the company’s manufacturing or services activities
- Examples include production machinery, automated processing equipment, quality inspection systems, and service-delivery automation tools.
Include automation components or incorporate Industry 4.0 technologies
- Qualifying technologies may include:
- Internet of Things (IoT)-enabled devices
- Artificial Intelligence (AI) and machine-learning systems
- Robotics and robotic arms
- Automated guided vehicles (AGV)
- Cloud-based manufacturing execution systems (MES)
- Advanced sensors and real-time monitoring systems
- Smart factory solutions
These technologies must contribute to automation, digital integration or process optimisation.
Be more advanced than the company’s current technology level
- The new equipment or software must demonstrate technological improvement and enhanced automation capabilities compared to existing systems.
Be verified by SIRIM
- SIRIM’s verification ensures that the equipment meets the required automation level and qualifies as an eligible asset for the ACA incentive.
Eligible Machinery, Equipment, and Software Must:
Be used directly in the company’s manufacturing or services activities
- Examples include production machinery, automated processing equipment, quality inspection systems, and service-delivery automation tools.
Include automation components or incorporate Industry 4.0 technologies
- Qualifying technologies may include:
- Internet of Things (IoT)-enabled devices
- Artificial Intelligence (AI) and machine-learning systems
- Robotics and robotic arms
- Automated guided vehicles (AGV)
- Cloud-based manufacturing execution systems (MES)
- Advanced sensors and real-time monitoring systems
- Smart factory solutions
These technologies must contribute to automation, digital integration or process optimisation.
Be more advanced than the company’s current technology level
- The new equipment or software must demonstrate technological improvement and enhanced automation capabilities compared to existing systems.
Be verified by SIRIM
- SIRIM’s verification ensures that the equipment meets the required automation level and qualifies as an eligible asset for the ACA incentive.
The Automation Capital Allowance (ACA) is strictly intended for automation-related, technology-upgrading, and Industry 4.0-aligned investments. Therefore, items that do not contribute to automation, productivity improvement, or technological advancement do not qualify.
Examples of Non-Eligible Machinery, Equipment, or Software
1. Standard or General-Purpose Software
- These do not enhance automation or integrate Industry 4.0 capabilities:
- Office productivity suites (e.g., word processing, spreadsheets)
- Accounting and bookkeeping software
- HR, payroll, and basic administrative systems
- CRM or ERP systems without automation or Industry 4.0 features
2. Basic or Routine Equipment Replacements
- Items that are simple one-to-one replacements without technological upgrades:
- Replacing old equipment with identical models
- Routine maintenance parts
- Non-automated production tools
- Equipment that does not improve automation level beyond existing capabilities
3. Consumer-Driven or Non-Industrial Applications
- These fall outside the scope of manufacturing or services automation:
- Retail self-ordering kiosks
- Restaurant ordering/payment kiosks
- Mobile games or entertainment apps
- Travel booking applications
- E-commerce storefront systems
- Hospitality or lifestyle apps
4. Non-Automation IT Hardware
- General hardware not tied to automation or process optimisation:
- Laptops, desktops, general servers
- Standard networking equipment
- Printers, scanners, projectors
- POS (Point of Sale) systems
5. Software or Tools Not Used Directly in Core Operations
- Software used for marketing, communication, or general management:
- Social media management tools
- Design and multimedia software
- Email marketing tools
- Website builders or CMS platforms
Examples of Non-Eligible Machinery, Equipment, or Software
1. Standard or General-Purpose Software
- These do not enhance automation or integrate Industry 4.0 capabilities:
- Office productivity suites (e.g., word processing, spreadsheets)
- Accounting and bookkeeping software
- HR, payroll, and basic administrative systems
- CRM or ERP systems without automation or Industry 4.0 features
2. Basic or Routine Equipment Replacements
- Items that are simple one-to-one replacements without technological upgrades:
- Replacing old equipment with identical models
- Routine maintenance parts
- Non-automated production tools
- Equipment that does not improve automation level beyond existing capabilities
3. Consumer-Driven or Non-Industrial Applications
- These fall outside the scope of manufacturing or services automation:
- Retail self-ordering kiosks
- Restaurant ordering/payment kiosks
- Mobile games or entertainment apps
- Travel booking applications
- E-commerce storefront systems
- Hospitality or lifestyle apps
4. Non-Automation IT Hardware
- General hardware not tied to automation or process optimisation:
- Laptops, desktops, general servers
- Standard networking equipment
- Printers, scanners, projectors
- POS (Point of Sale) systems
5. Software or Tools Not Used Directly in Core Operations
- Software used for marketing, communication, or general management:
- Social media management tools
- Design and multimedia software
- Email marketing tools
- Website builders or CMS platforms
To qualify for the Automation Capital Allowance (ACA), companies must have installed and placed the automation machinery, equipment, software, or systems into operation before submitting the application.
For existing products or services, the machinery, equipment, or Industry 4.0 software/system must be used for at least one (1) month after installation or commissioning.
For new products or services, the machinery, equipment, or Industry 4.0 software/system must be in operation for at least three (3) months after the production of the first batch of the new product or the commencement of service activities.
These requirements ensure that the investment has been fully implemented, is functional, and is ready for verification by the relevant authorities, including SIRIM Berhad (where applicable).
In addition:
- Equipment must be purchased, delivered, installed, and operational prior to application.
- Supporting documents such as invoices, delivery orders, commissioning reports, and installation photographs must be available.
- Applications must reflect actual and completed automation improvements, not planned or pending investments.
This requirement enables MIDA to verify the level of automation, technological enhancement, and Industry 4.0 readiness of the assets.
For existing products or services, the machinery, equipment, or Industry 4.0 software/system must be used for at least one (1) month after installation or commissioning.
For new products or services, the machinery, equipment, or Industry 4.0 software/system must be in operation for at least three (3) months after the production of the first batch of the new product or the commencement of service activities.
These requirements ensure that the investment has been fully implemented, is functional, and is ready for verification by the relevant authorities, including SIRIM Berhad (where applicable).
In addition:
- Equipment must be purchased, delivered, installed, and operational prior to application.
- Supporting documents such as invoices, delivery orders, commissioning reports, and installation photographs must be available.
- Applications must reflect actual and completed automation improvements, not planned or pending investments.
This requirement enables MIDA to verify the level of automation, technological enhancement, and Industry 4.0 readiness of the assets.
Both locally purchased and imported automation machinery, equipment, systems, or software can qualify for the Automation Capital Allowance (ACA), as long as they meet all the required technical criteria and automation standards set by MIDA and SIRIM Berhad.
Key Requirements for Imported Automation Equipment
Must meet ACA eligibility criteria
- Imported equipment must demonstrate automation capabilities, productivity improvement, and technological advancement compared to existing systems.
Must integrate automation or Industry 4.0 technologies
- Examples include robotics, IoT-enabled systems, smart sensors, automated inspection tools, and AI-driven solutions.
Verification by SIRIM Berhad is still required
- Even if the equipment is imported, it must pass SIRIM’s verification to confirm automation level and compliance.
Must be directly used in manufacturing or services activities
- Assets must contribute to core operational processes and support digitalisation or automation improvement.
Must be installed and operational before application
- As with local equipment, the imported machinery/software must be fully commissioned and functional prior to submission.
Key Requirements for Imported Automation Equipment
Must meet ACA eligibility criteria
- Imported equipment must demonstrate automation capabilities, productivity improvement, and technological advancement compared to existing systems.
Must integrate automation or Industry 4.0 technologies
- Examples include robotics, IoT-enabled systems, smart sensors, automated inspection tools, and AI-driven solutions.
Verification by SIRIM Berhad is still required
- Even if the equipment is imported, it must pass SIRIM’s verification to confirm automation level and compliance.
Must be directly used in manufacturing or services activities
- Assets must contribute to core operational processes and support digitalisation or automation improvement.
Must be installed and operational before application
- As with local equipment, the imported machinery/software must be fully commissioned and functional prior to submission.
Licensing and regulatory compliance are essential for companies applying for the Automation Capital Allowance (ACA). The requirements differ for manufacturing and services companies.
For Manufacturing Companies
- Manufacturing companies must hold one of the following:
- A valid Manufacturing License (ML) issued under the Industrial Coordination Act (ICA), or
- An Exemption from Manufacturing License, if the company meets the exemption thresholds.
This ensures that the business is legally recognised as a manufacturing operation eligible for automation-related incentives.
For Services Companies
- Service-based companies are also eligible but must have the appropriate licences, permits, or registrations relevant to their sector. Examples include (but are not limited to):
- Engineering service registrations
- Logistics or warehousing licences
- Healthcare-related operating licences
- ICT/technology service registrations
- Professional service certifications
Proper licensing ensures that the company is genuinely operating within a qualifying services domain for ACA consideration.
For Manufacturing Companies
- Manufacturing companies must hold one of the following:
- A valid Manufacturing License (ML) issued under the Industrial Coordination Act (ICA), or
- An Exemption from Manufacturing License, if the company meets the exemption thresholds.
This ensures that the business is legally recognised as a manufacturing operation eligible for automation-related incentives.
For Services Companies
- Service-based companies are also eligible but must have the appropriate licences, permits, or registrations relevant to their sector. Examples include (but are not limited to):
- Engineering service registrations
- Logistics or warehousing licences
- Healthcare-related operating licences
- ICT/technology service registrations
- Professional service certifications
Proper licensing ensures that the company is genuinely operating within a qualifying services domain for ACA consideration.
Small and medium enterprises (SMEs) in both the manufacturing and services sectors are fully eligible to apply for the Automation Capital Allowance (ACA) provided they meet all general qualifying criteria:
- Be incorporated in Malaysia under the Companies Act 2016
- Operate in manufacturing or services activities
- Have been in operation for at least 36 months (3 years)
- Invest in automation, Industry 4.0, or technology-upgrading solutions
- Ensure that all equipment or software meets ACA technical requirements and is verified by SIRIM Berhad
This incentive is particularly beneficial for SMEs looking to modernize processes, reduce reliance on labour, and improve competitiveness.
- Be incorporated in Malaysia under the Companies Act 2016
- Operate in manufacturing or services activities
- Have been in operation for at least 36 months (3 years)
- Invest in automation, Industry 4.0, or technology-upgrading solutions
- Ensure that all equipment or software meets ACA technical requirements and is verified by SIRIM Berhad
This incentive is particularly beneficial for SMEs looking to modernize processes, reduce reliance on labour, and improve competitiveness.
Machinery, equipment, or Industry 4.0 software/systems purchased with a government grant can still qualify for the Automation Capital Allowance (ACA) incentive.
- ACA applies only to the portion of the cost not covered by the grant
- If part of the purchase is funded by a government grant, the ACA deduction can only be claimed on the net expenditure borne by the company.
- Eligible assets include:
- Automation machinery and production equipment
- Robotics and smart factory systems
- IoT-enabled devices and sensors
- Industry 4.0 software and process automation systems
- Verification required:
- All assets must meet ACA technical criteria and, where applicable, be verified by SIRIM Berhad.
This ensures that companies leveraging government grants can still benefit from tax savings while complying with ACA rules.
- ACA applies only to the portion of the cost not covered by the grant
- If part of the purchase is funded by a government grant, the ACA deduction can only be claimed on the net expenditure borne by the company.
- Eligible assets include:
- Automation machinery and production equipment
- Robotics and smart factory systems
- IoT-enabled devices and sensors
- Industry 4.0 software and process automation systems
- Verification required:
- All assets must meet ACA technical criteria and, where applicable, be verified by SIRIM Berhad.
This ensures that companies leveraging government grants can still benefit from tax savings while complying with ACA rules.
SIRIM Berhad plays a critical role in the Automation Capital Allowance (ACA) application process by ensuring that machinery, equipment, and software meet the required technical standards for automation and Industry 4.0 readiness.
Key Responsibilities of SIRIM
Verification of Technical Compliance:
- SIRIM assesses whether the automation system or equipment meets ACA technical requirements and demonstrates technological advancement compared to existing systems.
Site Visits and Evaluation:
- They may conduct on-site inspections to verify:
- Proper installation and operational status of the equipment or system
- Automation level and integration of Industry 4.0 components (e.g., IoT, AI, robotics)
- Performance, functionality, and productivity improvements
Approval for ACA Application:
- Only assets that pass SIRIM’s verification are considered eligible for the ACA incentive.
This verification ensures that the ACA incentive is applied to investments that genuinely enhance automation, productivity, and digital transformation in Malaysian manufacturing and services sectors.
Key Responsibilities of SIRIM
Verification of Technical Compliance:
- SIRIM assesses whether the automation system or equipment meets ACA technical requirements and demonstrates technological advancement compared to existing systems.
Site Visits and Evaluation:
- They may conduct on-site inspections to verify:
- Proper installation and operational status of the equipment or system
- Automation level and integration of Industry 4.0 components (e.g., IoT, AI, robotics)
- Performance, functionality, and productivity improvements
Approval for ACA Application:
- Only assets that pass SIRIM’s verification are considered eligible for the ACA incentive.
This verification ensures that the ACA incentive is applied to investments that genuinely enhance automation, productivity, and digital transformation in Malaysian manufacturing and services sectors.
The Automation Capital Allowance (ACA) provides SMEs with a powerful incentive to modernize operations and adopt Industry 4.0 technologies. Key benefits include:
- Lower Tax Burden: Eligible SMEs can claim a 200% capital allowance on qualifying automation investments, effectively reducing taxable profit and generating significant tax savings.
- Affordable Automation Adoption: ACA makes investing in automation machinery, robotics, IoT systems, and software more cost-effective, lowering the financial barrier for digital transformation.
- Enhanced Productivity and Efficiency: Automation and digital technologies help SMEs reduce manual errors, speed up processes, and streamline operations, boosting overall productivity.
- Stronger Competitiveness: By improving operational efficiency and product/service quality, SMEs can compete more effectively in local and global markets.
In short: ACA helps SMEs save on taxes, adopt advanced technologies affordably, increase productivity, and strengthen their competitive position.
- Lower Tax Burden: Eligible SMEs can claim a 200% capital allowance on qualifying automation investments, effectively reducing taxable profit and generating significant tax savings.
- Affordable Automation Adoption: ACA makes investing in automation machinery, robotics, IoT systems, and software more cost-effective, lowering the financial barrier for digital transformation.
- Enhanced Productivity and Efficiency: Automation and digital technologies help SMEs reduce manual errors, speed up processes, and streamline operations, boosting overall productivity.
- Stronger Competitiveness: By improving operational efficiency and product/service quality, SMEs can compete more effectively in local and global markets.
In short: ACA helps SMEs save on taxes, adopt advanced technologies affordably, increase productivity, and strengthen their competitive position.