[MUST READ] Expanded SST Is Now in Effect! Here’s How It Could Impact Your Construction Business
The government has announced the implementation of expanded SST taking place starting 1 July 2025. This expanded SST is said to affect some goods and services, including construction services. If you’re in the Mechanical and Electrical Systems (M&E) and Engineering, Procurement, Construction, and Commissioning (EPCC), this new tax charges will affect you.
What Are Construction Services?
Construction Services cover construction, extension, renovation, electrical or plumbing works, demolition, civil or M&E engineering. These services not only for residential, but also applied for commercial properties too.
Before you panic over the expanded SST, there are a set of conditions you need to achieve to be charged:
- Threshold: RM1,500,000 (total taxable construction services within any 12-month period)
- Rate: 6%
- Effective Date: 1 July 2025
- All contractors (main, sub, renovation, civil, M&E, plumbing, electrical) must register for SST if revenue exceeds the threshold.
SST will only apply if your company exceeds the threshold within any 12-month period.
Scope of Taxable Construction Services
Project Type | Taxable? | Brief Description |
Commercial or Mixed-Use Developments (e.g. commercial buildings factories, malls, offices) | ✅ | Primarily commercial nature – taxable |
EPCC Projects (Engineering, Procurement, Construction, and Commissioning) | ✅ | Large-scale industrial projects involving end-to-end delivery |
Mixed Developments (residential + commercial) | ✅ | Entire project is taxable regardless of residential proportion |
Renovation of Residential Units within Mixed Developments | ✅ | Classified as commercial-use land – taxable |
Pure Residential Construction & Related Facilities (e.g. parks, roads) | ❌ | Must be approved by local authority as residential |
Renovation of Pure Residential Units (non-mixed) | ❌ | Considered as private household work – exempted |
Public Infrastructure (e.g. airports, transport hubs) | ✅ | Not part of residential development – taxable |
Government Projects (federal/state/local) | ❌ | Exempt, but value must be included for threshold purposes |
Designated/Specified Areas | Conditional | Based on contractor’s HQ – taxable if in Peninsular Malaysia; exempt if in East Malaysia |
REMINDER: Exempt Doesn’t Mean Excluded From Threshold!
Many people think that if a construction project is exempt from SST (Sales and Service Tax), it does not count when checking whether a business needs to register for SST. This is not true.
According to the Royal Malaysian Customs:
- Even if a construction project is SST-exempt, such as work done for the Federal or State Government or Local Councils, you still need to include the value of those projects when calculating if you have reached the RM1.5 million threshold for SST registration.
- However, if the project involves residential buildings or public facilities related to those homes (such as playgrounds or community halls), they are completely excluded. These do not count toward the RM1.5 million limit and are not subject to SST at all.
But do not worry. Even if you register for SST later, these exempt projects will remain exempt, and no additional tax will be charged retroactively.
Transitional Rules and Retention Sums
To avoid unfair double taxation, transitional rules require contractors to apportion projects:
- Work completed before 1 July 2025: Not taxable
- Work completed after 1 July 2025: Taxable
- Contracts spanning July 2025: Must be apportioned based on certification of work performed
Retention Sums:
- Taxable if tied to work performed after 1 July 2025
- Not taxable if project was fully handed over before 1 July 2025
How Does The Expanded SST Affect The Invoice & Billing Requirements?
If you’re a contractor registered for SST, you need to issue invoices for any taxable project you take on. These invoices can be in e-Invoice format, printed on paper, or sent as a PDF. Every invoice must clearly include your client’s details, a description of the service provided, and the 6% SST amount.
For projects that are exempt but done for other businesses (B2B), you still need to state the client’s SST number and the exempted value in your invoice.
When it comes to payments such as retention sums, progress billings, or stage payments, SST becomes chargeable when you actually receive the payment, not when you send the bill. If no payment is received within 12 months from the date the service was provided, SST will be charged automatically.
To stay on the safe side, it’s recommended that you certify and issue invoices at each stage of the project. This ensures you’re following SST rules properly and reduces the risk of non-compliance.
Latest Industry Updates
Threshold Maintained at RM1.5 Million
Calls to raise the registration threshold to RM3 million were rejected. The government has maintained the RM1.5 million threshold, meaning many medium-sized contractors will be affected.
Concerns on Project Stability
The Master Builders Association Malaysia (MBAM) has warned that SST could destabilise projects by creating:
- Financial strain on fixed-price contracts
- Cash flow disruptions due to upfront tax obligations
- Certification/payment delays that hurt liquidity
- Slower adoption of digitalisation and ESG initiatives as funds are diverted to compliance
Mixed-Use Developments Included
Mixed-use developments (residential + commercial) are fully taxable under SST, unless they are purely residential. This clarification impacts a large portion of urban projects.
Compliance Grace Period
To help companies transition, the government has announced no penalties until 31 December 2025 for reasonable compliance delays. This provides breathing room for contractors to adapt systems and processes.
Conclusion
Expanded SST means new compliance, and compliance requires accuracy. Calculating your thresholds and then adding in the SST charges later can be confusing, which can lead to errors. Instead of managing them separately, why not consolidate those data in one place, one platform?
As a construction company, a system like ContractX allows you to consolidate your data in one platform which you can share with your partners, stakeholders and subcontractors. This enables you to see any costs accumulated, track whether they reach the LHDN threshold and easily add in the expanded SST rate. Want to see how ContractX can assist you further in compliance?
