With the expansion of Service Tax (SST) effective 1 July 2025, the construction industry has entered a new era of tax compliance. It is more important than ever for contractors and developers to understand the boundaries between taxable and non-taxable services, structure contracts correctly, and apply SST accurately to avoid penalties, disputes, and margin erosion.
What is The Definition of Construction Work?
Under the new Group L categorisation, construction works encompass the entire lifecycle of a project, specifically the planning, building, and completion phases. The table below summarises the main areas of construction and their respective scopes:
| Area of Construction | Scope of Work | Examples |
| Civil Engineering Works | Design, construction, and maintenance of physical structures and infrastructure. | Site preparation, earthworks, foundation works, structural development, drainage systems. |
| Mechanical & Electrical (M&E) Works | Design, installation, maintenance, and management of building systems that support internal operations and environmental control. | Electrical wiring, plumbing systems, HVAC installation, mechanical equipment installation. |
| Facility Management (During Construction) | On-site operational and coordination services provided throughout the construction phase only. NOTE: Post-completion services fall under Maintenance Services (Group G). | Site supervision support, temporary facility upkeep, coordination of site services, cleaning and basic site management. |
What Is Excluded from Group L?
Not all construction activities fall under Group L, and knowing what is excluded helps you invoice correctly and stay compliant.
The construction of purely residential buildings remains exempt to protect housing affordability. If your business only undertakes purely residential projects, you are not required to register as an SST taxpayer.
Once a project is completed and handed over, any repair, servicing, or upkeep no longer qualifies as construction work and instead falls under Maintenance Services under Group G.
Misclassification Is a Major Risk
One of the biggest compliance risks lies in the ‘grey area’ between construction services taxed at 6% (Group L) and maintenance services taxed at 8% (Group G). If a contractor incorrectly classifies post-completion repairs as construction work to apply the lower tax rate, this may result in under-declaration and trigger penalties during an audit.
For mixed development projects, only the non-residential portion is taxable. Contractors must clearly separate billings to avoid over-taxation, disputes, and compliance exposure.
Stay Ahead of SST Changes & Protect Your Margins
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Frequently Asked Questions (FAQs)
1. What is SST Group L for construction in Malaysia?
SST Group L covers taxable construction services involving planning, building, and completion of non-residential projects, effective from 1 July 2025.
2. Are residential construction projects subject to SST?
Purely residential construction projects are exempt from SST, and contractors handling only residential projects do not need SST registration.
3. What is the SST rate for construction versus maintenance services?
Construction services under Group L are taxed at 6%, while maintenance and post-completion services under Group G are taxed at 8%.
4. How should mixed development projects be billed for SST?
Only the non-residential portion is taxable and must be clearly separated in invoices to prevent overcharging and compliance errors.
5. What happens if construction services are misclassified under SST?
Misclassification may result in under-declared tax, penalties, audit exposure, and potential disputes with clients.
Don’t leave SST compliance to interpretation. Equip your finance and project teams with clear, actionable guidance from Bispoint’s tax specialists in our SST In-House Workshop for Construction Companies.
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