The Royal Malaysian Customs Department (RMCD) has issued Service Tax Policy No. 5/2024 to provide further clarity on the service tax treatment of maintenance charges and sinking fund contributions collected by developers, Joint Management Bodies (JMBs), and Management Corporations (MCs) in respect of strata properties.
This policy is particularly significant for its confirmation of a major change affecting commercial strata
Maintenance Fees and Sinking Fund: Taxable or Exempt?
The policy distinguishes between residential and commercial strata properties, aligning tax treatment accordingly. Below is the clarified position under Policy 5/2024:
Residential Properties
– Exempt from Service Tax
For residential strata developments, RMCD confirms that:
- Maintenance fees collected for the management,
administration, and upkeep of common areas are not
subject to service tax. - Sinking fund contributions, even if used for long-term
repairs or replacement of capital assets, are likewise
exempted from service tax.
This exemption applies so long as the collections are made by:
- A developer prior to the establishment of a JMB or MC,
- A JMB, established under Section 17 of the Strata
Management Act 2013, or - A Management Corporation, established under Section
39 of the same Act.
The policy reiterates that residential unit owners are not subject to service tax on these contributions, providing welcomed clarity to many industry stakeholders.
Commercial Properties
– Both MF and SF Now Taxable
For commercial strata developments, Policy No. 5/2024 introduces a key change:
- While maintenance fees have long been understood to fall within the scope of taxable services, there was previously no express directive on whether sinking fund contributions were subject to service tax.
- The new policy confirms that sinking fund contributions collected from commercial unit owners are now subject to 6% service tax, effective 26 February 2024.
This applies regardless of whether the sinking fund is immediately spent or reserved for future expenditure.
Practical Implications for Strata Management
This change has direct implications for developers, JMBs, and MCs managing commercial buildings or mixed-use developments. Key actions include:
- Implementing service tax on all sinking fund collections from commercial unit owners going forward.
- Reviewing existing invoicing systems to ensure that service tax is appropriately reflected on billing documents.
- For mixed developments, maintaining clear segregation of residential and commercial collections and applying service tax only where applicable.
- Registering for service tax if the combined value of taxable services (including maintenance and sinking fund collections) exceeds RM500,000 per annum.
Conclusion
The release of Service Tax Policy No. 5/2024 provides long-awaited clarity on the tax treatment of maintenance fees and sinking fund contributions in the strata property sector — especially with respect to commercial buildings.
As tax agents, we view this policy as a critical update for developers, Joint Management Bodies (JMBs), and Management Corporations (MCs) managing mixed or commercial strata developments. While maintenance fees
for commercial properties have always been within the service tax net, the inclusion of sinking fund contributions as taxable with effect from 26 February 2024 marks a significant compliance obligation.
- We strongly advise the following:
Review all existing billing and accounting systems to ensure service tax is correctly imposed on commercial unit collections, including sinking fund contributions. - For mixed developments, implement clear segregation between residential and commercial components to avoid misapplication of tax.
- Ensure SST registration if your annual taxable collections (MF + SF for commercial units) exceed RM500,000 and maintain proper tax invoice documentation.
- If previously no service tax was charged on commercial SF collections, you may need to regularise past billings and engage RMCD proactively to avoid unnecessary penalties.
This policy underscores the importance of tax governance within property management. Early consultation and ongoing collaboration with your tax agent will help you navigate these changes with full compliance and peace of mind.
For tailored advice or a compliance health check, we encourage all strata bodies and developers to reach out.
