When Malaysia replaced GST with the Sales Tax and Service Tax (SST) in September 2018, many founders breathed a sigh of relief. No more complicated input tax credits, no more quarterly BAS headaches. But here's what catches startups off guard: SST compliance isn't actually simpler—it's just different. And the penalties for getting it wrong are just as painful.
We've helped dozens of startups navigate SST registration and compliance. Here are the five mistakes we see over and over again—and more importantly, how to avoid them.
A Quick SST Refresher
Before we dive into the mistakes, let's clarify what we're dealing with. SST in Malaysia has two components:
- Sales Tax (5% or 10%): Charged on manufactured goods in Malaysia and imported goods. Applies at the manufacturer/importer level.
- Service Tax (8%): Charged on taxable services provided by registered persons. This is what affects most startups.
For tech startups, you're almost always dealing with Service Tax. Software development, SaaS subscriptions, consulting, IT services—all fall under the service tax regime.
The Magic Number: RM500,000
You must register for Service Tax when your annual taxable service turnover exceeds RM500,000. This is calculated on a 12-month rolling basis, not calendar year.
Mistake #1: Not Registering on Time
Crossing RM500K without realizing it
The threshold creeps up on founders. You're focused on growing revenue, and suddenly you look up and realize you've been above the threshold for three months. By then, you owe SST on all revenue from the day you crossed RM500K—plus late registration penalties.
We've seen startups get hit with back-taxes exceeding RM40,000 because they didn't track their threshold carefully.
Mistake #2: Wrong Service Classification
Misunderstanding what's taxable
Not all services are taxable. And among taxable services, different activities fall under different groups with different rules. Mixing this up means you either charge SST when you shouldn't (annoying your customers) or don't charge it when you should (owing RMCD money).
Common confusion points for tech companies:
- SaaS subscriptions: Taxable under Group G (IT services)
- Custom software development: Taxable under Group G
- Exported services: Generally not taxable (if customer is outside Malaysia)
- Hosting services: Taxable under Group G
Mistake #3: Missing Filing Deadlines
Forgetting the bi-monthly SST-02 return
Once you're registered, you must file SST-02 returns every two months—even if you have zero tax to pay. The deadline is the last day of the month following your taxable period.
Miss a deadline and you're looking at:
- Late filing penalty: RM200 per day, capped at RM10,000
- Late payment penalty: 10% of unpaid tax immediately, then 15% if still unpaid after 30 days, then 15% more after 60 days
That's up to 40% in penalties on top of the tax owed.
2024 Taxable Periods
Jan-Feb (due 31 Mar), Mar-Apr (due 31 May), May-Jun (due 31 Jul), Jul-Aug (due 30 Sep), Sep-Oct (due 30 Nov), Nov-Dec (due 31 Jan 2025).
Mistake #4: Incorrect Invoicing
Invoices missing required details
Your invoices must comply with RMCD requirements. Missing information can invalidate the invoice, causing problems for both you and your customers.
Required elements on a tax invoice:
- The words "Tax Invoice" clearly displayed
- Invoice serial number
- Date of invoice
- Your business name, address, and SST registration number
- Customer's name and address
- Description of services provided
- Amount excluding tax, tax amount, and total amount
- Rate of service tax applied (8%)
Mistake #5: Not Tracking Exempt Supplies
Mixing up exempt and taxable revenue
Some of your revenue might be exempt from Service Tax—particularly if you're selling to overseas customers. But you need to track this separately and be able to prove it during an audit.
For exported services to be exempt:
- The customer must be outside Malaysia
- The service must not be used in Malaysia
- You must maintain documentation (contracts, proof of payment from overseas)
If you can't prove a sale was an export, RMCD will treat it as domestic—and you'll owe the 8%.
Your SST Action Plan
If you're approaching or already past the RM500K threshold, here's what to do:
- Calculate your position. Pull your last 12 months of taxable service revenue. Are you over RM500K?
- Register if needed. If over the threshold, register via MySST portal immediately. You'll need your MyTax account and company documents.
- Classify your services. Map each revenue stream to the correct SST group. When in doubt, consult the Service Tax Act 2018 or get professional help.
- Update your invoicing. Ensure all tax invoices meet RMCD requirements. Update your accounting software templates.
- Set up filing reminders. Calendar all six bi-monthly deadlines for the year ahead.
- Track exempt supplies. Create separate accounts for domestic vs. export revenue.
Voluntary Registration
You can register for SST voluntarily even if below RM500K. Some startups do this for credibility with enterprise customers, but it means you'll need to charge 8% on all taxable services and file bi-monthly returns. Consider carefully.
SST compliance isn't glamorous, but getting it right means no surprises during audits and no penalties eating into your runway. The rules are clear once you understand them—the key is setting up systems early so compliance happens automatically.
If you're unsure about your classification or registration status, it's worth getting professional advice before RMCD comes asking questions. The cost of a consultation is far less than the penalties for getting it wrong.