On 12 August 2026, the Royal Malaysian Customs Department (Jabatan Kastam Diraja Malaysia, JKDM) issued Public Ruling No. 5/2026 (Ketetapan Umum Bil. 5/2026). It took effect the same day.
The ruling defines what counts as a temporary secondment of employees for service tax purposes. If your arrangement meets the definition, it sits outside service tax. If it does not, JKDM says it is a taxable service.
There are eight conditions, and all eight must be met.
If your group lends staff between companies, or you second someone to a joint venture partner, a customer or an associate, this is a test you can run against your live arrangements this afternoon.
Why the definition matters at all
Employment services have been a taxable service since 1 September 2018, under item (j), column (2), Group G of the First Schedule to the Service Tax Regulations 2018.
Under the existing regulations, the ruling says two forms of employment service are not taxable:
- the provision of employment services in the form of temporary employee placement; and
- the provision of employment services for work outside Malaysia.
The first of those is what matters here. “Temporary employee placement” was the gate that kept ordinary intra-group staff lending outside the service tax net. Public Ruling No. 5/2026 sets out what you now have to satisfy to stand behind it.
The ruling does not limit the test to companies within the same group, and it does not make related-party status a condition. Any employer lending an employee to another company is inside this test.
The eight conditions
The ruling sets these out at paragraph 3.1. It calls the lending employer the majikan asal, the original employer, and the company the employee is lent to the syarikat yang dipinjamkan, which under conditions (e) to (g) is the company that directs the work and bears the cost.
| # | Condition | The question to ask |
|---|---|---|
| a | There is an employee lending contract (kontrak peminjaman pekerja) between the original employer and the borrowing company | Do we have a signed contract for this specific arrangement, or just an email? |
| b | The original employer’s business activity is something other than the provision of employment services, including an employment agency and a professional employer organisation | Is lending people what we do for a living? |
| c | The employee is transferred temporarily to perform duties elsewhere for a specified period, and on completion returns to the same employer to continue employment | Is there a stated end date, and a role to come back to? |
| d | The employee continues to be employed by the original employer, and continuity of employment (kesinambungan pekerjaan) is unbroken | Did we terminate and rehire, or novate the contract? |
| e | During the lending period, the employee works only for the borrowing company | Is the employee still carrying part of their old workload? |
| f | The borrowing company has full control over the employee | Who actually directs the work day to day? |
| g | Salary and any other allowances, at cost value, are paid by the borrowing company directly or indirectly, with no additional charge imposed | Is there a markup, admin fee, or management charge on top? |
| h | The placement lasts less than six months in the placement year and does not continue into the following year | How long, and does it cross 31 December? |
Paragraph 3.2 states the consequence in one sentence: a temporary employee service that does not meet all of the above conditions is a taxable service and is subject to service tax.
What actually changed
JKDM’s Guide on Employment Services (Panduan Perkhidmatan Pekerjaan) already carried a definition of employee lending. The version currently published on the MySST industry guides page, dated 14 May 2024, defines it with five elements.
Public Ruling No. 5/2026 has eight. Conditions (c), (d), (e) and (f) above are carried across from the guide substantially unchanged. Three conditions are new. A fourth has been written into the definition for the first time.
New: the written contract. Condition (a) did not appear in the 2024 definition. The guide dealt with contracts in a question and answer, where it said the parties were advised to prepare documentation as evidence of the placement. Advice has become a condition. An informal arrangement between two group companies, however genuine, no longer satisfies the test on its own terms.
New: the provider-business exclusion. Condition (b) did not appear in the 2024 definition either. The guide named employment agencies, temporary staffing agencies, executive search firms and professional employer organisations as employment service providers, but never excluded them from the lending definition. The ruling does, by reference to the original employer’s business activity rather than the shape of any individual deal.
New: the duration limit. Condition (h) has no counterpart anywhere in the guide. The guide required a placement to be temporary and for a specified period, but it put no number on it. This is the condition most likely to catch a real arrangement, and it is two tests:
- the placement must be less than six months in the placement year; and
- it must not continue into the following year.
Both have to be met. Six months exactly is not less than six months, so a clean six-month placement fails the first test on its face. And a placement can be comfortably short and still fail the second.
The second test has a gap. The ruling says the placement must not carry into the following year, but it never defines the year. The ruling’s wording is setahun penempatan itu, which means the year of that placement, and it does not say whether that means a calendar year, a financial year, or twelve months from the start date. Those readings do not give the same answer for a placement that begins in the second half of a year. If yours does, that is a question for JKDM, not one to settle by assumption.
Written into the definition: cost only. The 2024 definition required salary and allowances to be paid by the borrowing company with no additional charge. Condition (g) adds the words pada nilai kos, at cost value.
Do not read that as a change of substance. The guide already applied the same rule outside its definition, through a worked example and a question and answer that made any added value taxable. What is new is that the words now sit inside the test itself, where they have to be met rather than inferred from an example.
What the ruling does not tell you
This is a classification test, and the document is deliberately narrow. It states none of the following:
- the applicable service tax rate;
- how to calculate the taxable value where the conditions are not met;
- the invoice date or accounting point;
- whether salary and allowance reimbursements become the taxable value;
- whether a failed condition makes the arrangement taxable from inception or only from the date the condition fails;
- any transitional treatment for arrangements already running.
It also provides no application, election, approval, registration or lodgement route. There is nothing to file and nothing to ask JKDM to bless in advance. You either meet the eight conditions or you do not, and you will need to be able to show it if asked.
The ruling took effect on 12 August 2026 and says nothing about how the six-month and year-crossing tests apply to a placement that was already running on that date, including whether time served before 12 August counts. If you have a live arrangement that started earlier this year, that is a question for JKDM, not one to answer by assumption.
The guidance you will find if you go looking, and why to read it carefully
MySST listed a Guide on Employment Services (Malay version only) in its announcements on 13 August 2026, the day after the ruling took effect. The guide published on the MySST industry guides page carries the date 14 May 2024.
The 2024 guide predates the ruling and predates the current scope of the service tax. It still describes employment services by the older First Schedule reference, item 10 of Group G, where the ruling uses item (j). If you are relying on that guide for anything time-sensitive, confirm the position with JKDM first.
Three things in the 2024 guide are worth knowing about anyway, with that caveat attached.
On cost recovery. The guide states that temporary employee placement is not prescribed as a taxable service, so cost recovery on salary or emoluments does not attract service tax, but that any additional fee, commission or added value will. That is the same distinction condition (g) now draws.
On records. The guide advises the parties to prepare documentation of a temporary placement as evidence of the service, and states that because temporary placement is not subject to service tax, the seconder is required to keep the related records for audit purposes, including contracts, agreements and any relevant supporting documents.
On tax mechanics. The guide does deal with the accounting point, and with expenses that can be recharged to a client without a markup, for employment services that are taxable. Treat its numbers with care. Its worked examples calculate service tax at the 8 percent rate the guide states applied from 1 March 2024, and it cites a different First Schedule item from the one the ruling uses.
The guide’s own worked example of employee lending is an engineer lent to another company to advise on a construction project, with the borrower carrying salary, allowances and benefits and no value added. The example says nothing about how long the placement runs, and nothing about a lending contract between the two companies. Those are two of the three things the ruling has since made decisive.
What to do this week
List every arrangement where one of your companies is paying someone another of your companies employs. Secondments, loans of technical staff, a finance manager covering a sister company, a founder splitting time across two entities. If money moves and a person moves, it is on the list.
Run each one against condition (h) first. It is the newest, and the one your existing arrangements were never designed around. Six months or more fails outright. Anything running across a year end needs the year question answered before you rely on the relief.
Then check condition (g) against your intercompany invoices. Look for the markup. A 5 percent administration charge on a payroll recharge, standard in many groups, takes the arrangement outside the definition.
Then check condition (a). If the answer is that the arrangement was agreed verbally between two directors, put a lending contract in place. This one you can fix immediately.
Where an arrangement fails, do not assume you know the consequence. The ruling does not state the rate, the taxable value, the accounting point or whether the exposure runs from inception. Take those to your tax agent or to JKDM with the specific facts, because the ruling will not answer them.
If you would like a second pair of eyes on how your intercompany staffing arrangements sit against the eight conditions, we are happy to look at them with you.
Source: Royal Malaysian Customs Department (JKDM), Public Ruling No. 5/2026 (Ketetapan Umum Bil. 5/2026), Penetapan Maksud Penempatan Pekerja Secara Sementara (Secondment Of Employees) Bagi Perkhidmatan Pekerjaan, file reference KE.HF(152) 431/14 (5), issued and effective 12 August 2026; JKDM Guide on Employment Services (Panduan Perkhidmatan Pekerjaan), dated 14 May 2024. This article is general information current as at 2 September 2026 and is not tax or legal advice. The ruling states that it may be amended in whole or in part, or withdrawn at any time, and that a legislative amendment affecting its content prevails over it, so confirm the live position on mysst.customs.gov.my before acting.