Malaysia’s Budget 2026 brings important indirect tax changes that property owners, landlords, and MSME tenants must understand to protect margins and stay compliant. The headline move is a reduction in service tax on rental and leasing services for non-residential premises and other taxable assets, where the rate is cut from 8% to 6% with effect from 1 January 2026, directly lowering the tax cost on offices, warehouses and commercial spaces. At the same time, policy makers are reshaping the property tax landscape through tighter stamp duty rules for foreign buyers and stronger incentives for adaptive reuse and affordable housing, signalling a clear shift away from speculation towards long-term, sustainable growth in Malaysia’s real estate sector.

From an SST perspective, Budget 2026 is particularly favourable to micro and small enterprises (MSMEs) that rent business premises. The annual turnover threshold for exemption from service tax on rental and leasing is raised from RM1 million to RM1.5 million, meaning more small businesses will fall outside the service tax net and enjoy immediate savings on their monthly rental bills. Newly established MSMEs also benefit from a one-year exemption or deferment from service tax on rentals from the date they commence business, easing early-stage cash flow and making it more attractive to upgrade into proper office or warehouse space rather than operating informally. For tenants in higher-rent city locations, the combination of a lower SST rate and broader exemptions can translate into meaningful improvements in net cash flow and operational resilience.

For landlords and property owners, the new 6% rate does not remove compliance obligations, and it introduces practical transitional issues that must be managed carefully to avoid penalties. Landlords registered for SST must ensure they apply the correct rate when dealing with advance rentals, unpaid invoices issued at the old 8% rate, and any credit notes required to adjust from 8% to 6%. Questions such as which date determines the applicable tax rate (invoice date, rental period, or payment date) and whether overpaid tax can be reclaimed from Customs become critical in ensuring accurate accounting and protecting margins. In a market where yields are already under pressure from higher operating costs, mastering these technical details of SST on rental and leasing can make the difference between a compliant, efficient portfolio and one that leaks profit through tax errors.

On the property transaction side, Budget 2026 sends a strong message to foreign residential buyers while creating new opportunities for local investors focused on value-add strategies. Stamp duty on the transfer of residential properties by non-citizens (excluding Malaysian permanent residents) and foreign companies is doubled from 4% to 8% for instruments executed from 1 January 2026, significantly increasing acquisition costs and cooling speculative foreign demand. In contrast, a new 10% tax deduction, capped at RM10 million, is introduced for qualifying renovation and conversion costs when transforming commercial properties into residential use, directly encouraging adaptive reuse of underutilised offices, retail and other commercial stock. This creates a powerful incentive for developers and investors to convert oversupplied commercial assets into rentable or saleable homes in locations where residential demand remains strong.

Budget 2026 also reinforces Malaysia’s affordability agenda, particularly for first-time homebuyers and the mid-market segment. The stamp duty exemption for first-time buyers purchasing properties priced at RM500,000 and below is extended until 31 December 2027, giving more time for young households and upgraders to enter the market without the upfront tax burden. This exemption helps sustain transaction volumes in the affordable and mass-market price bands where local demand is deepest, supporting developers and investors who focus on well-priced, livable projects rather than high-end speculative units. Taken together, the service tax changes, foreign-buyer stamp duty hike, adaptive reuse incentives and extended first-time buyer relief all point in the same direction: Malaysia’s 2026 tax framework now clearly rewards affordability, sustainability and repurposing of existing stock, while making short-term speculative plays less attractive. For investors, landlords and MSMEs, aligning strategies with these policy signals will be essential to capture the most resilient demand and policy support in the years ahead.