The Director-General of Customs has issued
Public Ruling No. 5/2026 – Determination of the Meaning of Secondment of Employees for Employment Services1 (“
P.R. 5/2026”) which took effect on
12 August 2026.
Objective
The objective of P.R. 5/2026 is to explain the meaning of secondment of employees in the context of employment services under the service tax regime.
Background
Effective from 1 September 2018, employment services are taxable services under item (j), column (2), Group G, First Schedule of the Service Tax Regulations 2018 except for the following employment services:
- the provision of employment services in the form of secondment of employees; and
- the provision of employment services for employment outside Malaysia.
Determination of the meaning of secondment of employees for employment services under service tax
To qualify as a secondment of employees as referred to in paragraph (i) above, all of the following conditions must be complied with:
- there is an employee secondment agreement between the original employer and the company to which the employee is seconded (“seconded company”);
- the business activity of the original employer is other than the provision of employment services (including employment agencies and professional employer organisations);
- an employee is temporarily transferred by the original employer to perform duties at another place for a specified period and upon completion of those duties, the employee will return to the original employer to continue his employment;
- the employee continues to be employed by the original employer and the continuity of such employment remains uninterrupted;
- during the secondment period, the employee shall work only for the seconded company;
- the seconded company has full control over the employee;
- the salary and any other allowances (at cost value) shall be paid by the seconded company either directly or indirectly, and no other additional charges shall be imposed; and
- the secondment period is to be less than six months in a year of such secondment and does not continue into the following year.
The provision of employees on a temporary basis (secondment of employees) that does not satisfy all the above conditions constitutes a taxable service and is subject to service tax.
Comments
P.R. 5/2026 is to be welcomed as it clearly sets out the conditions that have to be fulfilled in order for the secondment of employees to be exempted from service tax.
It is to be noted that paragraph (g) of P.R. 5/2026 suggests that secondment must be on a cost reimbursement basis. Hence, if a mark-up is charged on the salary and other allowances payable to the employee, the secondment arrangement could be subject to service tax.
Alert by Joey Tiw (Senior Associate) of the Tax Practice of Skrine.
1 Public Ruling No. 5/2026 is only available in Bahasa Malaysia.