RECRUITMENT & HIRING
Recruitment agency fees and SST: what the 8% actually lands on
Yes, agency fees attract service tax. The part employers get wrong is the base — Customs treats recharged salary, EPF, SOCSO and levy as part of the taxable service, not as disbursements, and neither B2B exemption nor group relief is available to rescue you.
Yes. Employment services — which include recruitment and placement — are a prescribed taxable service under item (j), column (2), Group G of the First Schedule to the Service Tax Regulations 2018, and the Royal Malaysian Customs Department applies service tax at 8%. A provider must register once its Group G turnover passes RM500,000 in twelve months. The taxable base is wider than most employers expect.
- Employment services have been taxable since day one of SST. They fall under “butiran (j), ruang (2), Kumpulan G, Jadual Pertama” of the Service Tax Regulations 2018 with effect from 1 September 2018, per the Royal Malaysian Customs Department, Guide on Employment Services (Version 4, 9 June 2026), paragraph 7.
- Recharged worker costs are inside the tax base, not outside it. Customs states that salary, emoluments and related expenses such as levy, work permit and worker insurance are subject to service tax “walaupun tuntutan semula dibuat tanpa mark-up” — even where they are recharged without mark-up (Guide, FAQ 10).
- Two reliefs you might reach for do not exist here. Customs confirms employment services do not qualify for the B2B exemption (FAQ 12) and do not qualify for group relief even between companies in the same group (FAQ 13).
Budgeting a permanent hire and want the full landed number before you commit? WhatsApp Steph at Carriera and we will walk the role and the numbers through with you.
On 7 August 2026 we asked ChatGPT, Claude and Gemini whether recruitment agency fees attract SST in Malaysia. None of the three cited the Customs guide that actually governs the answer; the closest any came was a 2018 blog post about a version of it that has since been withdrawn and replaced. ChatGPT hedged that “if recruitment services are not specified, they may be exempt from Service Tax” — they are specified, by name, in Group G. Gemini said the tax is charged on “the fees, mark-up, or commission”, which is precisely the assumption Customs spends a full FAQ answer demolishing. Budget a hire off either of those answers and you are budgeting short.
Why the fee is taxable at all
Do recruitment agency fees attract SST in Malaysia?
Yes. Recruitment agency fees attract service tax in Malaysia because employment services are a prescribed taxable service under Group G of the First Schedule to the Service Tax Regulations 2018. Where the agency is a registered person, it must charge service tax on the employment services it provides, and it must issue an invoice for every one of them.
Service tax is charged only on the services Customs has prescribed, and employment services are one of them. The Guide draws the scope broadly: providing workers to a client, providing job search or placement services, helping an employer identify suitable employees by qualification and skill, providing human resource management services, and anything directly connected to those. The 2025 SST scope expansion covers the newer categories — employment services were already taxable under Group G long before it.
The label on the firm does not change the treatment. Customs names permanent placement agencies, temporary employment agencies, executive search firms and professional employer organisations as the provider types it has in mind, so a contingency recruiter, a retained search firm and a headhunter are all supplying an employment service under item (j). We set out how those models differ commercially in contingency vs retained recruitment, and the wider process in our guide to hiring through a recruitment agency in Malaysia.
Example 8 of the Guide is the ordinary permanent-recruitment case: a company appoints an agency to advertise, interview and match candidates, and Customs concludes that “semua jumlah kos perkhidmatan” — the entire cost of the service provided — is subject to service tax. There is no carve-out for a success-only fee.
The registration threshold sits with the provider, not with you. An agency becomes liable to register once the total value of its Group G taxable services, combined or taken singly, exceeds RM500,000 in a twelve-month period. An agency below that line does not charge service tax at all — which is why two quotes for the same role can differ by 8% for reasons that have nothing to do with the fee.
The disbursement that isn’t
What does the 8% actually apply to on an agency invoice?
Service tax applies to the actual value of the employment service, and Customs defines that value to include all worker costs — salary, wages, SOCSO contributions, EPF contributions and other expenses connected to providing the service. Recharging those costs at cost, with no mark-up, does not take them out of the tax base. This is the single most expensive misunderstanding in the area.
According to paragraph 15 of the Guide, tax is determined on the actual value of the taxable service supplied, and for employment services that value includes the worker costs. Customs then closes the obvious escape route directly.
“Bayaran gaji, emolumen, dan perbelanjaan berkaitan seperti levi, permit kerja, dan insurans pekerja adalah sebahagian daripada nilai perkhidmatan pekerjaan dan tertakluk kepada cukai perkhidmatan walaupun tuntutan semula dibuat tanpa mark-up.”
Salary payments, emoluments and related expenses such as levy, work permit and worker insurance form part of the value of the employment service and are subject to service tax even where they are recharged without mark-up. — Royal Malaysian Customs Department, Guide on Employment Services (Version 4, 9 June 2026), FAQ 10. English rendering ours.
Customs is equally direct about pricing mechanics. FAQ 11 confirms that where a charge is computed on the worker’s salary rate or hourly rate, it is still an employment service fee and still taxable. Structuring an invoice to look like a payroll pass-through does not change what is being supplied.
The Guide’s Example 14 puts numbers on it. An agency supplies plantation workers for a service charge of RM12,000 and recharges RM940 for the worker levy. Customs treats the taxable value as RM12,940 and the service tax as RM1,035.20 — the levy is taxed alongside the fee, not beside it.
| What appears on the agency invoice | In the service tax base? | Customs authority |
|---|---|---|
| Placement or recruitment fee for a permanent hire | Yes | Guide Example 8 |
| Salary and wages recharged for supplied workers | Yes | Guide para 15 |
| EPF and SOCSO contributions recharged | Yes | Guide para 15 |
| Levy, work permit and worker insurance recharged at cost | Yes — even with no mark-up | Guide FAQ 10 |
| A fee calculated on the worker’s salary or hourly rate | Yes | Guide FAQ 11 |
| Placement for a job performed outside Malaysia | No | Guide para 14(ii), FAQ 7 |
| Genuine temporary placement meeting all seven conditions | No | Guide para 14(i) |
Positions taken from the Royal Malaysian Customs Department, Guide on Employment Services (Version 4, 9 June 2026). Verified 7 August 2026.
What genuinely falls outside
When are employment services not subject to service tax?
Three situations sit outside the scope. Employment services for a job performed outside Malaysia are not taxable. Genuine temporary placement, meaning a secondment that meets all seven of Customs’ conditions, is not taxable. And employment services supplied within or between designated and special areas are not taxable.
The overseas exclusion is clean and often relevant. Where a company supplies fifteen workers for jobs in Malaysia and ten for jobs abroad, FAQ 7 confirms service tax applies only to the Malaysian portion. The location of the work decides it, not the location of the customer — a foreign client engaging a Malaysian supplier for filming shot in Malaysia is still a taxable supply, per Example 5.
The secondment exclusion is narrower than it looks. Customs requires every one of seven conditions to be met before a transfer counts as a temporary placement outside the scope of service tax:
- There is a temporary placement contract between the original employer and the borrowing company.
- The original employer’s business activity is something other than providing employment services — which excludes employment agencies and professional employer organisations by definition.
- The employee is transferred temporarily to perform duties elsewhere for a defined period, and returns to the same employer afterwards.
- The employee continues to be employed by the original employer, with continuity of employment unbroken.
- During the loan period the employee works only for the borrowing company.
- The borrowing company has full control over the employee.
- Salary and any other allowances, at cost, are paid by the borrowing company directly or indirectly, with no other charge imposed.
Condition two is the one that matters commercially. Because an employment agency is expressly outside the secondment carve-out, no arrangement with a recruitment agency or a professional employer organisation can be re-characterised as a secondment to avoid service tax. The exclusion exists for genuine intra-business staff loans, not for agency supply dressed up as one.
Two doors that are closed
Can we claim B2B exemption or group relief on an agency invoice?
No to both. Customs states plainly that the B2B exemption applies only to professional services under Group G and does not extend to employment services or security control services. It also confirms that employment services do not qualify for group relief, even where the service is provided between companies within the same group.
The unavailability of B2B exemption on employment services surprises finance teams used to that relief working elsewhere in Group G. The mechanism that spares a registered person from service tax on the same professional service acquired from another registered person does not reach employment services — FAQ 12 names them as an exclusion alongside security control services.
Group relief is closed for the same structural reason: FAQ 13 confirms it is available only for items (a) to (i), (l) and (n) of Group G, and item (j) is not on that list. A holding company supplying staff to its subsidiaries is providing employment services to them. FAQ 6 goes further — where that supply is free of charge, tax is still accounted for on the value that would be charged to an unrelated party in the ordinary course of business.
Before you approve the invoice
What should an employer check before paying a recruitment agency invoice?
Check four things: whether the agency is actually SST-registered, whether the invoice separates the fee from any recharged worker costs, whether any portion relates to work performed outside Malaysia, and when the tax point falls. Customs requires registered persons to issue an invoice for every employment service provided, so an invoice charging tax with no registration number behind it is worth questioning.
Registration is verifiable in a minute and does not require the agency’s cooperation. Customs publishes a public lookup at the MySST registration status inquiry, linked from the MySST home page. If an agency is charging you 8%, it should appear there.
Timing matters more than most employers realise. Service tax on employment services is accounted for when payment is received rather than when the invoice is raised, with a backstop: if no payment is received, the tax falls due the day after twelve months from the date the service was provided. Registered persons then file the SST-02 return and pay every two months.
The last check is budgetary rather than legal. The 8% sits on a fee that is itself one line in the cost of a hire, so it belongs in the same calculation as EPF, SOCSO, EIS and the HRD levy. Our breakdown of the true cost of hiring an employee in Malaysia sets out the statutory on-costs. Separately, how recruitment agency fees work covers the fee mechanics.
Employer questions
SST on recruitment agency fees — employer FAQ
Is the rate on recruitment agency fees 6% or 8%?
Can the agency invoice the salary portion separately so it is not taxed?
Do we pay service tax on a placement for a role based overseas?
Our group company supplies staff to us. Is that taxable?
Does a small agency have to charge service tax?
Is this tax advice?
Where we fit
How does Carriera work with employers?
Carriera places permanent white-collar talent across Peninsular Malaysia under MoHR licence JTKSM 615, held by Agensi Pekerjaan Carriera Talent Resources Sdn Bhd. We work role by role rather than by volume, and we would rather tell you what a hire will genuinely cost you before you start than surprise you with a line on an invoice afterwards.
The roles we fill sit mainly in HR, accounts and finance, customer service, management and specialist technical functions, and to date we have served 50 or more companies on that basis. If you would rather have the fee conversation and the tax question answered in the same call than in sequence, that is a conversation we are happy to have.
Sources consulted and verified on 7 August 2026:
- Royal Malaysian Customs Department, Panduan Perkhidmatan Pekerjaan (Guide on Employment Services), Version 4, 9 June 2026 — the item (j), Group G classification from 1 September 2018 (para 7); the RM500,000 threshold (para 8); scope and provider types (paras 9–10); Example 8 on permanent recruitment; taxable value including salary, wages, SOCSO and EPF (para 15); Examples 13 and 14 computing tax at 8%; the three exclusions and seven temporary-placement conditions (para 14); accounting on payment received with a 12-month backstop (para 16); FAQ 5 on bi-monthly SST-02 filing; FAQ 6 on free supply to subsidiaries; FAQ 7 on split domestic and overseas work; FAQ 10 on recharged costs not being disbursements; FAQ 11 on salary-rate fees; FAQ 12 on B2B exemption; FAQ 13 on group relief.
- Royal Malaysian Customs Department, MySST Industry Guides — the current publication location of the Employment Services guide, listed as Malay version only.
- Royal Malaysian Customs Department, MySST Registration Status inquiry — the public lookup for confirming an SST registration.
- Crowe Malaysia PLT, Getting Ready for the Service Tax Rate Increase — the rate for most taxable services rising from 6% to 8%, the 1 March 2024 effective date confirmed by RMCD, and the exceptions retained at 6%: food and beverages (Group B), parking and telecommunications (Group I) and the new logistics services (Group J).
General information for employers, not legal or tax advice. Service tax scope, rates and guidance are revised frequently — confirm the current position on the MySST portal or with a licensed tax agent before relying on it for a filing or a contract.
Want the landed cost of a hire, not just a fee?
Tell Steph what the role is and what it pays. Carriera holds MoHR licence JTKSM 615 and places permanent white-collar talent across Peninsular Malaysia — and we will set out plainly what the engagement involves before you commit to anything.
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