Utility bills are one of the most common pain points in commercial tenancy arrangements in Malaysia.

Electricity and water accounts are often registered under the landlord’s name, while tenants reimburse the usage based on meter readings or actual consumption. This setup seems simple—but from a tax perspective, it is anything but simple.

The Royal Malaysian Customs Department (RMCD) has now clarified its position in the Rental and Leasing Services Tax Guide (2nd Edition), issued on 14 May 2026, and the impact is significant.

In some cases, even a pure reimbursement at cost (without any markup) may still be subject to service tax.

So the big question is:

When does service tax apply to utility back charges under tenancy arrangements?

Let’s break it down clearly.

Quick Context: e-Invoice Requirement vs Service Tax Treatment

Before diving into service tax, it is important to understand the e-Invoice position issued by LHDN.

Where the tenant cannot obtain utility bills in their own name (Utility bill issued in the landlord’s name):

• The landlord must include the utility charges in the landlord’s e-Invoice (if the landlord is conducting a business), or
• The tenant must issue a self-billed e-Invoice (if the landlord is not conducting a business )

📌 Source: e-Invoice FAQ No. 55 (LHDN)

However, a key confusion arises here:

If an e-Invoice is issued, does it automatically mean service tax applies?

The answer is NO.

Service tax treatment is determined separately by RMCD under the Service Tax Act and guides—not by e-Invoice compliance.

RMCD Update 2026: Utility Back Charge & Service Tax Treatment

The biggest misconception in the market is:

“Reimbursement (no markup) = not taxable”

The RMCD Rental & Leasing Services Tax Guide (2nd Edition, 14 May 2026) introduces clearer—but stricter—guidance on utility recharge arrangements.

The key issue:

Whether utility reimbursement becomes part of “taxable rental services”.

Let’s look at the three common scenarios.

Scenario 1: Utility Bill Under Landlord’s Name (Landlord Pays First)

📌 Situation

• Electricity/water account registered under landlord
• Landlord pays utility company first
• Landlord recharges tenants based on usage (meter reading)
• May include admin fee or even pure cost recovery

📌 RMCD Position

✔ Service tax APPLIES

Even if:

• No markup is charged
• It is a pure reimbursement

RMCD treats this as part of rental or leasing services.

📌 Reference: Service Tax Guide on Rental or Leasing Services – FAQ 28 & 29

💡 Example (FAQ 28 simplified)

A landlord pays TNB bill under its name and recharges tenants based on usage. Even without profit margin:

✔ The utility recharge is subject to service tax

💡 Example (FAQ 29 simplified)

If landlord charges:

• Actual utility cost + 5% admin fee

Then:

✔ The entire amount is subject to service tax, not just the 5%

📌 e-Invoice Treatment

• Landlord must issue e-Invoice to tenant
• As the utility bill registered under the name of landlord.

⚠️ Practical Impact (Real Talk)

This is the scenario that is causing most frustration among taxpayers.

Because:

• It feels like a reimbursement
• But is treated as taxable rental income for service tax

Scenario 2: Tenant Pays Utility Directly (Landlord Still Named on Bill)

📌 Situation

• Utility account still under landlord
• BUT tenant pays utility company directly
• Landlord does NOT recharge tenant
• Landlord does NOT recognise income

📌 RMCD Position

✔ NO service tax applies

Even if:

• e-Invoice is issued for compliance purposes

💡 Key Clarification (Very Important)

If landlord issues an e-Invoice only for compliance purposes and tenants pays utility company directly, it does NOT automatically trigger service tax.

Service tax depends on substance.

📌 Suggested Accounting Treatment (Illustrative – Not RMCD Prescribed)

The following accounting entries are purely for illustration purposes to help readers understand the flow of transactions. It is not prescribed by RMCD or LHDN, and taxpayers may adopt their own accounting treatment depending on their internal accounting policies.

Upon issuing e-Invoice (for utility recharge arrangement):

• Dr Other Receivable (Tenant)
• Cr Other Payable (TNB)

When tenant pays utility company directly:

• Dr Other Payable (TNB)
• Cr Other Receivable (Tenant)

The above is intended to illustrate the economic substance of the arrangement and may vary depending on the entity’s accounting framework and internal reporting treatment.

📌 RMCD Principle

This is treated as:

“Payment made on behalf of landlord without onward supply of service”

✔ Therefore NOT taxable

💡 Example (FAQ 27 simplified)

A tenant rents an office where the electricity account is still under the landlord’s name and pays the utility bill directly to TNB.

✔ Since the landlord does not recharge the cost or provide any utility resupply, no service tax applies.

Scenario 3: Utility Account Under Tenant’s Name

📌 Situation

• Tenant registers electricity/water under own name
• Tenant pays utility provider directly
• Landlord not involved

📌 RMCD Position

✔ No service tax applies

📌 e-Invoice Treatment

• Landlord does NOT issue e-Invoice for utilities

📌 Reason

There is no:

• recharge element
• resupply element

So it falls completely outside service tax scope.

💡 Example (FAQ 26 simplified)

A tenant is required to open the electricity and water accounts under their own name and pays all utility bills directly to the utility providers.

✔ Since there is no recharge or involvement from the landlord, no service tax applies.

Key Takeaways (Must Know Summary)

Let’s simplify everything:

🔴 Case 1: Landlord pays + recharges tenant

✔ Service tax applies
✔ Even at cost
✔ Even without markup

🟢 Case 2: Tenant pays directly (no recharge)

✔ No service tax
✔ Even if e-Invoice is issued for e-Invoice compliance

🟢 Case 3: Utility under tenant name

✔ No service tax
✔ No e-Invoice required from landlord

📌 Final Thoughts

The latest RMCD guidance on utility back charges shows that how a tenancy arrangement is structured directly affects service tax treatment, not just whether the cost is reimbursed. Landlords and tenants should review their utility billing arrangements carefully to avoid unintended service tax exposure, especially under e-Invoice compliance requirements.

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