Updating SST Tax Rates in Xero: Malaysia Compliance Guide

SST Threshold in Malaysia

While you are focusing on business growth, you need to know the SST Threshold in Malaysia.

To determine whether a business must register for SST, the Royal Malaysian Customs Department (RMCD) has set specific thresholds:

1. Sales Tax: RM 500,000 per year for manufacturers of taxable goods.
2. Service Tax: RM 500,000 per year for most service providers (some exceptions apply, such as RM 1.5 million for restaurants).

You can verify if you need to register by reviewing your annual revenue from taxable sales or services.

Why the SST Tax Rate Update Malaysia Is Crucial

Failing to update tax rates in your accounting software can result in:

1. Non-compliance with Malaysian regulations
2. Errors in financial statements
3. Incorrect payment calculations
4. Penalties from LHDN or Customs

Keeping your system aligned with current SST rates helps ensure accuracy, boosts reliability, and improves financial reporting.

Xero SST Tax Rate Update Malaysia – 5 Steps

Rest assured that, setting up SST in Xero is free and applicable to all Xero customers. In this article, we are showing you the 5 steps you can use or update SST in Xero.

1: Accessing Tax Rates

To begin, log in to your Xero account and navigate to the Accounting section. Under the Advanced settings, locate the ‘Tax Rates’ option.

2: Creating a New Tax Rate

Once in the Tax Rates section, you’ll find the current tax rate listing, including the existing 6% rate. We recommend creating a new tax rate specifically for the updated SST rate of 8%. Simply click on ‘New Tax Rate,’ insert the tax display name as “SST 8%,” and save the changes.

Please note that certain industries have both 6% and 8% Service Tax Rates. For example, restaurants in Malaysia are subject to both 6% and 8% depending on the food and drinks sold. Normal food and drinks are sold at 6%, whereas alcoholic drinks are subject to an 8% Service Tax Rate, which needs to be paid by consumers.

3: Updating Product & Services Tax Rate

This section is to update your taxable services that created under Xero’s Product & Service feature.

Proceed to the Business tab and select Product & Services. Here, you can edit individual items to reflect the new 8% tax rate. Simply click on the item requiring an update, change the tax rate from 6% to the newly created 8%, and save your changes. This ensures all future transactions for the specific item will automatically apply the correct tax rate.

4: Updating Chart of Accounts Tax Rate

This section is to update your income/revenue account that created under Xero’s Chart of Account feature.

Navigate back to the Accounting section and select Chart of Accounts. Locate the ‘Sales’ account and adjust the tax rate to the newly created 8% rate. Once updated, all invoices associated with the ‘Sales’ account will automatically apply the correct tax rate, streamlining your financial processes.

5: Generating SST Tax Reports

After all the sales and income transactions tagged with the correct sales and service tax rate, all the amounts will fall under Sales Tax account in Current Liabilities.

Finally, ensure compliance by generating SST tax reports from the Financial Statement reports available in Xero. Head to the Reports section and search for ‘Sales Tax Report.’ Filter the date range to generate the Tax Summary report and click on the ‘Sales Tax Audit Report’ tab for detailed insights into each invoice and associated tax. Export this report for support documentation before submitting the SST.

Please note that according to the regulation, RMCD expects to receive your SST payment every two months, by the following month. This one-month period allows you to evaluate the accuracy of your financial records.

Tip 1: Please ensure your purchase or expense transactions are not tagged with the SST Tax rate.

Tip 2: Before generating financial statement report, you must ensure the Tax Setting is according Cash or Accrual Basis. Here are the steps – Accounting -> Advanced -> Financial Settings -> Select Cash Basis or Accrual Basis under Sales Tax Basis -> Save

Tip 3: Please lock your Xero accounts after submission. Here are the steps – Accounting -> Advanced -> Financial Settings -> Insert the date you wish to lock -> Save

Managing Historical Data and Financial Statements

What to Do With Invoices Before March 1, 2024?

1. Do not retroactively apply the 8% SST.
2. Maintain separate records for the 6% SST invoices.
3. Use proper cut-off dates when generating financial statements.

How Xero Handles This

1. Xero keeps tax rates versioned based on effective date.
2. Make sure you reconcile old and new rates correctly for reliable reporting.

Adapting to regulatory changes is crucial for business continuity and compliance. By following these simple steps, you can seamlessly update your SST tax rates within Xero, ensuring accurate financial reporting and compliance with Malaysian tax regulations. Should you encounter any challenges during the process, our dedicated support team at CALTRiX is here to assist you every step of the way.

Stay compliant, stay efficient with CALTRiX.

SST and E-Invoicing Integration in Malaysia

Preparing for E-Invoicing Malaysia and SST

Malaysia’s e-invoicing rollout will eventually require integration with SST compliance. As of 2025, service tax details will need to be clearly itemized on invoices submitted to LHDN MyInvois Portal through Xero.

Action Steps

1. Ensure your invoice templates in Xero include service tax breakdown.
2. Familiarize with Xero E-Invoicing feature and tagging requirements.
3. Leverage on Xero built in E-Invoicing features to connect Xero to LHDN.
4. If you are in Phase 3 (Implementation starts from 1st of July 2025), please remember the last day of first submission is by 7th August 2025.

Best Practices for Maintaining Tax Compliance

1. Keep updated with Customs & LHDN announcements.
2. Review your tax mappings quarterly.
3. Conduct internal audits to ensure accurate SST allocation.
4. Train staff to handle transactions involving SST correctly with accuracy.
5. Store accurate records and SST filings securely.
6. Decide cash or accrual basis

Common Mistakes to Avoid

1. Using old 6% SST rate after March 2024
2. Applying 8% SST to exempt goods or services
3. Not updating recurring templates or products
4. Misclassifying taxable services or imported goods
5. Apply SST code on expenses transactions

Conclusion

Updating your SST tax rates in Xero is more than a clerical task — it’s a compliance commitment. In Malaysia’s evolving tax and e-invoicing landscape, keeping your accounting software current ensures:

1. Accurate financial statements
2. Regulatory compliance
3. Improved business decisions

Adapting to regulatory changes is crucial for business continuity and compliance. By following these simple steps, you can seamlessly update your SST tax rates within Xero, ensuring accurate financial reporting and compliance with Malaysian tax regulations. Should you encounter any challenges during the process, our dedicated support team at CALTRiX is here to assist you every step of the way.

Stay compliant, stay efficient with CALTRiX.

FAQs

Is SST the same as GST?

No. SST is a single-stage tax while GST was a multi-stage tax.

Do I need to update my invoices manually?

Only if you have saved templates or recurring invoices. Otherwise, Xero will apply the new rate when selected.

Is there an SST rate for exempt services?

Yes. Some services are exempt or zero-rated. Refer to Customs’ SST Guide for full listings.