Contractors and project owners, please don’t take this lightly.

LHDN has issued Public Ruling 5/2025 and replaced PR 2/2009. The message is clear. Tax on construction contracts is now stricter on timing, loss claims, and documents.

Key cautions for SMEs.

1. Certificate of Practical Completion (CPC) rule.
   From YA 2023, once a contract is deemed completed, you must recognise actual profit or loss by the earlier of 12 months after CPC, or when final account is agreed. You cannot keep “final account pending” for too long.

2.Profit follows progress.
Income must be recognised based on stage of completion, not only when you feel the project is finished.

3.Estimated loss is controlled.
Estimated losses cannot reduce actual profits from other contracts. This affects instalment tax and budgeting.

4.Retention, LAD, defect costs.
Timing matters and proof matters. Provision alone may not be enough.

Action for SME bosses. Keep a project file from Day 1: LOA, CPC, progress billings, final account, cost records.

If you want KTP to review your project tax position, message us.

Read the full content in our blog
https://www.ktp.com.my/blog/public-ruling-5-2025-construction-contract/26dec2025