Public Ruling No. 5/2025; YA 2023 onwards

LHDN has clarified that for construction contracts, a project may be treated as “completed” for tax purposes before the Final Account is agreed or signed.

Once the project is deemed completed, a recognition timeline applies, including a 12-month rule (from YA 2023 onwards) where final accounts are delayed.

Key message is the final account timing does not control tax completion. Operational milestones and cost thresholds may.

✅Scope

This alert is relevant to:

1. Main contractors, subcontractors, developers with construction contracts
2. QS teams, commercial teams, project managers
3. Finance and tax teams responsible for revenue and profit recognition

✅Key Tax Clarification (Public Ruling No. 5/2025)

For tax purposes, a construction contract is deemed completed at the earlier of:

1. Certificate of Practical Completion (CPC), or
2. 95% of total estimated construction costs incurred

Once either trigger is met, the project is considered completed for tax. This can occur even if :

1. Final Account is still under negotiation
2. VO is still being finalised
3. Subcontractor claims are still being reconciled

YA 2023 onwards: Recognition where Final Account is delayed

From YA 2023 onwards, where the Final Account is not finalised promptly, actual gross profit or loss must be recognised at the earlier of:

1. 12 months after completion, or
2. When Final Accounts are agreed

✅Why This Matters (Operational + Tax Risk)

This change creates direct tax impact on commercial processes.

1. VO timing becomes tax-sensitive

VO delays may lead to revenue not captured on time, while costs continue to be recognised.

This increases exposure to tax adjustments during audit.

2. Subcontractor delays can distort taxable profit

Late certification or late claims can shift costs into a later period, while the completion timeline continues.

3. High-risk audit pattern

A common audit red flag is:

Costs recognised early (supported by invoices/claims), but
VO/revenue deferred (pending approval / negotiation) This mismatch is often challenged as it can understate taxable profit in the earlier period.

Read the full content in our blog
https://lnkd.in/gtq63XNa

(Public Ruling No. 5/2025; YA 2023 onwards)

LHDN has clarified that for construction contracts, a project may be treated as “completed” for tax purposes before the Final Account is agreed or signed.

Once the project is deemed completed, a recognition timeline applies, including a 12-month rule (from YA 2023 onwards) where final accounts are delayed.

Key message is the final account timing does not control tax completion. Operational milestones and cost thresholds may.

✅Scope

This alert is relevant to:

1. Main contractors, subcontractors, developers with construction contracts
2. QS teams, commercial teams, project managers
3. Finance and tax teams responsible for revenue and profit recognition

✅Key Tax Clarification (Public Ruling No. 5/2025)

For tax purposes, a construction contract is deemed completed at the earlier of:

1. Certificate of Practical Completion (CPC), or
2. 95% of total estimated construction costs incurred

Once either trigger is met, the project is considered completed for tax. This can occur even if :

1. Final Account is still under negotiation
2. VO is still being finalised
3. Subcontractor claims are still being reconciled

YA 2023 onwards: Recognition where Final Account is delayed

From YA 2023 onwards, where the Final Account is not finalised promptly, actual gross profit or loss must be recognised at the earlier of:

1. 12 months after completion, or
2. When Final Accounts are agreed

✅Why This Matters (Operational + Tax Risk)

This change creates direct tax impact on commercial processes.

1. VO timing becomes tax-sensitive

VO delays may lead to revenue not captured on time, while costs continue to be recognised.

This increases exposure to tax adjustments during audit.

2. Subcontractor delays can distort taxable profit

Late certification or late claims can shift costs into a later period, while the completion timeline continues.

3. High-risk audit pattern

A common audit red flag is:

Costs recognised early (supported by invoices/claims), but
VO/revenue deferred (pending approval / negotiation) This mismatch is often challenged as it can understate taxable profit in the earlier period.

Read the full content in our blog
https://lnkd.in/gtq63XNa