Guide to Taxation in Malaysia

Malaysia Real Property Gains Tax (RPGT) is a tax imposed by the Inland Revenue Board (LHDN) on chargeable gains which find their source in the disposal of real property. This fact is specified in the Real Property Gains Tax Act 1976 (Act 169), and it is one of the most important property-related taxes.

Before we deep dive into Malaysia Real Property Gains Tax, it is important to understand the terms related to this tax.

RPGT is imposed as a result of the profits made from the difference between the disposal price and acquisition price. Thus, when the resale price is greater than the purchase price, RPGT takes effect.

All RPGT valuations are to be reported within eight working days of the receipt by Jabatan Penilaian dan Perkhidmatan Harta (JPPH). JPPH is the body which determines the market value of the property disposed of or acquired as requested by Lembaga Hasil Dalam Negeri (LHDN).

Regardless of their status as citizens, permanent residents, or neither, RPGT is charged on every person living in Malaysia on all gains which arise from the disposal or real property owned including shares in a real property company (RPC).

A recent adjustment to the RPGT was the increase to the rate for foreign investors and companies who sell properties after more than five years of ownership from 5% to 10%. Also, anyone who purchased a property before January 1, 2013, will now have its value assessed against the estimated value on that date instead of the actual purchase date.

Disposal price is the amount of money or the value of consideration in monetary terms obtained through the disposal of any asset with certain subtractions which are the following:

Acquisition price is the value of the consideration in monetary terms paid for the acquisition of the asset along with the incidental costs of acquisition after the following have been subtracted:

Disposal is the transfer of ownership from one person to another through settlement, sale, conveyance, alienation, or assignment.

Malaysia Real Property Gains Tax Rates for disposal or selling of properties are as follows:

It is important to note that after each disposal, both the previous owner and the new owner are both required to submit an RPGT return within 60 days of the disposal date. The date of disposal is the same as the date of the written agreement of the disposal.

Should there happen to be no written agreement, the disposal date will be defined as the date of final payment which confirms the transfer of the property or asset. In cases which require government approval for the disposal to be completed, the disposal date will either be the date of the approval or the date upon which the last necessary criterion was fulfilled.

For any acquisition of property, there will be an acquirer and a disposer. Each of these parties have different roles to play.

When a transfer of property or assets in Malaysia is either fully or partially paid in cash, the acquirer is required to withhold the entire cash consideration at a rate of either 3% of the total acquisition price or 7% if the disposer is neither a citizen and nor an incorporated company in Malaysia.

This withheld cash is to be submitted and be applied against the amount of RPGT payable by the disposer.

The disposer is then required to pay the balance of RPGT within 30 days from the date of asset notice.

In certain transactions, the disposal price may be regarded as equal to its acquisition price. Those transactions include the following:

For other cases, transfer of real property may be regarded as being of neither any net gain nor loss to the disposer. An example of such is the transfer of real property with prior approval of the Director General of Inland Revenue (DGIR) by a company to companies in the same group for the purposes of increasing operational efficiency for a consideration consisting of not less than 75% in shares.

Allowable losses refer to circumstances which involve the sale of multiple properties during the same tax year. When a seller loses money by selling at a price below the purchase price, the seller can use that loss to offset any profit on another sale made. Allowable losses can be rolled over into future tax years.

Any objections regarding valuation must be directly addressed to LHDN. A copy of any objection must also be sent to JPPH Malaysia.

JPPH provides consultancy services related to valuation and property services and determines the market value of any disposed property. Any person aggrieved by an assessment made may make an appeal; LHDN and JPPH will make the final decision regarding the grievance.

When a person is to calculate the RPGT amount to be paid in Malaysia, the chargeable gain which is defined as the difference between the purchase price and the sale price is first calculated.

After calculating the chargeable gains, it is then multiplied with the relevant RPGT rate. The result is the amount of RPGT to be paid.

It is useful to note that companies owning property face lower tax rates than individuals by the 4^th year.

The Malaysian government provides tax exemption on foreign-sourced income for individual taxpayers. This income tax exemption is effective 1^st January 2022 to 31^st December 2026.The following categories of foreign-sourced income are exempt from income tax:

The government of Malaysia has provided certain RPGT exemptions for taxpayers who have fulfilled a certain criterion. These criteria relate to the profits which are earned through the sale of property.

RPGT is but one element of the complex tax system which exists in Malaysia. This system’s complexity may cause some difficulty for certain people to properly understand their tax obligations to avoid committing tax crimes.