Guide to Taxation in Malaysia

The Inland Revenue Board (LHDN) imposes Malaysia Real Property Gains Tax (RPGT) on chargeable gains arising from real property disposals. The Real Property Gains Tax Act 1976 (Act 169) specifies this fact, making it one of the most crucial property-related taxes.

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

What is Real Property Gains 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 that 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 & Acquisition Price

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:

• The cost incurred during the upgrading or increasing of the value of the asset
• The cost incurred at any time after the acquisition of the asset by the purchaser to determine, maintain, or protect rights to the asset
• The cost incurred by the vendor when the asset is sold

The 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:

• Any amount of money received by way of compensation for any damage caused to the asset
• Any sum received under a policy of insurance for any kind of damage or injury related to the loss, destruction, or depreciation of the asset
• Any sum forfeited as a deposit which is related to an intended transfer of the asset

Disposal of a Property or Asset

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

Malaysia’s Real Property Gains Tax Rates for the 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 need to submit an RPGT return within 60 days of the disposal date. The date of disposal is the same as the date of the agreement of the disposal.

Should there happen to be no agreement, the disposal date can be defined as the date of final payment which confirms the transfer of the property or asset. In cases that require government approval for the disposal that needs 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.

Acquisition of Property

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

Withholding by Acquirer

When a transfer of property or assets in Malaysia involves full or partial cash payment, the acquirer must withhold the entire cash consideration. The withholding rate is either 3% of the total acquisition price or 7% if the disposer is neither a citizen nor an incorporated company in Malaysia.

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

Payment by Disposer

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

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

• Transfers of assets owned by a citizen between spouses
• Gifts sent to the government, an approved charity, or a local authority
• Devolution of assets of a deceased individual
• Disposal of assets due to mandatory acquisition according to any law
• Disposal of chargeable assets under a scheme of financing approved by any official financial authorities of Malaysia

In other cases, the 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 to increase operational efficiency for a consideration consisting of not less than 75% in shares.

What are Allowable Losses?

Allowable losses refer to circumstances that 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 roll over into future tax years.

What are Objections and Grievances?

Any objections regarding valuation must address LHDN directly. Additionally, send a copy of any objection to JPPH Malaysia.

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

How Real Property Gains Tax in Malaysia Is Calculated

To calculate RPGT in Malaysia, first determine the chargeable gain— the difference between purchase and sale prices.

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 4th year.

Tax on income from outside of Malaysia

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

• Dividends received by companies and limited liability partnerships
• All types of income that are received by individual taxpayers

RPGT Exemptions in Malaysia

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

• Any Malaysian citizen or permanent resident who sells property in Malaysia is permitted to receive an exemption on any chargeable gain earned through the disposal of a private residence
• A private residence is legally defined as a building or part of a building which is either owned by an individual or used for the purpose of residence
• This exemption is worth either RM10,000 or 10% of the chargeable gain, whichever is higher
• The exemption may be claimed once during the course of the claimant’s life
• Another RPGT exemption exists for those who transfer property to their spouse, child, parent, grandchild, or grandparent

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.