Just as is the case with any other tax, real property gains tax (RPGT) is a significant source of revenue for the government of Malaysia and of great importance to the country’s national development. Knowledge of the Real Property Gains Tax (RPGT) Act of Malaysia is essential to all who are either interested in investing in Malaysia or who are planning to enter the country’s burgeoning real estate market. For such people, it is of particular importance to know the tax cost which may be incurred during a real estate transaction. 

Malaysia 's Real Property Gains Tax

 

In Malaysia, 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). 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 LHDN.

RPGT is charged on every person living in Malaysia regardless of their status as citizens, permanent residents, or neither on all gains which arise from the disposal or real property owned including shares in a real property company (RPC). An RPC is defined as a controlled company with total tangible assets consisting of 75% or more in real property and shares combined in another RPC.

In Malaysia, the RPGT rates have been adjusted from time to time. The latest adjustments were part of the country’s Budget of 2019. A notable adjustment 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

Disposal price is defined as 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 for the purposes of determining, maintaining, or protecting rights to the asset
  • The cost incurred by the vendor when the asset is sold

 

Acquisition Price

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 defined as the transfer of ownership from one person to another through settlement, sale, conveyance, alienation, or assignment. In Malaysia, when a foreigner who is not a permanent resident or a company which has not been incorporated in Malaysia is disposing of a property or asset within three years of acquisition, the person or company is required to pay a RPGT rate of 30% on the profits earned from the sale. The tax rate imposed on a Malaysian company or a resident of Malaysia for this same act of disposal is 20%; however, this rate falls to 15% if the disposal occurs during or after the fifth year of ownership of the asset or property in question.

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.

 

Acquisition of Property

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. As has been mentioned earlier, the acquirer is to submit a return within the first 60 days of the acquisition of the property.

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 asset pursuant to a scheme of financing approved by any official financial authorities of Malaysia

In certain instances, 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

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.

 

Objections and Grievances

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. It also 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.

 

How RPGT in Malaysia Is Calculated

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 gain, it is then multiplied with the relevant RPGT rate. The result is the amount of RPGT to be paid.

 

RPGT Exemptions

The government of Malaysia has provided certain RPGT exemptions for taxpayers who have fulfilled certain criteria. These criteria relate to the profits which are 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. The amount which is larger will be used. 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.

Of course, 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. This is where we at Paul Hype Page & Co offer our services to anyone who needs them. Should you require any assistance with any tax-related matters in Malaysia, we will be willing to extend our help to you. We will also enable you to use legal methods to reduce your tax burden as a taxpayer of Malaysia.