Property Law in Malaysia: Real Property Gains Tax (‘RPGT’) for Disposal of Properties

The net effect is that there will be RPGT imposed on all sellers for disposal of any real properties in Malaysia unless there is loss incurred in the disposal (especially in the case of auction property) or the seller had opted for the lifetime exemption under Paragraph 9 Schedule 3 of Real Property Gains Tax Act 1976 for disposal of one private residence only.

Otherwise, the acquirer shall retain the whole consideration sum or a sum of 3% of the total value of the consideration, whichever is lower, and pay to the Director General of the Inland Revenue Board (“DGIR”).

It must also be noted that following the amendment to the Act by Section 23 of the Finance Act 2019 which came into effect from 01.01.2020, if the disposer is neither a citizen, a permanent resident nor a company incorporated in Malaysia, the acquirer shall retain the whole consideration sum or a sum of 7% of the total value of the consideration, whichever is the lower, and pay to the DGIR.

Besides, the government has provided the following RPGT exemptions for the benefit of individuals who are either citizens or permanent residents of Malaysia. These exemptions came into effect from 01.01.2019:-

Real Property Gains Tax (Exemption) Order 2018 (P.U. (A) 360) 

– all RPGT chargeable on the disposal of properties (and not shares) by any individual after 5 years is exempted, provided that the individual is a citizen of Malaysia and the consideration of such disposal is not more than RM200,000. 

Real Property Gains Tax (Exemption) (No. 3) Order 2018 (P.U. (A) 372) 

– all RPGT chargeable on the disposal of properties (and not shares) by any individual after 5 years is exempted, provided that the individual is a citizen or a permanent resident of Malaysia and if the contract for the disposal is conditional upon the approval of the Government or a State Government and is executed before 01.01.2019 but the approval is obtained in the year 2019 or any year thereafter is also exempted from RPGT.

In other words, the above 2 exemptions have the effect of reverting the RPGT treatments back to the year 2018 and before, for the benefit of the ‘rakyat’ where a citizen or a permanent resident of Malaysia is exempted from RPGT for disposing of his or her property after 5 years. 

Real Property Gains Tax (Exemption) Order 2020 (P.U. (A) 218) 

– beginning from 01.06.2020, all RPGT chargeable on the disposal of residential properties (and not shares) by any individual who is a Malaysian is fully exempted for up to 3 properties, provided that the sale and purchase agreement is executed in between 01.06.2020 until 31.12.2021 or where there is no sale and purchase agreement, the instrument of transfer is executed in between 01.06.2020 until 31.12.2021.

This is part of the several incentives to stimulate the property market under the Pelan Jana Semula Ekonomi Negara (PENJANA) due to COVID-19 crisis.

Besides the above exemptions, there are also other exemptions provided in the Act itself.

Schedule 4 of the Act

The gains as follows shall be exempted from the tax:-

(a) a gain received in respect of the disposal before the coming into force of this Act.

(b) an amount of RM10,000 or 10% of the gain, whichever is greater, in respect of a gain accruing to an individual on the disposal of the whole asset or his share in the asset.

(c) any such gain to the Government, a State Government or a local authority.

Schedule 3 of the Act

An individual who is a citizen or a permanent resident is entitled to the exemption from the tax for disposal by him of his one private residence only, provided that the election so made shall be in writing.

By virtue of Section 49 of the Finance Act 2005 (Act 644), a husband and wife may elect for the exemption once in respect of the private residence owned by them individually. However, where the election is made in respect of a private residence owned jointly by them, shall be no further exemption available.

Schedule 2 of the Act

Paragraph 3 of Schedule 2 lists down the transactions in which the disposal price is deemed equal to acquisition price:-

(a) transmission and transfer of assets under wills, trust and letter of administration;

(b) transfer of assets between spouses; or transfer assets by an individual or a connected person to a company controlled by the individual or a connected person for a consideration consisting of shares or substantially of shares in the company and the balance of a money payment;

(c) acquisitions from or disposals to a nominee or trustee resident in Malaysia by an individual or his wife or by both being absolutely entitled as against the nominee or trustee;

(d) the conveyance or transfer of an asset by way of security; or the transfer of a subsisting interest or right by way of security in or over an asset (including re-transfer on the redemption of the security);

(e) gifts made to the Government, a State Government, a local authority or a charity exempt from income tax under the income tax law; or

(f) disposal of assets by way of compulsory acquisition under any law; or

(g) disposal of assets pursuant to a financing scheme which is in accordance with the principles of Syariah.

Paragraph 17(1) of Schedule 2 provides for transfer of assets between companies in the same group is exempt from tax in the following cases:-

(a) asset is transferred between companies in the same group for greater efficiency for a consideration consisting of shares or substantially of shares in the company and the balance of a money payment;

(b) asset is transferred for any consideration between companies in any scheme of reorganization, reconstruction or amalgamation; or

(c) asset is distributed by a liquidator of a company and the liquidation of the company was made under a scheme of reorganization, reconstruction or amalgamation.

Both exemption under (b) & (c) above shall subject to prior approval of the Director General and the transferee company is resident in Malaysia.

About the author: 

This article is written by Chia Swee Yik, Partner of this Firm (assisted by paralegal, Ooi Zhuang Hong) who has provided practical advice on property transaction.

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