The Basics of Stamp Duty in Malaysia
When transferring assets or property, there is proof of legal documents presented, which the government taxes. This is called stamp duty, which is also known as stamp taxes. Governments collect stamp duties on documents which are needed as evidence for certain types of transactions being completed. These documents include the following:
- military commissions
- sale or transfer of a property or asset
If you are going to read the history books, governments and regulators placed these forms of taxes so they can build up their funding for activities and projects for the benefit of the country and its citizens. Looking back, stamp duties came about in Spain during the early 17th century.
The term stamp duties were coined because a physical stamp was used on the document as proof of the document’s legality. At the same time, it proves that the tax liability was paid.
While it originated in Spain, there is also such a thing as stamp duty in Malaysia. Let us discuss this.
Rates of Stamp Duty in Malaysia
The stamp duty, which is also known as documentary stamp tax, is placed on the transfer of homes, buildings, copyrights, land, patents, and securities. Through property taxes, import duties, and stamp duties on financial transactions, the governments raised some money before income and consumption taxes were deemed a substantial tax base. Still, stamp duty in Malaysia exists because it is a steady stream of income for regulators.
But how much will the taxpayer pay if ever? Let us look into the rates of stamp duty in Malaysia.
- Properties (other than stocks or marketable securities). On the first RM 100,000, RM 1 is collected per RM 100, which totals RM 1,000. On the next RM 400,000, as much as RM 8,000 will then be paid. For an amount reaching RM 1 million, the taxpayer should prepare RM 24,000. The amount in excess of RM 1 million will be charged with RM 4 per RM 100.
- Shares or stocks. For every RM 1,000 worth of shares, RM 3 is collected depending on the consideration or value, whichever is higher. According to the price-earnings ratio, the regulating body usually values the shares for stamp duty purposes, net tangible assets, and sale consideration.
- Service agreements. Stamp duty of 0.5 per cent is placed on the value of services, but it may be remitted in excess of 0.1 per cent for some instruments. An ad valorem rate of 0.1 per cent is imposed on all service agreements with one-tier. The same is also imposed for non-government contracts, including private entities and service providers—at the first level. Subsequent levels may have stamp duty of up to RM 50.
- Loan agreement or loan instrument. In Malaysia, loan agreements usually have a stamp duty of 0.5 per cent. However, a lower tax liability of 0.1 per cent is available for those borrowing deals without security. These loans should also be repayable on-demand or in one down payment. Take note that foreign currency loan agreements’ stamp duty is usually capped at RM 2,000.
You have to remember the stamp duties mentioned earlier because there is a penalty imposed for late stamping. The fine is based on the period of delay. However, the maximum penalty is RM 100 or 20 per cent of the deficient stamp tax, whichever is higher.
Stamp Duty Relief and Remission
There are instances when you can avail exemptions, remissions, or relief of stamp duty in Malaysia. Here are some of them:
- Under mergers and acquisition, a relief on stamp duty can be avail for transfer of assets between associated companies. In this case, either company should own 90 per cent or of the other firm; or a third company holds 90-per cent ownership or more of both associated companies.
- There is a stamp duty exemption for loan agreement under a micro-financing scheme as approved by the National Small and Medium Enterprise Development Council.
- Stamp duty is exempted for instruments relating to asset sale agreement and asset lease agreement if they are executed under the Shariah Law principles.
- Stamp duty is exempted for loans or financing instruments under the Professional Service Fund amounting up to RM 50,000. Such an instrument is between a borrower and the Bank Simpanan Nasional.
- There is remission of 50 per cent of the stamp tax for transferring immovable property operating as voluntary disposition between parents and children and vice versa. It should be noted that the recipients should be Malaysian citizens.
- Stamp duty is exempted when transferring immovable property between husband and wife. The transfer should be a voluntary disposition.
Need Help for Stamp Duty in Malaysia?
As mentioned, stamp duty in Malaysia is not something to overlook. You might actually need help when accomplishing related tasks. If you need Malaysia E-Stamping services, do not hesitate to reach out to 3E Accounting. Our team is here to guide you every step of the way. Contact us today.