Property Investment’s Guideline for Foreigners in Malaysia

Malaysia welcomes foreign investments in many different sectors that include the real property market due to the continued economic and policy transformations. Malaysia’s property prices are among the cheapest in Southeast Asia as well as Asia, gaining its traction as one of the favoured property markets.

 

Real Property Law in Malaysia Explained

Land law in West Malaysia is governed by the National Land Code, 1965 (“NLC”) which is modelled on the Torrens system while East Malaysia (Sabah and Sarawak) possess their respective land laws. The code is the law regarding Land Administration (the matters and effect of land transactions after a registration of the dealing but not before the transaction) in Peninsular Malaysia.

Except in so far as it is expressly provided to the contrary, nothing in this Act shall affect the provisions of:

    • Any law for the time being in force relating to customary tenure;
    • Any law for the time being in force relating to Malay reservations or Malay holdings;
    • Any law for the time being in force relating to mining;
    • Any law for the time being in force relating to sultanate lands;
    • Any law for the time being in force relating to wakaf or bait-ul-mal.
    • The Terengganu Settlement Enactment, 1356.
    • The Padi Cultivators (Control of Rent and Security of Tenure), Act 1967.
    • The Kelantan Land Settlement Act 1955.
    • The Land (Group Settlement Areas) Act 1960.
    • The Perlis Land Settlement Enactment 1966.

 

What kind of properties can foreigners own?

In Malaysia, there are two categories of titles in Malaysia available for property owners:

    • Freehold title (owner has permanent ownership of the property) and,
    • Leasehold title (owner has possession of the property for a limited period).

Malaysian government encourages foreigners in Malaysia (expatriates or tourists) to choose to make Malaysia their second home, be it for long-term stay, or retirement, or investment purposes. Foreign ownership of property is liberal where foreigners can even own 100% of the property in Malaysia as long as minimum requirements are met. The minimum requirement for the property value is RM1 million (this minimum requirement applied to all kinds of property in every state).

According to the Malaysian law, foreigners can easily own a bungalow, terrace house, condominium, flat, landed property, studio unit, commercial property, industrial property, agricultural land (except Malay Reserved Land) and industrial land (except Malay Reserved Land).

In summary, foreigners can own any type of properties except:

    • Properties valued less than RM1 million
    • Low and medium cost residential units as defined by state authority
    • Properties standing on Malay Reserved land
    • Properties distributed to Bumiputera interest in any property development project as determined by state authority

 

Can foreigners buy property at a lower price?

Under the Malaysia My Second Home (MM2H) programme (a programme that is customised to foreigners who intend to stay in Malaysia for a long period of time (10-year visa)), foreigners are granted the privileges to purchase a property at a lower price.

 

Taxation and GST of Property Investment – for foreigners

  1. Real Property Gains Tax (RPGT)

Imposed by the Inland Revenue (LHDN) on capital gains incurred from selling real property whether they are land or buildings and is effective for individuals or companies, Real Property Gains Tax (RPGT) was introduced to curb property speculation and to prevent the formation of property bubbles.

But how does RPGT work for foreigner? If the Malaysian property is disposed with capital gains made, the gains are subject to Real Property Gains Tax. The tax rate is 30% where the property has been owned for up to 5 years and 5% for the 6th year and thereafter.

    • Property purchase sold within first 5 years – 30%
    • Property sold after 5th year – 5%

 

  1. GST on Commercial Property

In Malaysia, commercial property is subjected to GST. That means those who setup a Malaysia Company to purchase the commercial property are eligible to claim back the GST from Custom. Once the company is GST-registered, the monthly rental income and the sales proceeds of the property will subject to GST.

 

  1. Taxable Rental Income

Foreigners earning Malaysian rental income will be taxed by Inland Revenue Board of Malaysia (after deduction for loan finance interest, assessment, quit rent, insurance, repairs, maintenance, service charges and sinking fund payments). With effect from YA 2016, the income tax for non-resident individuals is 28% while the tax rate for company is 24%.

 

Why Should Foreigners Invest in Malaysia Property?

Here are the key takeaways of why foreign investors should consider investing properties in Malaysia:

    • Direct foreign ownership
    • Can own/purchase landed properties, freehold properties
    • The minimum requirement for the property value is RM1 million
    • No capital control and repatriation restriction for property investment and gains
    • No inheritance tax
    • Liberal property financing for foreigners for MM2H participants
    • Real Property Gain Tax after 5 years is only 5%
    • Security in legal ownership with title document