How Does the Capital Gains Tax Work in Malaysia? This Guide Will Explain
Before any investor can begin to do business in Malaysia, it is important to understand every aspect of the tax system. This guide will focus on the capital gains tax in the country.
How the Capital Gains Tax Works
In Malaysia, any sale made from your investments is not subject to the capital gains tax. Your capital assets are also not subject to this tax system. In general, capital gains in the country are not subject to income tax.
What you would need to pay is the real property gains tax (RPGT). The RPGT will be levied on your chargeable gains. These gains can arise from any disposal of your real property in the country. It can also be derived from any interest, other rights, or option either in or over such land. RPGT is also derived from any disposable shares in the real property companies you have.
Therefore, in Malaysia, your RPGT will be the form of capital gains tax that you would need to pay as a homeowner. As a business owner, you would also need to pay these taxes when you are disposing of your property in the country. This means that if you do decide to sell your property one day, any profit that is made on the property will be taxed.
What Happens if I Sell My Home at a Loss?
If you sell your home or your property at a loss, then you will not need to pay the RPGT taxes. The taxes are only applicable if you have made a profit on the sale. Your taxes must be paid within 60 days from the time you make your sale.
How Will the Fees Be Paid?
The fee will be paid by paying the solicitors of the sale. If you prefer to handle the payment on your own, you can opt to do so. That way, you don’t have to deal with the lawyers. All you would need to do is file the relevant paperwork with the Inland Revenue Board.
How Are the Taxes Calculated?
The taxes are based on the Real Property Gains Tax Act 1976. Your RPGT taxes are also applicable to the procurement and disposal of the shares process. This is something that a lot of people may not be aware of. The RPGT taxes apply to both locals and non-residents in the country.
Taxes will only be applicable to net capital gains that are positive. These include:
- The disposable price
- The purchase price
- Stamp duty
- Legal fees
- Advertising charges
Individuals will be eligible for a waiver on the taxable amount. Companies will not be eligible for this option. The holding period will apply from the date listed on the Sales and Purchase Agreement (S&P) until the date of the disposal. Your taxes will be calculated as follows to provide you with an example:
- Chargeable Gain = Disposal Price – Purchased Price – Miscellaneous Costs
- Net Chargeable Gain = Chargeable Gain – Exemption Waiver (RM10,000 or 10% of Chargeable Gain, depending on which one is higher)
- Tax payable = RPGT Rate (based on holding period) * Net Chargeable Gain
The 2020 RPGT Exemption Order (“Exemption Order’)
Any gains that arose from the disposal of residential properties after 1 June 2020 until 31 December 2021 will be eligible for an RPGT exemption. This order was announced under the PENJANA 2020. To be eligible for this exemption, the following conditions must be fulfilled:
- You must be a Malaysian citizen of the property to be disposed of.
- You must be the sole or joint owner of the property to be disposed of (Malaysian citizen).
- It must be a “residential property”.
- The property in question should not have been acquired through transfer between spouses or a gift between spouses, parent, children, grandparent, grandchild or a Malaysian donor.
- The SPA on the property is executed either on or after 1 June 2020. It should also be executed no later than 31 December 2021.
For more information, please refer to Real Property Gains Tax (RPGT) in Malaysia.