Written by Ashley Yip
Before investing, purchasing or selling a piece of property in Malaysia, every individual or business taxpayer should understand every aspect of the tax system relating to assets. In Malaysia, there are two forms of taxes that can be imposed when purchasing and disposing property; Capital Gains Tax (“CGT”) and Real Property Gains Tax (“RPGT”). They are both forms of taxation that affect both individuals and business taxpayers who derive gain from the sale of their assets. But, if they mean the same thing, how do they differ?
This article aims to highlight the key main differences between the two forms of taxation. Prior to the newly implemented CGT which recently came into force on 1st January 2024 under the current Income Tax Act 1967, RPGT was the only form of tax imposed on the disposal of property. The implementation of CGT merely broadens the scope of chargeable assets especially in this digital climate where Cryptocurrency and Non-Fungible Tokens (NFTs) are sought after.
- CGT is mainly imposed on the sale of non-inventory assets
It is inclusive and not limited to shares in unlisted companies incorporated in Malaysia, shares in a foreign incorporated company deriving value from real property in Malaysia or any moveable or immovable property such as intellectual property, cryptocurrency, NFTs, bonds, precious metals, etc.
- Chargeable person (disposers)
CGT is imposed on a select category of taxpayers. It is applicable to companies, Limited Liability Partnerships (LLP), cooperative society, trust body. However, it should be noted that CGT does not apply to disposals made by individuals.
- Tax Rate
The tax rate for CGT for the disposal of these assets is based on the acquisition date of the said asset. If the chargeable asset was acquired before the 1st of January 2024, the tax rate imposed is 10% of the chargeable income or 2% of the gross disposal price. If the chargeable asset was acquired on or after the 1st of January 2024, the tax rate imposed is 10% of the chargeable income.
- Payment of tax
Payable within 60 days from the date of disposal.
- Key exemptions
Gains arising from disposal of foreign capital assets received into Malaysia are eligible for exemption if the economic substance requirements are met. The key conditions are that the disposer must employ adequate number of employees with necessary qualifications and incur adequate amount of operating expenditure to carry out the specified economic activities in Malaysia.
- RPGT is mainly imposed on real estate property in Malaysia
It is mainly imposed on real estate situated in Malaysia including residential, commercial and industrial land. However, RPGT can be stretched out to cover shares in Real Property Companies as well.
- Chargeable person (disposers)
RPGT is imposed on anyone who profits from a property sale in Malaysia. This applies to Malaysian citizens or permanent residents, foreigners and companies regardless of if local or foreign, partnerships and trust bodies.
- Tax Rate
The tax rate for RPGT is dependent on the category of disposers and the holding period of the chargeable asset.
For individuals:
- 30% if the property is sold within 3 years of purchase.
- 20% if the property is sold at the 4th year.
- 15% if the property is sold at the 5th year.
- 0% if the property is sold in the 6th year and thereafter.
For companies:
- 30% if the property is sold within 3 years of purchase.
- 20% if the property is sold in the 4th year.
- 15% if the property is sold in the 5th year.
- 10% if the property is sold in the 6th year and thereafter.
- Payment of tax
Payable within 60 days from the date of the date of sale and purchase agreement.
- Key exemptions
Under paragraph 2 of Schedule 4 of the Real Property Gains Tax Act 1976, the exemptions include RM10,000 or 10% of chargeable gains for individuals, one private residence disposal for Malaysian citizens or PRs, and asset transfers to REITs or Property Trust Funds to encourage investments.
However, an exemption from gain on the disposal of a private residence is governed under Section 8 of the Real Property Gains Tax Act 1976. The exemption is granted on the gain derived from the disposal of a private residence and this exemption is entitled to an individual once in a lifetime.
In conclusion, while both CGT and RPGT are taxes imposed on the disposal of assets, they differ in scope, application, and tax rates.
For more information or clarification, please contact Lim Tse Hwei.
Published 2 January 2025