Real Property Gains Tax Malaysia in 2019 - Vendor's Perspective
Updated: Jan 3, 2019
I would like to wish all readers Happy New Year 2019 !
The Malaysian Budget 2019, which came into effect on 1 January 2019, carries several announcements which would have a significant impact towards a seller's decision to dispose of his property in 2019. To most property investment experts, the Pakatan Harapan government introduced these slew of amendments to enable first time home owners to finally afford a home without much issues.
Let's take a closer look.
The RPGT amendments directly impact both local and foreign vendors who are seeking to dispose of their properties in the 6th year onward from the date of acquisition as they will need to pay gains tax on the disposal. Previously, Malaysian citizens are exempted from paying any gains tax while foreign vendors (individuals, and companies (foreign and local)) only need to pay a flat 5% gains tax for disposing their properties in the 6th year onward.
What is Real Property Gains Tax (RPGT)?
Okay, so the big question is; what is gains tax??
RPGT is a tiered tax that ranges from 30% for property sold inside the 1st year of its date of purchase to 0% after five full years of ownership. It is chargeable on the profit gained, if any, from the disposal of a property and is payable to the Malaysian Inland Revenue Board (Lembaga Hasil Dalam Negeri). As such, RPGT is only applicable to a seller.
In line with the Budget 2019 announcements by the Finance Minister, here is an overview of what lies ahead for the seller :-
For Vendors Selling Property Owned For More than Five Years
Effective from Jan 1, 2019 the government has raised the RPGT to 5% for vendors selling their property owned for more than 5 years.
For companies, individuals who are not Malaysians or hold permanent residency, the RPGT rate will increase from 5% to 10%.
For individual citizens and permanent residents, the rate will increase from 0% up to 5%.
However, the Real Property Gains Tax (RPGT) valuation on property would only be calculated from the year 2000 onward.
For example, the ministry had set the date of valuation to begin from the year 2000 despite the land being owned since 1960. It would only be valued from 2000 which is used as a basis.
For the acquisition of assets before year 2000, the market price on Jan 1, 2000, would be used as the acquisition price for the disposal of property by Malaysian citizens and permanent residents. However, there is no mention of the mechanism to be used to achieve the year 2000 valuation. It is suggested the seller could review their historical calculated quit rent and assessments in the year 2000 to gauge at an approximate value.
The government has agreed to exempt the real property gains tax (RPGT) to individual Malaysian citizens who dispose of their properties at a consideration price of RM200,000.00 and below.
The RPGT exemption, effective from Jan 1, 2019, were for the disposal of properties including low-cost houses, low-medium cost houses and affordable houses from the 6th year onward.
In the case of conditional contract such as Paragraph 16 of Schedule 2 of the RPGT Act 1976, the RPGT exemption is given on gains from the disposal of properties transacted in the sixth year and beyond by Malaysian citizens and permanent residents whereby the sale and purchase agreement has been signed before Jan 1, 2019.
The approval from the government or state government will also be obtained from 2019 onward.
There are provisional exemptions as well considered as standard such as transfer of property based on love and affection (ie transfer between spouses, between parent to child and between grandparents to grandchildren which could lie between total exemption to a partial exemption).
We will explore the current property gains tax and stamp duty environment related to disposal and acquisition in another article.
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