The Malaysia Inland Revenue Board (IRBM) is responsible for managing RPGT on any chargeable gain or profit from the sale of real estate. In other words, it is paid by the party selling real estate when the sale price is more than the purchase price. In order to avoid an additional 10% penalty after disposing of real estate, disposers must provide the RPGT documentation (CKHT 1A) within 60 days of the sale. Real Property Gains Tax Act 1976 was the name given to the legislation when it was initially introduced in 1976 as a means of enforcing government action to prevent the real estate bubble from jeopardising economic stability by limiting real estate-related speculation. Beyond this, RPGT also plays a key role in providing the Malaysian government with revenue so it can build the country’s infrastructure and spur economic growth.
The RPGT Act has undergone numerous amendments since then. The government even suspended it from 1 April 2007 to 31 December 2009 (because to the influence of the Global Financial Crisis on the real estate market), and it was reinstated on 1 January 2010 after being suspended. The Budget 2019 included yet another round of RPGT revisions, raising the tax rate for corporations and foreign buyers who sell a property after five years from 5 to 10 percent. In the interim, the property gain tax rate for Malaysian nationals or permanent residents as well has been amended to 5% after the fifth year of holding term (before, it was zero-rated), with the intention of limiting real estate speculation and boosting the government’s tax collection. Additionally, as of January 1st, 2019, the RPGT rate for Malaysian firms and individuals selling real estate with a holding duration of 3, 4, or 5 years has been reduced to 30%, 20%, and 15%, respectively. While if the transactions were made inside the holding term of five years, the RPGT rate for non-residents or foreigners would be taxed at 30%.
Another intriguing subtopic is the once-in-a-lifetime exemption to any chargeable gain from the sale of a private house available to Malaysian citizens or permanent residents. The policy’s goal is to encourage home ownership among citizens and PRs so they won’t have to pay RPGT when their previous residences are sold. Additionally, under Paragraph 2 of Schedule 4 of the RPGT Act, all people, including non-residents, are eligible to an exemption of RM10,000 or 10% of the taxable gain, whichever is larger (again, excluding corporations, LLPs, etc.). It’s important to note that the government introduced a tax exemption (for citizens only) on the gain from the disposal of vacant land and affordable housing, or so-called budget homes, that is below RM200,000, with the transaction performed after the 5-year holding period, in Budget 2019 in order to provide ample liquidity amongst this property segment and aid low-income group sellers.
The Covid-19 epidemic, which affected the Malaysian real estate market, causes a 9.9 percent volume and 15.8 percent value decline in real estate transactions compared to 2019. In response, the government has put in place a number of initiatives, including PRIHATIN and PENJANA, to lessen the effects of a protracted lockdown and to enhance real estate market activity. A RPGT exemption would be available for residential housing sales made as part of the PENJANA short-term economic recovery plan from 1 June 2020 to 31 December 2021, with a cap of three housing units per person. Additionally, Budget 2020 changed the base year of the Real Property Gross Tax (RPGT) from 1 January 2000 to 1 January 2013 for the valuation of property bought before the date. This treatment is only applicable to Malaysian citizens and permanent residents. In other words, since house prices increased dramatically between 2000 and 2013, the tax that sellers pay is more likely to be lower (based on performance from MHPI). Nevertheless, regardless of whether consideration has been received, when there is a formal agreement, the disposal date will be the date of the agreement. The date of real estate acquisition and disposal is typically determined by the written sale and purchase agreement (SPA) that both the acquirer and the disposer parties signed. The date of completion of the sale, however, should be the sooner of the transfer of ownership by the seller or the day on which the seller received the entire compensation for the sale if there is no written agreement for the transfer of real property.
Additionally, there are the loss and expenses that might be deducted from the gain from the disposal. When the acquisition price is lower than the disposal price, the loss is considered permissible. The permitted loss from one transaction may be utilised to reduce the overall chargeable gain for the YA (calendar year) if there are many transactions. Up until the loss is completely absorbed, a permitted loss may also be carried over into subsequent YAs. Furthermore, Schedule 2 defines the disposal price of real property as the sale consideration less any authorised expenditure made on the asset after purchase that has the purpose of increasing or maintaining the value of real property. Remember that the Real Property Gains Tax (RPGT) is a capital gains tax that is exclusive of the Income Tax Act. A gain from the sale of RPGT cannot be a gain or profit that is subject to the provisions of the Income Tax Act or taxable thereunder. To put it another way, RPGT cannot be used to gains that are fundamentally of the type of “income” or “revenue.”
Bottom line
Malaysian manufacturers and exporters should acquaint themselves with the RPGT rules to avoid unnecessary penalties. The article RPGT for company in our website will provide more detailed information on these new import taxes, so please check back regularly for updates. In addition, our team of experts are available to answer any questions you may have about how RPGT will impact your business. Do not hesitate to contact us if you need assistance navigating these new tax regulations.
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