Sale And Purchase Transaction in Malaysia

ISSUE OF TAX PAYABLE, I.E. REAL PROPERTY GAINS TAX (RPGT)

“Real Property Gains Tax (RPGT) shall be charged on every ringgit of the total amount of chargeable gains accruing to a chargeable person in a year of assessment in respect of each category of disposal of chargeable assets…” (Excerpt from Section 3 of the Real Property Gains Tax Act, 1976 (RPGT Act 1976))

“… every person whether or not resident in Malaysia for a year of assessment shall be chargeable with the tax in respect of a chargeable gain accruing to him in that year on the disposal of any chargeable asset.” (Excerpt from Section 6 of the Real Property Gains Tax Act, 1976 (RPGT Act 1976))

BRIEF HISTORY

Previously, pursuant to the Real Prroperty Gains Tax (Exemption) (No.2) Order 2007 (gazetted under P.U. (A) 146/2007), all taxable gains in respect of the disposal of a taxable assets in Malaysia (if any) shall no longer be applicable and neither party shall be required to give any notification in writing to the Inland Revenue Department in respect of the parties’ disposal and acquisition of the property.

However, the aforesaid Exemption Order has since been revoked and annulled vide the Real Property Gains Tax Order 2009 (gazetted under P.U. (A) 376/2009).

CURRENT POSITION

In furtherance of the Real Properrty Gains Tax Order 2009, the parties to the sale and purchase transaction shall individually notify the Director General of Inland Revenue (DGIR) of the disposal and acquisition (as the case may be) of the Property within sixty (60) days from the date of the disposal of the Property and that each party shall execute Or cause to be executed all instruments and furnish all information necessary for obtaining the relevant Certificate of Clearance or Certificate of Exemption as the case may be.

Pursuant to Section 21B of the RPGT Act 1976, the Purchaser(s)’s Solicitors are authorized to retain, if and when required, a sum not exceeding two percent (2%) of the Purchase Price (“Retention Sum”) from the Deposit Sum (usually from the Balance Deposit of 8%) and shall within sixty (60) days after the date of such disposal pay the Retention Sum to the DGIR. Failure to remit such payment of the Retention Sum to the DGIR will caused an increment of 10% towards the Retention Sum to be paid.

EXEMPTIONS

(a) Exemption (Real Property Gains Tax (Exemption) (No. 2) Order 2009
Pursuant to the Real Property Gains Tax (Exemption) (No. 2) Order 2009, the Vendor(s) is exempted from payment of RPGT on the chargeable gain in respect of the disposal of the said Property if the disposal is made after five (5) years from the date of the Vendor(s)’ acquisition of the said Property. In the circumstances, the Purchaser(s)’ Solicitors are not required to retain any monies from the Purchase Price for payment of Real Property Gains Tax.

(b) Exemption (Section 8 of the RPGT Act 1976)
Subject to Schedule 3 of the RPGT Act 1976, a gain shall be exempt from the tax if it accrues to an individual who is a citizen or an individual who is not a citizen but is a permanent resident in respect of the disposal by him of his private residence.

Schedule 3 of the RPGT Act 1976 [Paragraph 9(1) of Schedule 3]

“… an individual is entitled to the exemption under section 8 in respect of the disposal of one private residence only:-

Provided that:-

• He elects that such exemption shall apply to that private residence;
• On such election being made, there shall be no further exemption in respect of the disposal of any of his other private residences; and
• The election so made shall be in writing addressed to the DGIR and shall be irrevocable.”

SUBMISSION OF FORMS

Forms to be submitted to the DGIR:-
Vendor:-

• To submit CKHT 1A Form;
• If any of the exemptions apply, to submit CKHT 3 Form.

Purchaser:-

• To submit CKHT 2A Form.

PROCUREMENT OF THE REQUISITE STATE AUTHORITY’S APPROVAL/CONSENT PURSUANT TO SECTION 433B OF THE NATIONAL LAND CODE, 1965 (FOR FOREIGN INVESTOR)

The Foreign Investment Committee’s (FIC) approval/consent in respect of any purchase of Real Property by foreigners is no longer required and has been abolished since the year 2007.

The FIC approval/consent has since been substituted by the Economic Planning Unit’s (Prime Minister’s Department) (EPU) approval/consent in respect of any purchase of Real Property by foreigners.

However, the EPU’s approval/consent is not required for any purchase of Real Property by foreigners in respect of the following acquisition of Real Properties:-

i) Acquisition of Commercial Unit valued at RM500,000-00 and above;
ii) Acquisition of Agricultural Land valued at RM500,000-00 and above or at least five (5) acres in area for the following purposes:-

• To undertake agricultural activities on a commercial scale using modern or high technology; or
• To undertake agro-tourism projects; or
• To undertake agricultural or agro-based industrial activities for the production of goods for export;
• Acquisition of Industrial Land valued at RM500,000-00 and above;
• Transfer of Real Property to a foreigner based on family ties is only allowed among immediate family members; and
• Acquisition of Residential Unit valued at RM500,000-00 and above.

Note:
1) The aforementioned acquisition of Real Properties does not require the approval/consent of the EPU but falls under the purview of the State Authority. As such, the approval/consent of the State Authority towards the sale and purchase transaction of the Real Property is still relevant and required. The absence of such State Authority’s approval/consent will cause the sale and purchase transaction to be null and void. Hence, in such situation, procurement of the State Authority’s approval/consent will be condition precedent to the commencement of the sale and purchase transaction and validity of the Sale and Purchase Agreement.

2) The value of the Real Property acquired/purchased by foreigners shall in all circumstances be above RM500,000-00.