This article was updated on 19 December 2019.
Thanks to the new measures announced during Budget 2019, Malaysians who are selling off their property in the sixth (and subsequent) years of ownership will now have to pay a 5% RPGT. Foreigners and companies will also see an increase in RPGT rates, from 5% to 10%, starting from 1 January 2019.
According to a survey we conducted to gauge the public’s response to a few property-related Budget 2019 measures, more than half of the local respondents voiced their frustration/anger over the RPGT rate hike. Previously, Malaysian homeowners who sell off their properties after the 5th year of ownership are not required to pay any RPGT on the profits earned from the sale. Meanwhile, companies and foreign homeowners were required to fork out 5% for RPGT.
That aside, both local and foreign homeowners, as well as companies, would need to equip themselves with the basic know-how of RPGT, especially on how to calculate the applicable RPGT rates and what are the available exemptions for each of them.
Here is what you need to know:
What is Real Property Gain Tax (RPGT)?
RPGT is a form of Capital Gains Tax levied by the Inland Revenue (LHDN), where it falls under the purview of the Real Property Gains Tax Act 1976. It is chargeable upon profit made from the sale of your land or real property, where the net capital gains is after deducting miscellaneous cost or allowable expenses (explained below) such as stamp duty. Where the resale price is higher than the purchase price, you are required to pay RPGT within 60 days of your property sale.
RPGT is generally classified into 3 tiers:
- Individuals (Citizens & Permanent Residents)
- Individuals (Non-Citizens/Foreigners)
It was first implemented in 1995 and it has seen quite a few changes over the years. The most recent RPGT amendment to be implemented in 2019, will be the seventh one so far. Below are the RPGT rates for each of the 3 tiers for your perusal:
New RPGT Rates from 1 January 2019
As you can see from the above, RPGT rates from the 6th year onwards have increased to twice the existing rates for all the 3 tiers. Malaysian Citizens and Permanent Residents will have to pay a perpetual 5% tax while non-citizens and companies will be levied with a 10% fee.
What are the new amendments to RPGT in 2020?
In the recent Budget 2020 tabling, the base year used in RPGT was amended to provide some relief to property sellers. It was announced that beginning 2020, for the calculation of property gain tax of units purchased before 2013, the Government will use the market price on 1st January, 2013 as the initial point of valuation. Previously, the base year was set on 1 January 2000. As RPGT is charged on the profit made from the sale, a later base rate would mean a lower calculated profit, thus reducing the property seller’s tax burden.
When is RPGT applicable?
RPGT is not applicable if the disposal price of a property is deemed equal to or lower than the acquisition price. It is only chargeable if there is a profit gain from the disposal of the real property.
1. Individuals (Citizens, PRs, Non-Citizens & Foreigners)
If any of the above parties sell their property at a profit, they will have to pay RPGT based on their chargeable gain.
In Malaysia, the two most common types of incorporated companies are Sdn Bhd (private limited companies) and Bhd (public limited companies). Usually, the selling of shares by companies are not subject to RPGT except Real Property Companies (RPCs) whose core business is in real property. An RPC company constitutes only if it has real property or RPC shares amounting to no less than 75% of their company’s total tangible assets. However, if the company disposes of its shares or real property to the point where its RPC share percentage falls below 75% and it ceases to be an RPC, then the shares that are disposed of will not retain its RPC characteristic and will be liable for the RPGT provision.
Additionally, if a company reclassifies its real property from fixed asset to current asset (say, trading stocks) then it is also deemed as a disposal of a chargeable asset and is subject to RPGT. The disposal price of such assets will be at their market value at the date of reclassification.
What are the available RPGT exemptions (tax relief) for Individuals & Companies?
Exemptions for individuals
An exemption of 10% of profits or RM10,000 per transaction (whichever is higher) for the following four scenarios:
Citizens & Permanent Residents
a) If an asset is transferred as a gift by a donor who is a Malaysian citizen and the acquirers are either husband and wife, parent and children or grandparents and grandchildren. This exemption is not applicable for transfers between siblings.
b) Once in a lifetime exemption on the chargeable gain on disposal of 1 private residence by a Malaysian citizen or Permanent Resident (PR).
Non-Citizens & Foreigners
c) If an asset is transferred between spouses, then the asset to be disposed of must be owned by the husband or wife who is a Malaysian citizen.
d) If an asset is transferred to a company, then the asset owner or owner’s spouse must be a Malaysian citizen. If the asset is jointly owned by 2 individuals, both need to be Malaysian citizens to make the transfer.
Homeowners who own low or medium cost housing priced below RM200,000 are exempted from RPGT when disposing of their property.
Exemptions for companies
10% of profits or RM10,000 per transaction (whichever is higher) is exempted. Also, intercompany transfer of shares is exempted from RPGT as follows:
What are the typical Allowable Expenses?
Any incidental costs incurred in disposing of the property (as follows) can be deducted from chargeable gain to calculate RPGT:
- Stamp duty, legal fees, accounting fees, surveyor’s fee, etc.
- Real estate fees (sales commission)
- Administrative fees
- Repair or renovation to maintain or upgrade the property such as interior design such as IKEA furniture to redecorate your house
- Cost of preserving or defending one’s title to, or to a right over the asset
- Cost of advertising to make the disposal
What is Allowable Loss?
If there is more than one transaction of real property in the assessment year, any loss incurred from a single transaction can be offset against another transaction, which generates a chargeable gain, as long as both the transactions fall under the same year.
How do I determine the applicable RPGT years?
The property acquisition and disposal dates are based on the date of signing the Sales & Purchase Agreement (SPA) for both completed and under-construction properties.
Say you inherited a property from a relative or friend who has passed away, when selling it off (you will be known as the executor), as per the RPGT Act for deceased’s estates:
Date of death of the deceased = Acquisition Date by the executor
The executor oversees the selling or disposing the estate before distributing it to the beneficiaries. The RPGT charged on the deceased’s estate is based on this acquisition date by the executor.
How to calculate RPGT?
RPGT calculation for individuals
The following formulas are the same for Citizens, PRs, Non-Citizens & Foreigners. Their RPGT rates will vary depending on their holding period and residential status (refer to the table above).
RPGT is charged on Net Chargeable Gains.
Gross Chargeable Gain: Disposal price – Acquisition price
Net Chargeable Gain: Gross Chargeable Gain – Allowable Expense – RPGT Exemptions – Allowable Loss
TAX PAYABLE = RPGT Rate (based on the number of years of property ownership) X Net Chargeable Gains
For instance, let’s say Adam and Hanis (both Malaysian citizens) bought a condominium in Hartamas on 4th January 2013 for RM300,000. With plans to start a family, they decided to upgrade to a bigger place and on 20th of January 2019, they sold off the condominium for RM500,000.
Gross Chargeable Gain: RM 500,000 – RM 300,000 = RM 200,000
*Assuming Adam have Allowable Expense of RM 30,000 and an RM20,000 RPGT Exemption of 10% of profit (200,000 x 10%)
Net Chargeable Gain: RM 200,000 – RM 30,000 – RM 20,000 = RM 150,000
|TAX PAYABLE = 5% RPGT x RM 150,000 = RM 7,500.|
(RPGT rate is based on Budget 2019 for Individual Citizens disposal in 5th years as the property holding period is 5 years)
RPGT calculation for companies
Acquisition Price: A/B x C, where
A = number of shares held by the shareholder;
B = total issued shares of the company
C =the defined value of the real property at the date of acquisition of the chargeable asset
Gross Chargeable Gain: Disposal Price – Acquisition Price
Net chargeable Gain: Gross Chargeable Gain – Allowable Expense – RPGT Exemptions –Allowable Loss
TAX PAYABLE = RPGT Rate (based on the number of years of property ownership) x Net Chargeable Gains
Synergy Sdn Bhd was incorporated on 1 January 2013 with Mr Andrews, Mr Brian & Mr Tate holding 100,000 shares each. It was not an RPC during the time of its incorporation. However, on 31st March 2015, the company acquired its first and only real property at RM 1.2 million. As a result, its total tangible assets including the real property became RM 1.5 million, turning it into an RPC.
On 31st January 2019, Mr Andrews decided to sell his 100,000 shares from Synergy Sdn Bhd for RM 1 million to Mr Lodge.
Acquisition Price: 100,000/300,000 x RM 1,200,000 = RM 400,000
Disposal Price: RM 1,000,000
Gross Chargeable Gain: RM 1,000,000 – RM 400,000 = RM 600,000
*Assuming Mr Andrews have Allowable Expense of RM 50,000, an RPGT Exemption of RM 600,00 ( 600,000 x 10%) and Allowable Loss of RM 35,000.
Net Chargeable Gain: RM 600,000 – RM 50,000 – RM 60,000 – RM 35,000 = RM 455,000
|TAX PAYABLE = 30% RPGT X RM 455,000 = RM 136,500|
(RPGT rate is based on Budget 2019 for Companies disposal in the 3rd year as the property holding period is 3 years)
When do I have to pay RPGT?
For locals and permanent residents who sell off a property, their lawyers will retain 3% of the property’s selling price/disposal price when the purchaser pays the first deposit to buy the property for the purpose for RPGT payment. For non-citizens & foreigners, this retention rate is 7%.
Your solicitor will make the payment with necessary forms to Inland Revenue Board within sixty (60) days from the date of the sale and purchase agreement to meet the RPGT payable.
What is the consequence of late payment?
Any payment after 60 days may attract a penalty payable by the seller. The penalty is 10% of the amount payable as RPGT.
 Real property is a land, or any property directly attached to it including residential buildings (condominium, houses, apartments), commercial buildings (shops & office) and even crops, machinery, ponds, canals, roads, etc.
For more property investing tips and tricks, drop by our Mid Valley Home & Property Fair from 17-20 January 2020. Agnes Wong will be speaking on property tax strategies in 2020. If you pre-register, you will be entitled to a free 2019 Property Market Report
Edited by Reena Kaur Bhatt