| Property Sellers | RPGT Rate Based On Holding Periods | |||
| 1-3 years | 4th Year | 5th Year | 6th year onwards | |
| Malaysian citizen, permanent resident (PR), trust, body of persons, co-operative society, and limited liability partnership | 30% | 20% | 15% | 5% |
| Non-Malaysian citizen nor PR (Foreigners) | 30% | 20% | 15% | 10% |
| A company – local or foreign, private, public, listed or unlisted | 30% | 30% | 30% | 10% |
You will probably jump for joy if you managed to sell your home at a hefty profit. However, you could also end up paying a huge sum to the government in Real Property Gains Tax (RPGT). Find out how to reduce the tax rate on your property capital gain, the available RPGT exemptions and how to calculate and pay your RPGT.
In the Malaysian real estate market, a tax that every home buyer and seller should be aware of is the RPGT, a form of capital gains tax that individual owners and companies must pay after selling their property. But first, let’s have a short history lesson.
When and why was the Real Property Gain Tax (RPGT) introduced in Malaysia?
RPGT was first introduced in 1976 by the government through the Real Property Gains Tax Act of 1976 to clamp down on property speculation that had then led to a spike in residential prices. Another goal of the tax was to prevent the occurrence of a real estate bubble and deter property flipping, which is the act of buying real estate and quickly reselling it for a sizeable profit.
RPGT 2021 (Up to December 2021)
The latest tax or RPGT 2021 is based on the rates that were amended and took effect on January 1, 2019 as shown in the above table. As you can see, the RPGT rate for companies is higher than for Malaysian citizens. Also, the most effective way to reduce your tax rate is to dispose of your property after five years instead of flipping it after a shorter period.
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How has RPGT changed over the years?
A precursor to the Real Property Gains Tax Act of 1976 was the Speculation Tax Act of 1974. Introduced in December 1973, it was repealed in November 1975. In October 1988, the RPGT Act was extended to apply to Real Property Companies or RPC.
Although the Real Property Gains Tax Act was first announced in 1976, it took almost 20 years to be implemented. Since then, the law has undergone significant amendments.
| Sold When? | Real Property Gains Tax From 1995 Until Present For Individuals | |||||||
| 1995-2007 | 2008-2009 | 2010 | 2011-2012 | 2013 | 2014-2018 | 2019-2021 | 2022 | |
| 1st Year | 30% | Nil | 5% | 10% | 15% | 30% | 30% | 30% |
| 2nd Year | 30% | Nil | 5% | 10% | 15% | 30% | 30% | 30% |
| 3rd Year | 20% | Nil | 5% | 5% | 10% | 30% | 30% | 30% |
| 4th Year | 15% | Nil | 5% | 5% | 10% | 20% | 20% | 20% |
| 5th Year | 5% | Nil | 5% | 5% | 10% | 15% | 15% | 15% |
| Onwards | Nil | Nil | Nil | Nil | Nil | Nil | 5% | Nil |
RPGT in 2007-2009
Between January 4, 2007 and December 31, 2009, people who sold their property were granted full exemption from paying RPGT, as the government wanted to help the Malaysian real estate market quickly recover from the 2008 Global Financial Crisis.
RPGT in 2010
Eventually, RPGT was re-imposed in 2010. Individual owners who sold property that year had to pay a flat rate of 5% if the sale occurred 1 to 5 years from the date of purchase, and were exempt from paying any tax if the disposal happened thereafter.
RPGT in 2011-2012
In 2011 and 2012, the RPGT for property sales by individuals made within 1 to 2 years was doubled to 10%.
RPGT in 2013
In the following year, the rate for property disposals made within the first 2 years of acquisition increased to 15%, while individual owners who sold their property between Year 3 to Year 5 were taxed with a 10% RPGT.
RPGT in 2014
But since 2014, the RPGT rates for property sales made within the 1st to 3rd year were hiked to 30%. For sales made within the 4th to 5th year, the levy was raised to 20% and 15% respectively. Divestments made after 5 years were exempted from RPGT.
RPGT in 2019-2021
But from 2019, RPGT was again taxed at a flat rate of 5% in the 6th year onwards of a property sale. At the same time, the rate for firms and foreigners divesting a property after more than 5 years of holding was raised from 5% to 10%.
New RPGT Exemption in 2022
In October 2021, the government announced during Budget 2022 that, effective January 1, 2022, RPGT will no longer be imposed on property disposals by individual owners starting from the 6th year. This means that the RPGT rate for property disposals in the 6th and subsequent years after acquisition will be reduced from 5% to 0%, effective from 1 Jan 2022.
There were no changes to the company tax rate – companies will still have to pay a 10% RPGT for property disposals.
What is subject to RPGT in Malaysia?
Is land subject to RPGT? The answer is a resounding yes. RPGT is only applicable to real estate. In Malaysia, real estate means any land situated in the country and any interest, stake, option, or other rights over such land. Generally, it also includes the buildings and fixtures permanently attached to the land.
As such, all types of land, even those undeveloped, are subject to RPGT. This includes farm or agricultural lands, timberland, industrial sites and commercial plots. The same goes with land on which properties such as houses and buildings have been built.
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How is RPGT calculated?
RPGT is a capital gain tax imposed in Malaysia when a property is sold and the seller profits from the divestment. Capital gain here means the seller makes money from the transaction due to the selling price being higher than the purchase price. If a property is sold at a loss, there is no RPGT payable.
RPGT applies to everyone – Malaysians, permanent residents (PR), foreigners, companies.
Interesting info: you also need to pay RPGT if you sell stocks in Real Property Companies (RPC) or firms where ¾ of their tangible assets consist of real estate assets.
The tax is levied on the positive net capital gains. Miscellaneous expenses incurred in the sale of property such as legal fees, stamp duty, advertisement expenses, agent commission and others are factored in and subtracted from the property’s selling price.
The holding period of a property is calculated from the Sales and Purchase Agreement or SPA date until its selling date. Also, a waiver on the taxable amount is granted to individual owners only. The exemption waiver stands at RM10,000 or 10% of the taxable gain, whichever is higher.
Before we go into the sample calculations, let us differentiate between acquisition price and disposal price to avoid confusion.
| Acquisition price: The original price a property was bought for. Note that the Malaysian government now uses the market value for a particular base year (2013) for properties bought before 2013.
Disposal Price: This refers to the date of the sale and purchase agreement (SPA) is signed by both parties |
Basically, the RPGT formula goes like this:
Chargeable Gain = Disposal Price – Acquisition Price/Market Value and Miscellaneous Expenses
Net Chargeable Gain = Taxable Amount – Exemption Waiver
RPGT Payable = Net Taxable Amount X RPGT Rate (based on holding period)
For example, Mr Abdul purchased a house in Penang for RM400,000 in 2010. But in 2016 after finding a better job in Johor, he decided to sell the property. After doing some research, he determined that the prevailing market price was now RM650,000. However, he only managed to sell the house for RM640,000 and his miscellaneous expenses related to the sale totalled RM8,000.
For the above example, the RPGT calculation is as follows:
Chargeable Gain = RM640,000 – (RM400,000 + RM8,000)
= RM640,000 – RM408,000
= RM232,000
Net Chargeable Gain = RM232,000 – (RM232,000 * 10%)
= RM232,000 – RM23,200
= RM208,800
RPGT payable = RM208,800 * 5% (applicable tax rate as Mr Abdul held the property for over 5 years)
= RM10,440
After calculation, we can see that Mr Abdul will need to pay an RPGT of RM10,440. The tax would have been higher if he had sold the property within less than 5 years. Thus, it is vital to consider RPGT before selling your property. You do not want the tax to eat up most of the proceeds from your sale.
To find out more on the Allowable expenses for RPGT read Real Property Gains Tax (RPGT) 2021-2022 in Malaysia.
Changes to RPGT base year in Budget 2020
Under Budget 2020, the government has amended how RPGT is computed for the sale of properties by individual citizens and permanent residents after 5 years. The purchase price for properties purchased before January 2013 is now based on the property’s market value as of January 1, 2013, and not the prior base year of January 1, 2000.
This change is great as it lowers the RPGT, particularly for those who acquired their homes before January 2000. Still scratching your head? Here is an example: Mrs Mandri bought a house for RM175,000 in 1996. She then sold it for RM650,000 in 2018. Suppose the market rate on January 1, 2000 was RM350,000 and on January 1, 2013, RM520,000:
RPGT calculation prior to Budget 2020:
RM650,000 – RM350,00 = RM300,000
RPGT = RM300,000 x 5 = RM15,000
RPGT calculation after Budget 2020:
RM650,000 – RM520,000 = RM130,000
RPGT = RM130,000 x 5% = RM6,500
As we can see, the changes in Budget 2020 greatly reduced the payable RPGT by more than half, providing more money for the property seller.
How to be exempt from RPGT?
So, even a 5% tax rate is high. No wonder many people are asking how to be exempted from RPGT. Here are some of the ways:
A. RPGT Exemption Under PENJANA 2020
The good news is that during PENJANA 2020, the government announced the RPGT Exemption Order 2021, which exempted Malaysians from paying the 5% (or higher) RPGT for the sale of residential property between 1 June 2020 and 31 December 2021. However, there are several conditions to be eligible for the exemption:
- The seller must be a Malaysian citizen, who is the sole or joint owner of the property to be sold.
- The property must be a residential property that is utilised for dwelling
- The property was not acquired by way of transfer between spouses, nor a gift between spouses, parent, and child or between grandparent and grandchild, where the donor is a Malaysian citizen
- The sale and purchase agreement (SPA) must be executed on or after June 1, 2020 but not later than December 31, 2021 and the document is duly stamped not later than January 31, 2022. If there is no SPA, the instrument of transfer for the sale of the property must be executed on or after June 1, 2020 but not later than December 31, 2021 in addition to being duly stamped not later than January 31, 2022
B. One-off exemption
First-time home sellers, rejoice! Malaysian citizens and permanent residents are granted a once-in-a-lifetime RPGT exemption for the first disposal of their residential property under the law. However, the property must have been used for own dwelling, not rented out or used for investment.
C. Exemption on sale between family members
Another exemption is the disposal of property between family members, namely:
- Sale of property between parent and child
- Sale of property between spouses
- Sale of property between grandparents and grandchildren
D. Exemption on 10% of taxable gain
Aside from that, the government has granted an exemption waiver – RM10,000 or 10% of the taxable gain, whichever is higher – to lower the cost of RPGT.
E. Exemption on sale of low-cost homes
To help low-income families, the authorities have also fully exempted the sales of affordable houses priced below RM200,000 from the tax starting from 2019, provided the seller has held the property for over 5 years.
How do I pay RPGT in Malaysia?
Paying the RPGT is easy. First, get LHDN forms from the Inland Revenue Board (LHDN) or just download the document from its official website. After that, follow these steps:
Step 1: Input all the required info in the Property Disposal Form (RPGT 1A). You need to attach the SPA and other supporting documents for the deduction.
Step 2: If you want to apply for tax exemption, you also need to fill in the form known as Information Notification Notice under Section 27 A of the RPGT Act 1976 (RPGT 3).
Step 3: As the seller, you must ensure that the buyer completes the Certificate of Settlement (RPGT 4) form, which must also include a copy of the SPA.
Step 4: After you have completed all forms, submit all the required documents together to the nearest Inland Revenue Board branch. Do not forget that you need to pay the RPGT within 60 days of the sale.
To conclude, the Real Property Gains Tax (RPGT) is a tax in Malaysia that every home buyer and seller should be aware of in order to lessen their costs. Whether you are selling your present house to upgrade or an investor looking to increase his capital, it is crucial to understand all expenses when divesting a property, particularly the RPGT, as well as ways to reduce them.
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