|First RM 10,000||25% of the monthly rent|
|Next RM 90,000||20% of the monthly rent|
|More than RM 100,000||Negotiable|
A proper tenancy agreement is best prepared by a lawyer and should be stamped by Lembaga Hasil Dalam Negeri Malaysia (LHDN) or the Inland Revenue Board of Malaysia (IRB) for it to become a valid legal document. For this purpose, you will need to pay stamp duty, administration, or legal fees.
A well-written tenancy agreement will help protect both landlords and tenants. It helps avoid future disputes between the two. To ensure the document doesn’t leave out any important details, landlords are advised to hire a lawyer to draft the tenancy agreement. Potential tenants can consult their lawyer to review the agreement and make any changes before signing. In Malaysia, the legal fee for tenancy agreement charges has been standardised.
However, hiring a lawyer can be expensive. Therefore, landlords can opt to draft their agreement and ask the would-be tenant to agree to it. To make the tenancy agreement legal and admissible in court, it needs to be stamped by LHDN. There is also an administration charge, which goes towards the real estate agency or landlord. Two application forms, the PDS 1 and PDS 49(A), will need to be submitted to the nearest LHDN office.
But before we dig deeper into how much fees one needs to fork out prior to renting out the property, let’s refresh the basic terms of what is a tenancy agreement and stamp duty first.
What is a tenancy agreement?
A tenancy agreement is a contract between a tenant and a landlord. It lists out, among others, the property address, tenancy duration, monthly rental, deposit amount, mode of payment, furniture inventory (if any), renewal clauses and the responsibilities of both parties throughout the tenancy. The landlord or tenant will only have this contract to go by in case of disputes so landlords should not leave out any important details and tenants should read the content carefully before signing the document. You will have to pay a tenancy agreement stamp duty fee when you get the agreement stamped at LHDN.
What is stamp duty?
Stamp duty in Malaysia is the tax imposed on any legal, commercial or financial document. And now, when renting out your property, here are the fees that you should take into consideration.
How much is the stamp duty for a tenancy agreement?
The stamp duty for a tenancy agreement is payable by the tenant whereas the copy is payable by the landlord. The stamp duty for a tenancy agreement in Malaysia is calculated as the following:
1-year tenancy agreement
RM1 for every RM250 of the annual rental above RM2,400. The stamp duty is free if the annual rental is below RM2,400.
Tenancy agreement between 1 to 3 years
RM2 for every RM250 of the annual rent above RM2,400. The stamp duty is free if the annual rental is below RM2,400.
Over 3-years tenancy agreement
RM4 for every RM250 of the annual rental above RM2,400. The stamp duty is free if the annual rental is below RM2,400.
To make things easier, you can follow this formula:
Stamp Duty Calculation example:
- If you want to rent out your unit at RM1,700 per month, your annual rental would be RM20,400 (RM1,700 per month x 12 months).
- As the first RM2,400 is exempted from stamp duty, the taxable rental amount would be RM18,000 (RM20,400– RM2,400).
- The stamp duty would be charged according to the duration of the tenancy (refer to the amounts at the start of this segment).
As the case for this example (rent of RM1,700 per month), the final stamp duty fee is as the following:
1 year or less:
[(1700 x 12) – 2400]/ 250 x RM1 = RM72
Two copies need to be stamped, one for the landlord and one for the tenant. The additional copy of the stamped tenancy agreement is RM10.
> 1 to 3 years:
[(1700 x 12) – 2400]/ 250 x RM2 = RM144
> 3 years:
[(1700 x 12) – 2400]/ 250 x RM4 = RM288
It is best to get original copies stamped for each party; one for the tenant, one for the landlord, and another one for the agent (if applicable). Also note that if the amount you get after you deduct the exemption of RM2,400 from the rental per annum is NOT a multiple of 250, you need to round that figure up to the nearest (and highest) 250.
Who is the person liable to stamp duty?
Third Schedule of the Stamp Act 1949 specifies the types of instruments and the person liable to pay stamp duty. The liability for payment of duty is provided under section 33 of the Stamp Act 1949.
Duty by whom payable
Section 33: The expense of providing the proper stamp duty be borne—
(a) in the case of the instruments described in the first column of the Third Schedule, by the person mentioned in the second column of such Schedule;
(b) in the case of every other instrument, by the person drawing, making or executing such instrument.
This means that the tenants will pay for the stamp duty.
How much is the administration fee?
The administration fee for a tenancy agreement in Malaysia is calculated as the following:
- RM100 for a monthly rental of RM1,000 and below
- RM150 for a monthly rental of RM1,001 to RM2000
- RM200 for a monthly rental of RM2,001 to RM3000
- RM250 for a monthly rental of RM3,001 to RM4000
- RM300 for a monthly rental of RM4,001 and above
The calculation here is more straightforward. Using the earlier example of RM1,700 per month rental, the administration fee will be RM150. Therefore, for a tenancy agreement of one year or less, the total amount that will be needed to be paid (stamp duty and administration fee) is: (RM82+ RM150) = RM232.
How much is the legal fee for a tenancy agreement?
As mentioned earlier, the legal fee for a tenancy agreement in Malaysia is standardised. The charges are as follows:
Legal fee for a tenancy agreement of above 3 years:
|First RM 10,000||50% of the monthly rent|
|Next RM 90,000||20% of the monthly rent|
|More than RM 100,000||Negotiable|
How do I stamp a tenancy agreement at LHDN?
Malaysians and permanent residents with income tax numbers can also submit applications and stamping fees fully online via LHDN Stamp Assessment and Payment System (STAMPS).
Here’s what you need to do:
1. Register an account at the LHDN STAMPS website and clicking “Daftar di sini” (register here).
2. Fill in your personal details and click “Hantar”. You will get a verification email with a link to activate your account.
3. Once you are logged in, select “Penyeteman”, then select “Sewa/Pajakan”.
4. Fill in all the required details including details of landlord, tenant and rental property.
5. Upload a copy of the agreement.
6. Once your application is accepted look for your document using the adjucation number then make payment by clicking on the “Bayaran Online (FPX)” option.
7. You can then print the certificate that will be attached to the original agreement as proof that stamp duty has been paid.
To stamp an agreement at a LHDN branch, you will still have to use the same STAMPS system to submit your personal details and the details of the tenancy agreement before going to the branch.
Am I eligible for income tax exemption on rental income?
Beginning 1 January 2018, rental income earned in Malaysia is evaluated on a progressive tax rate which ranges from 0% to 30%. The rental income is calculated on a net basis, which means the final rental earnings amount is derived after deducting the permitted incurred expenses. You are eligible for rental income tax exemption as long as you fit the criteria below:
- Rental income does not exceed RM 2,000 per month for each residential house owned by a Malaysian resident
- This tax exemption is not limited to one residential property only. The landlord can get a rental tax exemption for as much as his or her residential property that is rented out
- There is a legal Tenancy Agreement between the landlord and the tenant
- The Tenancy Agreement must be stamped by the LHDN/ IRB and put into effect from 1 January 2018
However, initial expenses such as advertising costs, legal fees, stamp duties and real estate agent commission fees are not allowed for deduction. These expenses are necessary to create a source of rental income and not incurred in the production of rental income.
You can also learn more about rental income and tax incentives.
There you go! Once the tenancy agreement is signed and stamped, you can be on your way to earning some extra income!
Edited by Karr Wei