Pursuant to recent amendments to the Income Tax Act 1967 ("ITA"), gains or profits from the disposal of a 'capital asset' on or after 1 January 2024 will be subject to capital gains tax ("CGT").
'Capital asset' is defined to mean movable or immovable property, and includes any rights or interests thereof and includes amongst others, stock and shares, loan stock and debentures.
'Disposal" means the sale, conveyance, transfer, assignment, settlement or alienation whether by agreement or force of law, and includes a reduction of share capital and the purchaser by a company of its own shares.
Exemption
The amendments provide for an exemption on gains or profits from the disposal of capital assets situated in Malaysia generally, but this exemption does not apply to:
- The disposal of unlisted shares of a company incorporated in Malaysia; and
- The disposal of shares of a 'controlled company' incorporated outside Malaysia where the company owns substantial real property situated in Malaysia or shares of another controlled company owning substantial real property situated in Malaysia.
It is important to note that the exemption does not apply to gains or profits which are considered as "business income".
Notwithstanding the above, gains or profits from the disposal by a company, limited liability partnership, trust body or co-operative society, of unlisted shares of a company incorporated in Malaysia made during the period from 1 January 2024 to 29 February 2024, are exempted from CGT.
Chargeable Rates
- Disposal of capital assets situated in Malaysia acquired before 1 January 2024:
(i) 10% on every ringgit of the chargeable income from the
disposal;
or
(ii) 2% of gross of the disposal price;
- Disposal of asset situated in Malaysia acquired on or after 1 January 2024:
(i) 10% on every ringgit of the chargeable income from the disposal.
In relation to disposal of capital assets situated outside Malaysia, chargeable income will be subject to the prevailing rate of tax.
In relation to a disposal of shares in Real Property Companies, which were previously subject to the Real property Gains Tax Act 1976 ("RPGTA"), amendments have been made so that the a new Section 15C of the ITA will apply, and the RPGTA will no longer apply (other than a Labuan entity).
Key Take-Away
Should you be looking at disposal of capital assets situated in Malaysia, you will need to be cognisant of the application of CGT, taking note of the respective exemption order.
Where the disposal of capital assets situated outside Malaysia but relate to a controlled company which owns substantial real property situated in Malaysia or shares in a controlled company owning substantial real property situated in Malaysia, CGT will apply.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
