Recent changes to Tax and Stamp Duty in Malaysia

Recent changes to Tax and Stamp Duty in Malaysia

The Finance Act (no. 2) of 2023 (“the Finance Act”) came into effect on 1 January 2024, with various provisions that were part of the Budget 2024 announcement; and also providing further detail on new matters such as the introduction of Capital Gains Tax. This note serves to highlight a few key areas.

Capital Gains Tax (“CGT”)

From 1 January 2024, CGT will be imposed on gains or profits derived by companies, limited liability partnerships, trust bodies, and cooperative societies, from the disposal of capital assets (including shares in unlisted companies) in Malaysia; from the disposal of shares in a foreign company which owns real property in Malaysia; and from the disposal of capital assets outside Malaysia. If acquired before 1 January 2024, the applicable rate is 2% on the gross disposal price or 10% on the net gains from disposal OR at the rate of 10% of the net gains if (the capital asset is) acquired after 1 January 2024.

Stamp Duty

Highly pertinent to lawyers – under the Stamp Act 1949, an “Instrument” is now defined to “include every written document”; further – “writing” or “written” now includes any handwriting, typewriting, printing, electronic record or transmission which is in an electronically readable form. Therefore, “Instruments” will now include instruments that subsist in an electronic format. This is arguably in line with modern convention around the globe.

Impacting cross – border transactions, documents executed outside Malaysia were previously to be stamped within 30 days of having been received in Malaysia. Proof of such receipt now includes electronic transmission. There is therefore no longer a distinction between receiving wet-ink originals and receiving documents electronically, for purposes of stamp duty timelines. Nor is there a difference between keeping a wet-ink original outside of Malaysia and keeping the same document in Malaysia.

Stamp duty on foreign currency loan agreements was previously capped at RM2,000 – this has now been amended so that the stamp duty for such foreign currency loans or Syariah instruments, is the same as that of Ringgit Malaysia loans, ie a flat 0.5% on the value of the loan.

Collectively, these changes mean that once a PDF version of a document (that has been executed by all parties) is circulated via email, a stamp duty liability arises. Particularly for large purchases and large loans for example involving aircraft and ships, which typically involve foreign currency loans and execution of documents outside Malaysia, parties need to be aware of the increased computation and cost of stamp duty as well as the shorter timelines.

In addition, the use of franking machines and adhesive stamps is discontinued after 1 January 2024.

E-invoicing

Electronic invoicing will be mandated for taxpayers with an annual turnover of more than RM100mil on 1 August 2024, with additional deadlines of 1 January 2025 (for turnover of between RM25mil and RM100mil) and 1 July 2025 (for all companies).

Service Tax

The standard service tax rate (currently 6%) has been increased to 8%. However, certain services such as food and beverage, telecommunication services, telecommunications services and supply chain services remain at 6%.
ESG matters Various incentives have also been introduced to encourage more companies to comply with ESG standards, including: (i) a tax deduction on certain expenditures for four years from 2024 onwards; (ii) an additional tax deduction for companies in relation to the development of certain carbon projects; and (iii) an extension of the period for tax deduction of rental expenses of e-Vehicles. This is in line with the new emphasis on ESG in Malaysia, both from a consumer and industry as well as a regulatory perspective; and also puts Malaysian companies in good stead to project a greener profile for international trade and investment.

Note by Datin Shelina Razaly Wahi of Abdullah Chan & Co
15 March 2024

* This note constitutes an information update only, and is not to be relied upon as legal advice. For further information, kindly contact: shelina@abdullahchan.my