Real Property Gain Tax Amendments that Property Sellers and Non-Citizen must know
The latest amendments in the Real Property Gain Tax 1976 has greatly impacted non-citizen and non-permanent resident property owners in Malaysia.
Amendments on Paragraph 12(2)(a) & (b) – Gift of property between spouses, parent to child or grandparent to grandchild, if the property giver or donor who is not a Malaysian citizen.
Under normal circumstances, if a property is given as a gift, it is deemed to be disposed of at market value and subject to Real Property Gain Tax (RPGT).
- Before the amendments, if a non-citizen owns a property in Malaysia and transfers the property as a gift to his spouse or child or grandchild, it was treated as “no gain no loss” which means no real property gain tax is payable. If the property recipient is not a Malaysian citizen or permanent resident, his acquisition price will be the original cost of the property giver (the cost incurred by the person who gave the property).
- After the amendment, the “no gain no loss” treatment is only applicable strictly to Malaysian citizens in the case of gift of property between spouse, parent to child or grandparent to grandchild.It means that if a foreigner who is a Malaysian permanent resident (but not a Malaysian citizen) or non-Malaysian citizen, wants to give a property situated in Malaysia to his wife, child or grandchild, it is deemed that the property is disposed of at market value and any gain made by him is subject to RPGT accordingly. The RPGT rate for a non-Malaysian citizen is 30% on the gain if the property acquired is less than five years old and 5% on the gain if the property acquired is more than five years old.
New Section 21B (1A) RPGT Act 1976 – Duty of the property buyer to withhold part of the consideration and remit it to Inland Revenue Board of Malaysia (IRB)
Before the new section was introduced in the Act, the person who buys the property is required to withhold 3% of the cash consideration and remit it to IRB as an advance payment of the RPGT.
However, with the new section, effective 1 January 2018, if the property seller is not a Malaysian citizen or not a Malaysian permanent resident, the buyer is required to withhold 7% of the cash consideration and remit it to IRB.
The following is the summary of the amendments ( Real Property Gain Tax ) :
Amendments to Paragraph 3(1)(b) Schedule 2 RPGT Act 1976 – Transfer of Property to a Company Controlled by the Transferor with a Consideration Substantially Consists of Shares.
Before the amendment, if an individual transfers a property owned by him or jointly owned by him with his wife or jointly owned by him with the connected person, to a company controlled by him – by him jointly with his wife or by him jointly with connected person – the consideration of the transfer substantially consists of shares. The transfer price is deemed to be the original acquisition cost of that individual.
After the amendment, the above special treatment can only be enjoyed by a Malaysian citizen who transfers a property to a company in the above situation.
For non-Malaysian citizens or foreigners that are Malaysian permanent residents who transfer the property to a company in the situation of the above will be treated as transfer at market value and the gains will be taxed under RPGT accordingly.
These amendments have impacted foreign property owners and now they are not able to enjoy the some special RPGT treatment and may end up paying more in tax.