Real Property Gains Proposal Details in Finance Bill 2023

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Asset Transfer to Controlled Foreign-Incorporated Businesses Outside of Malaysia

Present Currently, a real estate transfer

a) by a person

b) by the person’s wife

c) by the person and his wife or another linked person

d) by a trustee for the person, spouse, or both,

To be a “no gain, no loss” transaction for RPGT purposes, a transfer of shares of a controlled company to a controlled company that is incorporated in Malaysia or outside of Malaysia for a consideration that consists of shares in that controlled business.

“No gain, no loss” refers to the assumption that the acquisition price and the disposal price are equal.
Proposed The “no gain, no loss” treatment is only supposed to be used if real estate is transferred to a controlled corporation based in Malaysia.

The transfer of the real estate will not qualify for the “no gain, no loss” treatment if the controlled company is established outside of Malaysia and will instead be liable to RPGT at the current rates listed in Part I, Schedule 5 of the RPGTA.

Category of disposal Rate of Tax
Disposal within three years of the chargeable asset’s acquisition date 30%
Disposal four years after the chargeable asset’s acquisition date 20%
Disposal five years after the chargeable asset’s acquisition date 15%
Disposal within six years of the chargeable asset’s acquisition date or later Nil
Effective Date Upon the Finance Act’s implementation
Commentary The transfer of real estate by individuals to corporations formed outside of Malaysia will be discouraged by this plan because there may be RPGT due on such transactions.

Real Estate Transferred to Former Spouse in Divorce Cases as a Result of Court Orders

Present When a Malaysian citizen is the transferor of real property between spouses, the RPGT treatment of “no gain, no loss” is applied. Transfers to a previous spouse, however, are not subject to this RPGT treatment and will instead be subject to RPGT at the rates detailed in Part I, Schedule 5 of the RPGTA.

Category of disposal Rate of Tax
Disposal within three years of the chargeable asset’s acquisition date 30%
Disposal four years after the chargeable asset’s acquisition date 20%
Disposal five years after the chargeable asset’s acquisition date 15%
Disposal within six years of the chargeable asset’s acquisition date or later Nil
Proposed The transfer of real estate between ex-spouses in divorce cases owing to court orders is being proposed to be included in the RPGT approach of “no gain, no loss.”
Effective Date The day the Finance Act is put into effect.
Commentary The tax burden for those going through a divorce and having to transfer real estate as part of the settlement due to a court order could be lessened by this idea. Transfers between ex-spouses might have resulted in RPGT under the prior regulations, which would have cost the parties concerned a lot of money. Overall, given it will ease the tax burden connected with property transfers, this reform is likely to be seen favorably by Malaysians going through a divorce.

 

Information on Proposed Measures, Their Effective Date, and Comments 

Proposed Stamp Duty Measures

Agreements for Student Loans and Scholarships are Exempt from Stamp Duty

Present For agreements for educational loans and scholarships related to tertiary education (diploma and above) at higher learning institutions, a fixed duty of RM10 is now applied; for other levels, stamp duty is payable at an ad valorem rate.
Proposed The fixed charge of RM10 on agreements for educational loans and scholarships will be increased to cover all levels of education, including certificates (education/skills/professional) from all institutions of higher learning.
Effective Date Any agreements for student loans and scholarships that are finalized after June 1, 2023.
Commentary The speech outlining the Revised Budget 2023 had a suggestion like this. The Budget Bill 2023 now proposes the law’s modification.

The stamp duty handling of educational loan and scholarship agreements will be streamlined under this plan for all levels of education.

Arrangements for Discounting Invoices or Hire Purchase Receivables: Stamp Duty Treatment

Present Currently, a set duty of RM10 is applied to any charge, mortgage, or task by way of the safety of receivable accounts to a bank, merchant bank, financial institution, or planned institution as defined in section 2 of the Financial and Banking Institutions Act, 1989, thereunder to an agreement for the discounting of receipts or hire purchase receivables. These entities must be licensed under the Banking and Financial Institutions Act 1989, the Islamic Banking Act 1983, or both.
Proposed Any statutory body, government agency or state agency, or any company in which the government or the state government has an interest that provides financing to a small and medium enterprise will be subject to the fixed duty of RM10 on charge, mortgage, or task by way of protection of accounts receivable under an agreement for discounting invoices or hire purchase receivables.
Effective Date Contracts for the discounting of invoices or hire purchase receivables that are signed after the Finance Act goes into effect.
Commentary The stamp duty handling of contracts for discounting invoices or hire purchase receivables will be simplified by this suggestion. Also, by lowering borrowing costs, it seeks to improve MSMEs’ competitiveness.

For the Absolute Sale Bill of Account Receivables or Book Debts, Stamp Duty Treatment is Applicable

Present The utter and total sale of any receivable accounts or book debts to a bank, merchant bank, financial institution, or planned institution as defined in section 2 of the Banking and Financial Institutions Act 1989 that is licensed under the Financial Institutions and Banking Act 1989 or under the Islamic Banking Act 1983 is currently subject to a fixed duty of RM10.
Proposed Any statutory body, authority of the Government or of the State Authority, or any corporation in which the Government or the State Government has an involvement, which provides money to a small and medium enterprise, will now be subject to the fixed duty of RM10 on the ultimate bill of sale of any receivable accounts or book debts under a factoring agreement.
Effective Date For factoring contracts on the complete sale of any accounts receivables or book debts signed after the Finance Act went into effect.
Commentary Under this suggestion, stamp duty treatment for factoring agreements involving the absolute sale of any receivables or book debts will be streamlined. Moreover, it intends to make MSMEs more competitive by lowering their funding needs.