These are the salient features of CGT according to the Finance(No. 2) Bill 2023
Scope of Tax
A 'capital asset' is defined as movable or immovable property, encompassing all rights and interests therein. Although this definition is wide-ranging, but as an introductory step, the government will subject only the following capital asset transactions to CGT:
I. Disposal of shares in unlisted companies incorporated in Malaysia.
II. Disposal of shares of foreign companies that own real property (like land or buildings) in Malaysia, or own shares in another controlled company that does.
III. Disposal of other capital assets located in other countries and where the gains are remitted to Malaysia.
1 January 2024 (please refer to our commentaries below)
Income tax will be charged on gains or profits from the disposal of capital assets by
Are individuals subject to CGT?
At the present stage, individuals are not taxable persons for CGT. Hence, the disposal of shares in private companies by individuals will not attract CGT. We anticipate that the scope will likely be broadened later to include individuals, in line with the practices of other countries.
The Finance (No. 2) Bill 2023 has been passed by the Dewan Rakyat (House of Representatives) on 29 December 2023. Next, the Bill will be presented to the Dewan Negara (Upper House) for review before it is sent to the Yang di-Pertuan Agong for royal assent.
Once the said Finance Bill has been gazetted, the Inland Revenue Board will issue administrative guidelines for the implementation of CGT.
1. *During the Budget 2024 announcement, it was stated that CGT would start on 1 April 2024. However, the Finance Bill shifted the commencement date to 1 January 2024. This should not come as a surprise as the government aims to meet the requirements of the EU’s Code of Conduct Group (Business Taxation) concerning foreign-sourced capital gains, and other Asian countries have adopted the same commencement dates.
2. Real Property Gains Tax (RPGT) will no longer apply to the disposal of shares in Real Property Companies (RPC) by companies, limited liability partnerships, trusts, or cooperatives. However, the disposal of RPC shares by individuals will still be subject to RPGT.
3. It appears that disposals of foreign capital assets by individuals would attract CGT. More information is needed from the tax department.
4. Exemptions for capital gains from disposals of shares related to Initial Public Offering (IPO) exercise, restructuring within the same group, and venture capital companies were announced earlier but are not in the Finance Bill. We hope that an exemption order will be issued later to implement these exemptions.
The new Capital Gains Tax (CGT) will take effect starting 1 January 2024. While we await further specifics from the government, we invite our clients who are considering acquiring or disposing of shares in private companies to connect with us. Our team is ready to provide expert guidance and support to align your investment actions with the forthcoming tax changes, ensuring you make informed and strategic decisions. Let's discuss how you can best prepare for the implementation of the CGT.