Decoding the Scope of Capital Gain Tax (CGT): What Assets Are Impacted?

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.
Tax rates	For capital assets in Malaysia bought before January 1, 2024, the CGT is either 10% of the net gain or 2% of the total sale price. For those bought on or after January 1, 2024, the CGT is 10% of the net gain. For capital assets outside Malaysia, the tax is 10% on the net gain.
Effective date	1 January 2024 (please refer to our commentaries below)
Taxable person	Income tax will be charged on gains or profits from the disposal of capital assets by Companies Limited Liability Partnerships Trusts bodies Co-operatives
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.
Other requirements	​Tax returns for capital gains must be filed within 60 days of the disposal date. The capital gains tax must be paid within 60 days of the disposal. For disposals of capital assets located in other countries, when capital gains are remitted to Malaysia, they are subject to taxation. Each disposal is a separate source of income. Capital loss can only be deducted against the same source. Unabsorbed capital losses can be carried forward for a period of 10 consecutive years of assessment.

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.

Commentaries

1. *During the Budget 2024 announcement, it was stated that CGT would start on 1 March 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.

Planning ahead

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.