Entitlies Liable for CGT: Companies, limited liability partnerships (LLPs), trust bodies (e.g., unit trusts), and cooperative societies as defined under the Income Tax Act 1967 are subject to CGT. Affected Disposals:
Domestic gain | Capital asset situated in Malaysia:
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Foreign gain |
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The current scope of Capital Gains Tax (CGT) is now confined to the scope above with potential future expansion to include intangibles and various private assets like antiques, digital assets, and luxury items to broaden Malaysia's tax base. What are shares:
For CGT, "shares" encompass a broad range including company stocks and shares, loan stocks, debentures; and options or rights related to these shares. It also includes member interests in non-share limited companies.
Effective Date: The CGT is effective from 1 January 2024, with certain exemptions applying from this date until 29 February 2024, specifically for disposals of shares in unlisted Malaysian companies and certain disposals involving foreign companies connected to Malaysian real estate.
Filing and Payment Deadlines:
Disposers must submit an electronic return (e-CKM Form) and make tax payments within 60 days of the disposal of the asset. The Inland Revenue Board of Malaysia has issued specific filing guidelines through its CGT Return Form Filing Programme, effective 1 March 2024.
Definition of Disposal:
For CGT purposes, "disposal" includes to sell, transfer, assign, settle, or alienate whether by agreement or by force of law and includes reduction of share capital and purchase by a company of its own shares.
Date of Disposal: Determined by the date of the agreement for disposal or, if government approval is required, the date of completion or the date conditions are met.
Tax Rates:
The following income tax rates shall apply to the gains or profits from the disposal of the capital asset from 1 January 2024:
Scenario | Tax rate of chargeable person |
Disposal of capital asset situated in Malaysia which was acquired before 1 January 2024 (effective 1 March 2024) | (i) 10% on the chargeable income from the disposal of the capital asset, or (ii) 2% of gross on the disposal price of the capital asset. |
Disposal of capital asset situated in Malaysia which was acquired on or after 1 January 2024 |
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Disposal of capital asset other than those mentioned above (eg in relation to capital assets situated outside Malaysia). |
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Exemptions and Special Considerations:
Budget 2024 indicated exemptions for CGT may be available on IPOs, internal restructuring, and venture capital investments under certain conditions. Subsidiary legislation on these exemptions has yet to be issued.
*Exemption for foreign-sourced gains meeting economic substance requirements has been granted for the period from 1 January 2024 and 31 December 2026 (Income Tax (Exemption) (No 3) Order 2024).
CGT vs Real Property Gain Tax (RPGT)
To prevent double-taxing the same gain, the RPGT Act has been amended. Effective 1 Jan 2024, the acquisition and disposal of shares in Real Property Companies (RPCs) by the following will be exempted from RPGT and instead will fall under the purview of Capital Gains Tax (CGT):
companies
limited liability partnerships
trust bodies
co-operative societies.
Commentary
Our tax framework has been revised to impose taxes on gains derived from disposal of capital assets. The term “capital asset” is broadly defined to encompass movable or immovable property, including any rights or interests thereof.
As a preliminary measure of the government, CGT is currently confined to transactions involving:
a. Unlisted Malaysian company shares,
b. Shares linked to Malaysian property in foreign-controlled companies; and
c. Foreign assets
It is anticipated that the applicability of CGT will extend to cover a wider array of capital assets in the forthcoming period. In light of these amendments, stakeholders must exercise due diligence in the acquisition, disposal, and restructuring of assets, taking into account the evolving tax landscape.
(Updated on 9 March 2024)