Income & Taxes

Real Property Gains Tax in Malaysia

June 15, 2012 by SL MoneySaver in Income & Taxes, Popular Guides, Popular Guides, Property & Mortgages with 0 Comments

If you are wondering if you might be taxed on the disposal of your property, we will help you Save Money with the six honest answers to the following : What, Why, Who, How, Where and When.

Real Property Gains Tax in Malaysia Quick Navigation
What is Real Property Gains Tax (RPGT)?
Why do we have RPGT in Malaysia?
Who needs to pay RPGT?
How RPGT is calculated?
Where and When do you pay RPGT?
The SaveMoney.my Malaysian RPGT 2012 Calculator

What is Real Property Gains Tax (RPGT)?

RPGT is a form of tax levied by the Inland Revenue (LHDN) on capital gains derived from the disposal of real property (which generally means any land and building).

How net capital gains is calculated is discussed below under ‘How RPGT is calculated?’.

Why do we have RPGT in Malaysia?

There are many reasons why RPGT is imposed. One of the more significant reasons why the government imposes this tax is to curb property speculation to avoid property bubbles forming. From time to time, the government may decide to increase or decrease RPGT to suit the their agenda e.g. they could reduce RPGT to encourage investments (this actually happened between 1 April 2007 – 31 December 2009 where property transactions during this period were exempted from RPGT to spur investments).

The other obvious reason is that RPGT is a source of revenue for the government to develop the nation. As for how effectively the government does this is an altogether separate topic for discussion not covered here.

Who needs to pay RPGT?

Both individuals and companies!

How RPGT is calculated?

The bad news is that if you are disposing off a property at a significant gain, you are likely to be taxed for it. But here is the good news. You will only be taxed on your net capital gains as opposed to the gross capital gain. Gross capital gains are simply calculated by taking the selling price less the purchase price.

To arrive at your net capital gains, you are allowed to subtract from the gross capital gain certain expenses (don’t forget to keep the bills!) such as:

Legal fees
Real estate fees (sales commission) incurred to sell the property (typically between 2% – 3% of the selling price)
Administrative fees
Expenditure incurred to maintain/upgrade the property. This can include upgrade works done the property such as renovations and interior design works

The maximum allowable deduction here is the larger of RM10,000 or 10% of the capital gain.

Generally, the dates which are used to determine the RPGT tax rates are dependent on the date when the property was acquired and date when property was disposed off) are the dates of the respective Sale and Purchase Agreements. The same applies for properties under construction i.e. the purchase date is determined as the date on the Sale and Purchase Agreement, when you agreed to buy the property and not the property completion date.

In 1 January 2012, the government introduced a tax incentive which essentially says:

1) If you sell off your property in 2 years or less and make a net capital gain, you will be taxed at 10%.

2) If you sell off your property in 3 – 5 years following purchase, you will be taxed at 5%; and

3) No tax will be incurred if you sell off your property after the 5th year.

So if you want to Save Money by not having to pay RPGT, all you have to do is sell your property after the 5th year!

Below is a table showing the evolution of the RPGT rates in Malaysia, the relevant tax brackets for each time period (take your net capital gain and multiply it with the corresponding tax percentage subject to the property holding period):

Real Property Gains Tax in Malaysia	Disposals on Oct-95 to Mar-07	Disposals on Apr-07 to Dec-09	Disposals on Jan-10 to Dec-11	2012 Budget
Disposal in 1st year	30%	0%	5%	10%
Disposal in 2nd year	30%	0%	5%	10%
Disposal in 3rd year	20%	0%	5%	5%
Disposal in 4th year	15%	0%	5%	5%
Disposal in 5th year	5%	0%	5%	5%
Disposal in 6th year and beyond	0%	0%	0%	0%

Since September 2012, RPGT rates changed in the Budget 2013 announcement, full details here.

Supposedly to curb property speculation, Real Property Gains Tax (RPGT) has been increased to 15% for properties disposed within 2 years of purchase and 10% for properties sold between 2-5 years of purchase. 0% RPGT for properties older than 5 years kept as it is. See the following table:

Real Property Gains Tax in Malaysia	Disposals on Oct-95 to Mar-07	Disposals on Apr-07 to Dec-09	Disposals on Jan-10 to Dec-11	2012 Budget	2013 Budget
Disposal in 1st year	30%	0%	5%	10%	15%
Disposal in 2nd year	30%	0%	5%	10%	15%
Disposal in 3rd year	20%	0%	5%	5%	10%
Disposal in 4th year	15%	0%	5%	5%	10%
Disposal in 5th year	5%	0%	5%	5%	10%
Disposal in 6th year and beyond	0%	0%	0%	0%	0%

Where and When do you pay RPGT?

Given the nature of RPGT, it can only be paid after you have sold off the property. You are allowed a 60 day grace period to settle the tax that you are meant to pay.

Your conveyancing lawyer or tax agent should be able to submit the relevant CHKTK form on your behalf and pay any dues to Lembaga Hasil Dalam Negeri (LHDN) from the proceeds of your property sale. However, it is best not to assume but to make sure. So do check with your lawyers or tax agents on this matter with your newfound knowledge.