With effect from 1 January 2024, a new capital gains tax (“CGT”) was implemented in Malaysia vide section 4(aa) of the Income Tax Act 1967 (“ITA”) to tax gains or profits from the disposal of capital assets by a company, limited liability partnership, trust body or cooperative society. Disposers who are individuals are not subject to CGT. Section 4B(b) of the ITA further provides that such gains do not constitute business gains or profits for purposes of the ITA.
Assets that are subject to CGT are:
- shares of a company incorporated in Malaysia not listed on the stock exchange;
- shares of a controlled company incorporated outside Malaysia which owns: (a)
real property situated in Malaysia; or (b) shares of another controlled company,
as defined; or (c) both; above the specified threshold(s); and - all types of capital assets situated outside Malaysia.
In light of CGT, with effect from 1 January 2024, any disposal of shares in a real property company (i.e. RPC shares) by a company, limited liability partnership, trust body or cooperative society, would no longer be subject to RPGT but would fall within the scope of CGT.
An interim exemption has been introduced vide Income Tax (Exemption) (No. 7) Order 2023 [P.U.(A) 410/2023] so that disposals on capital account by a company, limited liability partnership, trust body or cooperative society, of the shares of a company incorporated in Malaysia that are not listed on the stock exchange, are tax-exempt for disposals made on or after 1 January 2024 to 29 February 2024. However, this exemption does not apply if the gain constitutes business income under section 4(a) of the ITA.
Gains from the disposal of capital assets situated outside Malaysia are taxable upon receipt in Malaysia at the prevailing income tax rate. The said exemption also does not apply to such assets.
