Transaction tax

Malaysian Tax Law – Stamp Duty

1.What is stamp duty?

In Malaysia, Stamp Duty is a tax levied on a variety of written instruments specified in the First Schedule of the Stamp Duty Act 1949 (“the act”). Generally, stamp duty will be imposed on legal, commercial and financial instruments.

There are two types of stamp duty, namely ad valorem duty and fixed duty. For the ad valorem right, the amount payable will vary depending on the type and value of the instruments. For fixed fees, the amount to be paid generally starts at a face value of RM10 per instrument.

An instrument must be stamped within 30 days of execution if executed in Malaysia. If the instrument is executed outside Malaysia, it must be stamped within 30 days of first receipt in Malaysia.

In this section, we will explain stamp duty procedures in Malaysia and the importance of having your instruments or documents stamped in accordance with the law.

2.Examples of instruments/documents subject to stamp duty

2.1 The First Schedule to the Stamp Duty Act 1949 set out all types and classes of instruments subject to specific stamp duty. It includes certain exceptions where stamp duty will be exempt. Examples of instruments subject to stamp duty include the following:

a. Transfer of shares b. Transfer of real estate (sale and purchase of land, houses, buildings, etc.) c. General stamping of contracts/agreements d. Rental, Lease or Rental Agreements e. Security documents f. Annuity Sale

2.2 Duty rates vary according to the nature of the instruments and the securities traded.

Example of stamp duty calculation:

Unlisted stocks, shares or transferable securities (e.g. transfer form Section 105 Companies Act 2016)

RM3 for each RM1,000.00 or any fraction thereof whichever is greater, or whichever is greater. The Office des Timbres generally adopts one of two methods for valuing unlisted ordinary shares for stamp duty purposes:

– Net tangible assets; Where

– consideration for the sale.

Service contract

Stamp duty of 0.5% on the value of services/loans. However, stamp duty may be subject to an ad volarem rate of 0.1% (depending on the type of service contract)[1].

Loan agreements

For loan instruments involving a loan in Ringgit Malaysia, a rate of 0.1% is available for unsecured loans. Stamp duty on foreign currency loan agreements is generally capped at RM2,000.00.

Rental agreement

(i) Less than 1 year (RM1 in each RM250 of annual rent)

(ii) Between 1 and 3 years (RM2 in each RM250 of annual rent)

(iii) More than 3 years (RM3 in each RM250 of annual rent)

The above formula should be calculated on the amount above RM2,400.00 of the annual rent.

*in excess* means that the first RM2,400.00 of the annual rent is exempt from stamp duty.

2.3 Examples of instruments exempt from stamp duty include:

(i) Government procurement (such as service contracts entered into by government agencies/departments) (ii) M&A instruments performed by small and medium enterprises (“SME”)[2] (iii) Instruments relating to the transfer of property or shares between associated companies[3] (iv) Certain exemptions provided by the government and announced from time to time (e.g. exemption on low cost home purchase instrument, purchase of first residential property, etc.)

3.Why does a document/instrument need to be stamped?

Stamp duty is payable on instruments and not on transactions. If a transaction can be assigned without creating an instrument of transfer, no fee is payable.

3.1 Validity of unstamped documents

The law does not clearly indicate whether unstamped deeds are valid and enforceable. The legal position for dealing with the issue of the validity of unstamped instruments was established in a case of Malayan Banking Bhd v Agences Service Bureau Sdn Bhd & Ors (1982) 1 MLJ 198 where it has been held that the unstamped deed only affects the admissibility of the deed in evidence, but it does not render that particular deed invalid. Therefore, the contract is still made enforceable but inadmissible in court as evidence.

Section 52 of the Act provides that the instruments specified in the First Schedule to the Act must be duly stamped by the Lembaga Hasil Dalam Negeri (LHDN) which translate to the Inland Revenue Board of Malaysia (IRB).

The stamping must be done in the manner specified in Sections 40 and 47 of the Act to enable the instruments to have full legal effect by being admissible in court as evidence. As mentioned above, an unstamped or insufficiently stamped instrument is not admissible as evidence in court, nor will it be executed by a public officer.

3.2 Penalties

As mentioned above, documents subject to stamp duty must be stamped within the time allowed. Section 47A of the Act provides that an unpaid instrument shall be payable with penalty as follows:

Within 3 months

RM25.00 or 5% of the deficient duty amount, whichever is greater.

More than 3 months but not more than 6 months

RM50.00 or 10% of the deficient duty amount, whichever is greater.

More than 6 months

RM100.00 or 20% of the deficient duty amount, whichever is greater.

4.How to stamp

First of all, the instrument must be submitted to the Inland Revenue Board (LHDN) for their assessment of the duty payable.

Secondly, once the assessment is completed, the LHDN will issue the notice of assessment containing the amount of duty to be paid (including the penalty, if applicable) within a certain period of time.

Thirdly, after successful payment of the stamp duty, the instrument will be stamped by a postage meter or a stamp certificate will be issued, depending on which method the stamp application was made.

The above process can be done either by the LHDN officer at the counter or through the electronic system provided by the LHDN, i.e. the Tax Stamp Assessment and Payment System (STAMPS system ).

5.Conclusion

Our firm provides advice on the dutiable instrument to identify whether the instrument is subject to stamp duty payable under the law as well as the amount of stamp duty applicable. We are also a registered agent to submit the electronic assessment to the LHDN and request payment of stamp duty for certificates to be issued accordingly.

If you have any questions about our stamp duty services, please do not hesitate to contact us.

[1] The Lembaga Hasil Dalam Negeri (LHDN) will assess and determine the rate to be paid.

[2] Pursuant to the Stamp Duty (Exemption) Order 2021 (No. 18) [P.U.(A) 502/2021]

[3] Pursuant to Section 15A of the Stamp Act 1949