Real Property Gains Tax (RPGT) is one of the most important property-related taxes that every property owners and businesses have to know! Property investors or property owners need to pay when they dispose of their property in Malaysia.
What is Real Property Gains Tax (RPGT) Malaysia?
According to the Real Property Gains Tax Act 1976, RPGT is a form of Capital Gains Tax in Malaysia levied by the Inland Revenue (Lembaga Hasil Dalam Negeri). It is chargeable upon profit made from the sale of your land or real property, where the resale price is higher than the purchase price.
For example, your company decides to sell an office or warehouse, and you have gained profit from selling that property. In this case, you need to pay RPGT.
Types of RPGT
RPGT is classified into 3 types:
Individuals (Citizens and Permanent Residents);
Individuals (Non-citizens or foreigners) &
Companies
Keep in mind that the disposal of shares by companies are not subject to RPGT except Real Property Companies (RPCs) whose major business is primarily in real property. An RPC company means that it has real property or RPC shares that are more than or equal to 75% of its company's total tangible assets. Nevertheless, if the company RPC share falls below 75%, where it sells its shares or real property to a threshold, and it ceases to be an RPC, then the shares disposed of will be liable for the RPGT provision.
Likewise, if a company reclassifies its real property from fixed asset to current asset, then it is also deemed as a disposal of a chargeable asset and is subject to RPGT.
Here’s a chart of the newly imposed RPGT rates effective 1st January 2022:
How is RPGT Calculated ?
The real property gain tax is calculated when the sale price exceeds the purchase price, hence, the tax is calculated;
Sale Price / Disposal Price = Consideration received – Expenses – Incidental Costs
The sale price or disposal price means when the related costs (permitted expenses and incidental costs) being deducted.
Example
Mr James bought an office at RM 1 Mil. in 2017 and sold it at RM 2 Mil. in 2022.
Steps and Details | Calculation |
| Sale Price / Disposal Price = Consideration received – Permitted Expenses – Incidental Costs In 2022, Consideration received : RM 2 Mil Permitted Expenses: RM 50K Incidental Cost : RM 30K Sale Price / Disposal price = RM 2,000,000 - RM 50,000 - RM 30,000 = RM 1,920,000 |
2. Identify the purchase price / acquisition price | RM 1 Mil. in 2017 |
3. Calculate the chargeable gain | Chargeable gain = Sale / Disposal price -Purchase / Acquisition price RM 1.92 Mil - RM 1 Mil = RM 920,000 |
4. Calculate the number of years and Identify the RPGT percentage | It is 5 years, from 2017 to 2022 RPGT percentage is 15% 15% of RM 920,000 is RM 138,000 |
5. Total income gained in 5 years | Chargeable gain - RPGT Tax = RM 920,000 - RM 138,000 = RM 782,000 |
What are the expenses that are allowed to be deducted?
Permitted Expenses:
Expenses like property renovation, refurbishment and upgrading or preserving the chargeable asset's value after its acquisition. All these renovation works must have the proper council approvals, bills, and documentation.
Incidentals Costs:
Costs including professional fees from the real estate agents, property valuers, stamp duty, legal fees as well as advertising fees when you looking for buyer.
When to pay RPGT in Malaysia?
For locals and permanent residents who sell off property, their lawyers will retain 3% of the property’s selling price or disposal price when the buyer pays the first deposit to buy the property for the purpose of RPGT payment. For non-citizens and foreigners, this retention rate is 7%.
Your solicitor will make the payment with necessary forms to Inland Revenue Board (LHDN) within sixty (60) days from the date of the sale and purchase agreement (SPA) to meet the RPGT payable.
Consequences of late RPGT
Owner of the property (seller) needs to pay penalties, if failed to make any payment after 60 days. The penalty is 10% of the amount payable as RPGT.
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