HOW DOES REAL PROPERTY GAINS TAX AFFECT YOUR PROPERTY INVESTMENT

REAL PROPERTY GAIN TAX (RPGT)

In Malaysia, any capital gains on selling of real estate whether land, buildings ( industrial, commercial or residential) by an individual or company, a tax will be imposed. This type of tax is the Real Property Gain Tax (RPGT) imposed by the Inland Revenue of Malaysia (LHDN).

Real Property Gain Tax was introduced as a means for the government to curb property speculation in an effort to avoid/prevent property bubbles from forming. Ultimately, the RPGT is a source of revenue for the government and assist to develop the country. Therefore its fluctuations is dependent on the economical needs of the country.

As a result, the tax can be increased or decreased when necessary. As a example, the government reduced the RPGT during April 2007 – December 2009 to encourage investment.

The property tax is levied upon anyone selling their properties; however for individuals selling or disposing their property after the 5th year, no RPGT will be levied.

Companies however, will pay a flat rate of 5% starting on the 6th year and thereafter.

RPGT is supplemented by allowable loss. This means a loss is made after the disposal of a property. Tax relief shall be provided if the disposal price is less than the acquisition price or if the disposal price is equal to the acquisition price.

REAL PROPERTY GAINS TAX FOR 2014

PROPERTY AGE PERSONAL (MALAYSIA CITIZEN & PR) COMPANY NON-CITIZEN
Disposed within 3 years 30% 30% 30%
Disposed in 4th year 20% 20% 30%
Disposed in 5th year 15% 15% 30%
Disposed after 5 years 0% 5% 5%

The RPGT rates increase is applicable to disposal of property taking place on or after 1 January 2014.

Chargeable Gain = Disposal Price – Purchased Price
Net Chargeable Gain

Tax payable = RPGT rate (based on disposal year) X Net Chargeable Gain

RPGT Exemptions

There are exemptions allowed for RPGT. Among the exemptions are:

    • RPGT exemption on net gains from the disposal of one unit residential property once in a lifetime by an individual who is a citizen or a permanent resident of Malaysia;
    • RPGT exemption on gains from disposal of property between parents and children, husband and wife, grandparents and grandchildren;
    • RPGT is charged only on net gains after deducting all related costs such as purchase price, renovation costs and incidental cost e.g legal fees;
    • Exemption up to RM10,000 or 10% of the net gains, whichever is higher, is given to an individual.

How does the new RPGT affect you?

The new RPGT is more steep than the previous i.e. year 2007 – 2009. This new imposition will discourage and reduce speculation on properties for the time being and will promote long-term investment. This is the government’s aim of cooling down escalating property prices. On the other side, sellers of property will increase their asking price like adding the cost of paying for any RPGT thus increasing the price of property instead.

In a way, individuals and investment companies will plan their investments and maximise their returns. Only time will prove whether this current increase in imposing of RPGT will be effective.

Got a question? Leave a comment or drop me a note athello@realestatemalaysia.info

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