2 April, 2018
Introduction
The Finance (No 2) Act 2017 (“FA”) received royal assent on 27 December 2017 and was introduced to amend the Income Tax Act 1967, the Real Property Gains Tax Act 1976 (“RPGTA”), the Goods and Services Tax Act 2014 and the Finance Act 2013.
This article will discuss the amendments to the RPGTA as provided in sections 16, 17 and 18 of the FA. The amendments to the RPGTA came into operation on 1 January 2018.
Retention sum on disposal of chargeable assets
Section 21B of the RPGTA has been amended[1] to read as follows (amendments in italics below):
“21B. Duty of acquirer to retain and pay part of the consideration
(1) Subject to subsection (1A), where on a disposal to which section 13 applies, the consideration consists wholly or partly of money, the acquirer shall retain the whole of that money or a sum not exceeding three per cent of the total value of the consideration whichever is the less, and (whether or not that amount is so retained) he shall within sixty days after the date of such disposal pay that amount to the Director General:
Provided that the Director General may under special circumstances allow extension of time for that amount to be paid over.
(1A) For the purpose of subsection (1), where the disposer in a disposal referred to in that subsection is not a citizen and not a permanent resident, the acquirer shall retain the whole of that money or a sum not exceeding seven per cent of the total value of the consideration whichever is the less, and (whether or not that amount is so retained) he shall within sixty days after the date of such disposal pay that amount to the Director General.
(2)–(5).”
Prior to the amendments to section 21B of the RPGTA, where the consideration for the acquisition of a chargeable asset consists wholly or partly of money, the acquirer was required to retain the whole consideration sum or a sum of 3% of the total value of the consideration, whichever is lower, to be paid to the Director General of the Inland Revenue Board (“DGIR”)
Following the amendments, if the disposer is neither a citizen nor a permanent resident, the acquirer was required to retain and pay to the DGIR the whole of the consideration sum or a sum of 7% of the total value of the consideration, whichever is the lower.
The retention sum is to be paid to the DGIR within 60 days after the date of disposal and will be applied towards the real property gains tax imposed on the disposer.
Transactions in which disposal price is deemed equal to acquisition price
Paragraph 3 of Schedule 2 to the RPGTA has been amended[2] to read as follows:
“3. (1) In the following cases the disposal price shall be deemed to be equal to the acquisition price, that is to say:
- the devolution of the assets of a deceased person on his executor or legatee under a will or intestacy or on the trustees of a trust created under his will;
- the transfer of assets between spouses or the transfer of assets owned by an individual, by his wife or by an individual jointly with his wife or with a connected person to a company (whether or not resident in Malaysia) controlled by the individual, by his wife or by the individual jointly with his wife or with a connected person for a consideration consisting of shares in the company, or for a consideration consisting substantially of shares in the company and the balance of a money payment;
(c)–(g).
(2) Any transfer of assets between spouses or to a company referred to in subsubparagraph (1)(b) shall involve an asset owned by a citizen.”
Following the amendments to Paragraph 3 of Schedule 2 to the RPGTA, the transactions in which the disposal price is deemed equal to the acquisition price (that is, the “no gain and no loss” position) are as follows:
- in the case of a transfer of a chargeable asset between spouses, the asset to be disposed of is owned by the husband or the wife who is a citizen; or
- in the case of a transfer of a chargeable asset to a company controlled by an individual, his wife or by an individual jointly with his wife or with a connected person, the asset to be disposed is owned by:
- an individual or an individual’s wife where the disposer is a citizen; or
- an individual jointly with his wife, both of whom are citizens; or
- an individual jointly with a connected person, both of whom are citizens.
With the amendments, if the disposer is not a citizen, the actual disposal price will be used in the computation of the chargeable gain or allowable loss and real property gains tax may be payable on the disposal.
Conditional contracts
Paragraph 16 of Schedule 2 to the RPGTA has been amended[3] to read as follows:
“16. Where a contract for the disposal of an asset is conditional and the condition is satisfied (by the exercise of a right under an option or otherwise), the acquisition and disposal of the asset shall be regarded as taking place at the time the contract was made, unless
- (a) the acquisition or disposal requires the approval by the Government or a State Government or an authority or committee appointed by the Government or a State Government, the date of disposal shall be the date of such approval; or
- (b) the approval referred to in subparagraph (a) is conditional, the date of disposal shall be the date when the last of all such conditions is satisfied.”
Following the amendments to Paragraph 16 of Schedule 2 to the RPGTA, it is now clear that the date of disposal shall be the date the contract was made except for an acquisition or disposal which requires the approval by the Government or a State Government (which does not include an authority or a committee approved by the Government or State Government), then the date of disposal shall be the date of the approval by the Government or a State Government.
Real property gains tax rates
Part III of Schedule 5 to the RPGTA has been amended[4] to read as follows:
“In the case of an individual a disposer who is not a citizen and not a permanent resident, or an executor of the estate of a deceased person who is not a citizen and not a permanent resident, the following rates of tax shall apply”.
| Category of disposal | Rate of tax |
|---|---|
| Disposal within five years after the date of acquisition of the chargeable asset | 30% |
| Disposal in the sixth year after the date of acquisition of the chargeable asset or thereafter | 5% |
Prior to the amendments to Part III of Schedule 5 to the RPGTA, the tax rates imposed on an executor of the estate of a deceased person who is not a citizen and not a permanent resident are the same as the tax rates imposed on a citizen under Part I of Schedule 5 to the RPGTA, that is, as follows:
| Category of disposal | Rate of tax |
|---|---|
| Disposal within three years after the date of acquisition of the chargeable assets | 30% |
| Disposal in the fourth year after the date of acquisition of the chargeable asset | 20% |
| Disposal in the fifth year after the date of acquisition of the chargeable asset | 15% |
| Disposal in the sixth year after the date of acquisition of the chargeable asset or thereafter | Nil |
Following the amendments to Part III of Schedule 5 to the RPGTA, the same tax rates imposed on an individual who is not a citizen and not a permanent resident have been extended to an executor of the estate of a deceased person who is not a citizen and not a permanent resident.
Conclusion
The amendments to the RPGTA have definitely introduced more stringent requirements for the disposal or transfer of properties involving non-citizens.
[1] Section 16 of the FA.
[2] Section 17(a) of the FA.
[3] Section 17(b) of the FA.
[4] Section 18 of the FA.
For further information, please contact:
Tan Yin Lu, Shearn Delamore & Co
yinlu.tan@shearndelamore.com
