Malaysia: Capital Gains Tax (CGT)

Prior to 1 January 2024, Malaysia imposes Real Property Gains Tax governed under Real Property Gains Tax Act 1976 on gains from the disposal of real property situated in Malaysia or shares in a Real Property Company.

Effective from 1 January 2024, company, limited liability partnership, trust body or co-operative society are subject to CGT under the new CGT regime. Individuals would continue to be subject to Real Property Gains Tax under the Real Property Gains Tax Act 1976 for disposal of real property or shares in real property company. 

CGT is imposed at 10% of chargeable income or 2% of gross disposal price for capital asset acquired before 1 January 2024; CGT is imposed at 10% of chargeable income for capital asset acquired on or after 1 January 2024. CGT is applicable to the disposal of the following capital asset consisting of:

1. Share of a company incorporated in Malaysia not listed on the stock exchange

2. Share of a controlled company incorporated outside Malaysia which owns real property situated in Malaysia or shares of another controlled company or both

The Income Tax (Exemption) (No. 7) Order 2023 provided exemption for disposal of shares made on or after 1 January 2024 to 29 February 2024. The exemption does not apply to gains or profits considered business income under Section 4(a) of the Income Tax Act 1967.

The imposition of CGT includes gain from the disposal of all types of capital assets situated outside Malaysia received in Malaysia. Effective from 1 January 2024, gains from the disposal of foreign capital assets is an income under paragraph 4(aa) of the Income Tax Act 1967, subject to prevailing tax rate.

“Capital asset” means movable or immovable property including any rights or interest thereof. Examples of foreign capital assets situated outside Malaysia are as follows:

• Immovable property that are physically situated outside Malaysia such as buildings and land
• Movable property that are physically situated outside Malaysia such as machinery, vehicle, fixtures, fitting, painting and plant
• Intellectual property rights situated outside Malaysia owned by the owner or licensee of the right who is a resident in Malaysia such as copyright, patent, research and development, computer software and trademark
• Shares issued by a company incorporated outside Malaysia that are not subject to any provisions under the Income Tax Act 1967

“Received in Malaysia” means transferred or brought into Malaysia whether in the form of cash or through electronic funds transfer; or both.

Expenses wholly and exclusively incurred for the acquisition and disposal of capital assets such as legal fees, appraiser fees, advertising, and expenses to increase or maintain capital value, can be allowed in determining the gains from the disposal of foreign capital assets chargeable to tax.

Bilateral or unilateral tax credit can be claimed when gains from the disposal of foreign capital assets received in Malaysia are chargeable to tax outside Malaysia.  

Gains from the disposal of foreign capital assets received in Malaysia are eligible for tax exemption from 1 January 2024 to 31 December 2026 if comply with the economic substance requirement as follows:

• Employ adequate number of employees with necessary qualifications to carry out the specified economic activities in Malaysia; and
• Incur adequate amount of operating expenditure for carrying out the specified economic activities in Malaysia.

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Reference/ Citation

Official Portal of Inland Revenue Board of Malaysia www.hasil.gov.my