Capital Gains Tax
Its Implementation and the Broader Impact Concurrently with Income Tax and RPGT
Introduction
On 29 December 2023, the Finance (No.2) Act 2023 was published, and with it, the tax laws governing Capital Gains Tax (CGT) were formally enacted.
Before the enactment of the CGT laws, Malaysia did not impose CGT except on gains arising from the disposal of real property in Malaysia and Real Property Company (“RPC”) shares which may be subjected to Real Property Gains Tax (RPGT) at a maximum RPGT rate of 30%.
What is Capital Gains Tax?
Generally, CGT is a tax levied on capital gains accruing from disposals of investments, i.e. shares, bonds, cryptocurrencies, precious metals, real properties, etc. The tax will be levied at the point of disposal of the investments.
Although CGT in general covers a wide group of assets, the CGT introduced in Malaysia will only be imposed on capital gains from the disposal of Malaysian unlisted shares and foreign capital assets where the gains are remitted into Malaysia.
As a comparison, some ASEAN countries that have already implemented CGT and their respective tax rates are as follows:
|
Country |
Headline corporate CGT rate (%) |
|
Thailand |
Subject to standard corporate income tax (CIT) rate of 20% |
|
Indonesia |
Subject to standard CIT rate of 22% |
|
Vietnam |
Subject to standard CIT rate of 20% |
|
Cambodia |
Subject to standard CIT rate of 20% |
|
Myanmar |
10% for non-oil and gas sector; |
Who is affected?
CGT is imposed on a select category of taxpayers, namely companies, trust bodies, limited liability partnerships (LLP) and co-operative societies.
It is an important point to note that individuals are not impacted by CGT.
Implementation Dates
In line with Malaysia’s commitment to align with international tax standards on taxation of foreign income, CGT had been introduced to be effective from 1 January 2024 but an exemption was subsequently gazetted for the disposal of local capital assets. The implementation dates are as follows:
|
Effective date |
Types of Capital Assets Affected |
|
1 Jan 2024 |
Foreign Capital Assets |
|
1 Mar 2024* |
|
*The effective date has been deferred to 1 March 2024 with the gazette of Income Tax (Exemption) (No. 7) Order 2023 and Income Tax (Exemption)(No. 2) Order 2024.
Types of Capital Assets subject to CGT
CGT will beimpose on both local and foreign capital assets. For local capital assets, CGT is only imposed on the disposal of Malaysian unlisted shares and foreign unlisted shares deemed acquired in Malaysia under Section 15C of the ITA. Section 15C of the ITA is covered in detail below.
Whereas for foreign capital assets, the disposal of all types of foreign capital assets are subject to CGT. This may include listed or unlisted shares, real properties, vehicles, paintings, any other types of moveable or immovable assets and intellectual properties owned overseas by a Malaysian resident.
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This article was first published in the Tax Guardian, July 2024.
