Capital Gains Tax in Malaysia
Effective from 1 January 2024, Malaysia implemented Capital Gains Tax ("CGT") on gains or profits from the disposal of capital assets by certain chargeable persons. This marks a significant development in the Malaysian tax framework, with implications for corporate taxpayers and investment structures. The CGT provisions are legislated under Section 4(aa) of the Income Tax Act, 1967 ("ITA") and apply to companies, limited liability partnerships ("LLP"), trust bodies, and co-operative societies (collectively referred as “chargeable persons?.
- Types of Capital Assets Chargeable to Income Tax
Currently, CGT is imposed on gains or profits from disposal of capital assets which consists of:
|
Unlisted Shares
|
Section 15C Shares
|
Foreign Capital Assets
|
|
Shares of an unlisted company incorporated in Malaysia.
|
Share of a controlled company (A.K.A. relevant company) incorporated outside Malaysia, where the relevant company owns real property situated in Malaysia or shares of another controlled company, or both. The defined value of the real property situated in Malaysia or share is not less than 75% of the value of the total tangible asset.
|
Movable or immovable property including any rights or interests thereof, received in Malaysia from outside Malaysia.
|
For illustrations purposes, the two common Section 15C shares scenarios are illustrated below.
（1）
|
Scenario A - Foreign Controlled Company owns real property situated in Malaysia
|
（2）
|
Scenario B - Foreign Controlled Company owns real property situated in Malaysia
|
- Tax Rates of CGT
The tax treatment and applicable rate depends on when the asset was acquired and its derivation provision. The following table summarises the CGT rates:
|
Type of Capital Assets
|
Conditions
|
CGT Rate
|
|
Unlisted shares in Malaysian companies or Section 15C shares
|
Acquired before 1 January 2024
|
(i) 10% on net gains; or
(ii) 2% on gross sale price
|
|
Acquired on or after 1 January 2024
|
10% on net gains
|
|
Foreign capital assets (remitted into Malaysia)
|
N/A
|
Prevailing tax rate of the chargeable persons
|
- Determination of Disposal Date and Acquisition Date
Accurately identifying the disposal date of a capital asset is essential for tax compliance, as it determines the year of assessment ("YA") in which the gain must be reported and the sixty (60) days filing deadline for the CGT return. Malaysia’s CGT framework, governed under Section 65F of the ITA, outlines specific rules for different disposal scenarios to avoid disputes and ensure consistent treatment.
|
Scenario
|
Acquisition date
|
|
With written agreement
|
Date of the agreement signed by parties.
|
|
Without written agreement
|
The earlier of:
(i) The date ownership is transferred; or
(ii) The date full considered is received
|
|
Subject to government or state approval (conditional contract)
|
Date when approval is granted or date when last of all conditions are fulfilled.
|
Once the disposal date is established, it is also used as the acquisition date for the acquirer.
- Summary Table of CGT Exemptions
Under Malaysia’s CGT regime, the government has issued several exemption orders through gazette notifications. These exemptions may apply when disposing of capital assets, but they are subject to specific conditions and procedures.
|
No.
|
Exemption Type
|
Legal Reference
|
Key Condition
|
Exemption period
|
|
1.
|
Pre-CGT Transitional Exemptions
|
P.U.(A)410/2023
&
P.U.(A)57/2024
|
Disposal of Malaysian’s unlisted shares and Section 15C shares during transition period.
|
1 January 2024 to
29 February 2024
|
|
2.
|
Internal Group Restructuring Exemption
|
P.U.(A) 289/2024
|
At least 75% in shares & balance in money payment;
For restructuring purposes to increase operation efficiency;
Apply within 3 years from disposal.
|
1 March 2024 to
31 December 2028
|
|
3.
|
Initial Public Offering Exemption
|
P.U.(A) 290/2024
|
Restructuring and applying for IPO;
Apply and approve by 2028.
|
1 March 2024 to
31 December 2028
|
|
4.
|
Foreign-Sourced Capital Gains Exemption
|
P.U.(A)75/2024
|
Disposal of foreign capital assets and received in Malaysia;
Fulfill substance requirement (adequate employee and operating expenditure).
|
1 January 2024 to
31 December 2026
|
|
5.
|
Unit Trust Exemption
|
P.U.(A)249/2024
|
Resident unit trusts (not REITs);
Disposal of unlisted shares or Section 15C shares.
|
1 January 2024 to
31 December 2028
|
- Exemption of CGT
We hereby provide a brief summary of the various CGT exemption orders as follows:
(1)
|
Pre-CGT Transitional Exemptions (January to February 2024)
Several exemptions applied during the transition period before CGT came into full effect:
- Income Tax (Exemption)(No.7) Order 2023 [P.U.(A)410/2023]
Exemption on gains from disposal of unlisted Malaysian shares
- Income Tax (Exemption)(No.2) Order 2024 [P.U.(A)57/2024]
Exemption on gains from disposal of shares under Section 15C of the ITA
Exemptions above is applied for disposal of Malaysian’s unlisted shares or Section 15C shares made between 1 January 2024 to 29 February 2024.
Exemptions do not apply if the gains are taxed under Section 4(a) of the ITA as business income.
|
(2)
|
Internal Group Restructuring Exemption
Income Tax (Restructuring of Companies Scheme)(Exemption) Order 2024 [P.U.(A) 289/2024]
Disposals of Malaysian’s unlisted shares to a Malaysia-resident acquirer company under a group restructuring scheme are CGT exempt, provided that:
- The disposal is made between 1 March 2024 to 31 December 2028.
- The restructuring aims to enhance operational efficiency within the group.
- Consideration must consist substantial in shares in the acquirer company, of at least 75% in shares and the balance in monetary payment, and the shares shall be issued to the chargeable person.
- A written application must be submitted to Inland Revenue Board of Malaysia (“IRBM? three (3) years from the disposal date.
- Any conditions issued by the Ministry of Finance (“MOF? via IRBM guidelines under Section 134A must be complied with.
The exemption does not apply if:
- Gains are taxed under Section 4(a) of the ITA as business income.
- The same disposal qualifies under a different CGT exemption [e.g. Initial Public Offering (“IPO?].
- The person has obtained a tax exemption under Sections 127(3)(b) or 127(3A) for the same disposal.
Subsequent disposal by the acquirer:
If the acquirer company subsequently disposes of the shares acquired under this exemption, the acquisition amount or value of consideration for CGT purpose shall be deemed to be:
- The original amount or value of consideration paid for the shares by the original disposer, as determined under paragraph 65E(2)(b) of the ITA; and
- The allowable expenses incurred by the original disposer under subparagraphs 65E(2)(a)(i) and (ii).
This ensures continuity and fairness in CGT computation when shares are further transferred within or outside the group.
|
(3)
|
Initial Public Offering ("IPO") Exemption
Income Tax (Initial Public Offering) (Exemption) Order 2024 [P.U.(A) 290/2024]
A chargeable person is exempted from CGT on gains or profits derived from the disposal of Malaysian’s unlisted shares in connection with an IPO, provided that:
- The disposal is made between 1 March 2024 to 31 December 2028.
- The shares are disposed of as part of a company’s restructuring for the purpose of an IPO.
- The IPO application (Main Market, ACE Market or LEAP Market) is submitted within one (1) year from the disposal date.
- Approval for the IPO shall obtained on or before 31 December 2028.
- The chargeable person submits a written application to IRBM within one (1) year from the approval date.
The exemption does not apply if:
- Gains are taxed under Section 4(a) of the ITA as business income.
- The same disposal qualifies under a different CGT exemption (e.g. restructuring).
- The person has obtained a tax exemption under Sections 127(3)(b) or 127(3A) for the same disposal.
|
(4)
|
Foreign-Sourced Capital Gains Exemption
Income Tax (Exemption)(No. 3) Order 2024 [P.U.(A)75/2024]
Gains from the disposal of overseas capital assets [excluding intellectual property rights (“IPR?] received in Malaysia are exempt, provided that:
- The income is received in Malaysia between 1 January 2024 to 31 December 2026.
- The chargeable person must comply with any conditions issued by the MOF via IRBM guidelines under Section 134A, which shall include the following conditions:
* Employ an adequate number of employees in Malaysia.
* Incur adequate operating expenditure in Malaysia.
The exemption does not apply to:
- Gains from disposal of IPR where the chargeable persons is the owner or licensee of such IPR (Capital receipt not subject to Income tax).
- Businesses in banking, insurance, sea transport or air transport.
|
(5)
|
Unit Trust Exemption
Income Tax (Unit Trust)(Exemption) Order 2024 [P.U.(A)249/2024]
Resident unit trusts are eligible for exemption from CGT on disposal of Malaysian’s unlisted shares or Section 15C shares, provided that:
- The disposal is made between 1 January 2024 to 31 December 2028.
- Disposal of unlisted shares in Malaysian companies.
- Disposal of shares under Section 15C of the ITA.
This exemption applies only to unit trusts that are resident in Malaysia, and does not extend to the following entities:
- Real Estate Investment Trusts ("REITs"); and
- Property Trust Funds listed on Bursa Malaysia.
Exemptions do not apply if:
- The gains are taxed under Section 4(a) of the ITA as business income.
|
- Key notes during submission of CGT
(1)
|
Separate Computation for Each Capital Asset
Under the Malaysian CGT regime, gains or profits from the disposal of capital assets during the basis period of a YA must be computed on a transaction-by-transaction basis. Each disposal is treated as a separate source of income.
This means that chargeable persons must prepare a distinct CGT computation for each individual disposal, regardless of whether multiple disposals occur within the same YA.
|
(2)
|
Filing and Compliance Requirements for CGT
Malaysia’s CGT framework imposes clear compliance obligations on persons disposing of chargeable capital assets, especially unlisted shares in Malaysian companies and Section 15C shares. Understanding these obligations is essential to ensure timely and accurate reporting.
- Disposer’s Responsibilities
Only the disposer is required to file the CGT return and pay the associated tax. The acquirer has no withholding or reporting obligations (unlike disposal of Real Property Company shares).
Malaysia adopts a self-assessment system, where submission of a CGT return is deemed a notice of assessment.
|
Requirement
|
Description
|
|
Form
|
CGT Return (Form e-CKM) must be submitted electronically via MyTax Portal.
|
|
Who can file
|
Taxpayer may file directly or appoint a licensed tax agent to handle the submission.
|
|
Filing Deadline
|
Within 60 days from the date of disposal of each capital asset.
|
|
Tax Payment
|
Due within 60 days from the date of disposal (same as filing deadline).
|
|
Amended Return
|
One (1) amendment per disposal is allowed within 6 months from the original due date;
Additional tax will be charged on the chargeable income of the disposer as a result of the amendment made;
No amendment is allowed if IRBM has already raised an additional assessment on that disposal.
|
|
Estimate / Instalment
|
Not required. No submission of estimates or instalment payments for CGT.
|
- Foreign Capital Gains
Foreign-sourced capital gains are not subject to CGT. However, if proceeds are remitted into Malaysia, they may be taxable under foreign income rules unless exempted under P.U.(A)75/2024 or Paragraph 28, Schedule 6 of the ITA.
- Grace Period for IRBM Assessments
If the IRBM raises additional tax assessments, the tax is payable within 30 days from the date of the assessment notice. A grace period of seven (7) days beyond the due date is provided. |
- Filing Related Offences and Penalties
Non-compliance with CGT filing obligations or the submission of incorrect information can lead penalty imposed by the IRBM.
The table below summarises the key CGT-related offences and the corresponding penalties under the ITA:
|
Type of Offense
|
Penalty Upon Conviction
|
|
Failure to furnish CGT Returns
|
Fine of RM200 to RM20,000;
Imprisonment up to 6 months; or
Both of the above.
|
|
Failure to furnish CGT return for two (2) years or more
|
Fine of RM1,000 to RM20,000;
Imprisonment up to 6 months; or
Both of the above
And
Special penalty of three (3) times of the tax payable.
|
|
Submission of Incorrect Returns
|
Fine of RM1,000 to RM10,000;
Imprisonment up to 6 months; or
Both of the above
And
2 times of tax undercharged.
|
- Capital assets is a stock-in-trade sell in the ordinary course of business.
Capital assets generally refer to non-business assets such as shares held for investment. Gains from the disposal of such assets are typically regarded as non-business income. However, if the disposal occurs frequently or as part of the ordinary course of business, the gains may be taxed as business income under the Section 4(a) of the ITA.
Where the capital assets qualify as stock-in-trade or part of an adventure in the nature of trade, the profits will be assessed under ordinary business income provisions and not subject to CGT. This distinction is crucial for proper tax classification and compliance.
For further information, please visit the official website of the Inland Revenue Board of Malaysia at <A href="https://www. |
