In Malaysia’s proposed Budget 2024, a Capital Gains Tax (CGT) is set to impact companies, levying a 10% tax on net gains from unlisted shares disposal starting March 1, 2024. Companies can opt for a 2% CGT on the gross sale value for shares acquired before this date, with exemptions for IPO or group restructuring disposals.
Capital Gains Tax Malaysia 2024
Notably, capital losses can be carried forward, albeit with a 10-year restriction. The CGT may have retrospective effects, prompting suggestions for a re-basing of the cost base. Individuals are spared from the CGT, but utilizing investment holding companies for unlisted shares may pose tax challenges.
Malaysia does not currently have a general CGT regime. However, the Malaysian government announced in the 2023 Budget that it will introduce a CGT on the disposal of unlisted shares by local companies, effective from March 1, 2024.
The new CGT will be imposed at a rate of 10% on the net profit arising from the disposal of unlisted shares. Net profit is calculated by deducting the acquisition cost and other allowable expenses from the disposal price.
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Who is subject to CGT?
The new capital gains tax (CGT) in Malaysia is only applicable to local companies that dispose of unlisted shares.
- Local companies are companies that are incorporated in Malaysia and have their registered office in Malaysia.
- Unlisted shares are shares in companies that are not listed on a stock exchange.
What are the taxable gains?
The taxable gains are the gains made from the disposal of unlisted shares. The gains are calculated by deducting the acquisition cost and other allowable expenses from the disposal price. Allowable expenses include the following:
- Brokerage fees
- Legal fees
- Valuation fees
- Stamp duty
How is CGT calculated?
The CGT is calculated by multiplying the net profit by the CGT rate. To calculate capital gains tax (CGT) in Malaysia, follow these steps:
- Determine the net profit from the disposal of the asset. This is calculated by deducting the acquisition cost and other allowable expenses from the disposal price.
- Calculate the CGT payable by multiplying the net profit by the CGT rate. The CGT rate is currently set at 10% for the disposal of unlisted shares by local companies.
- Apply any exemptions or reliefs that may be available.
For example, if a company sells unlisted shares for RM100 million and the acquisition cost is RM50 million, the net profit is RM50 million. If the CGT rate is 10%, the CGT payable is RM5 millions.
Exemptions and reliefs
There are a number of exemptions and reliefs available under the new CGT regime. These include the following:
- Disposal of shares in a small and medium-sized enterprise (SME)
- Disposal of shares in a startup company
- Disposal of shares in a company that is being liquidated
- Annual exemption of RM1 million
- Reinvestment relief
- Rollover relief
Companies that are subject to CGT are required to file a CGT return with the Inland Revenue Board of Malaysia (IRB) within 30 days of the end of the month in which the shares are disposed of. The CGT return must include the following information:
- The details of the shares that were disposed of
- The acquisition cost of the shares
- The disposal price of the shares
- The net profit arising from the disposal of the shares
- The amount of CGT payable
Companies are also required to pay the CGT payable to the IRB within 30 days of the end of the month in which the shares are disposed of.
Impact of CGT on businesses
The impact of CGT on businesses will vary depending on a number of factors, such as the type of business, the industry in which the business operates, and the level of capital gains that the business generates.
- In general, businesses that are subject to CGT may experience an increase in their tax burden. However, the impact of CGT may be mitigated by the exemptions and reliefs that are available.
- Businesses should carefully consider the impact of CGT on their operations and finances. They may need to review their pricing strategies, investment plans, and exit strategies in light of the new tax regime.
Impact of CGT on investors
The impact of CGT on investors will also vary depending on a number of factors, such as the type of investments that they hold, the holding period of their investments, and the level of capital gains that they generate.
- In general, investors who hold unlisted shares for a long period of time may be more likely to be affected by CGT. However, the impact of CGT may be mitigated by the exemptions and reliefs that are available.
- Investors should carefully consider the impact of CGT on their investment portfolios. They may need to review their asset allocation and investment strategies in light of the new tax.
The new CGT regime is a significant tax reform in Malaysia. It is important for companies that are subject to CGT to be aware of their compliance obligations.
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