Did you know that selling shares for a profit may make you liable for Capital Gains Tax (CGT) in Malaysia? It's a common belief among many that they will not be subject to tax if their investment involves capital assets other than real property and shares in real property companies. However, with the Budget 2024 announcement, the reality has shifted. In this article, we aim to provide you with
a fundamental understanding of the concept of CGT.
As we all know, only gains from the disposal of real property and shares in real property companies are subject to tax under the Real Property Gains Tax Act 1976, and there is no other tax imposed on gains from the disposal of shares. However, effective from 1 March 2024, chargeable persons are required to pay CGT on profits derived from the disposal of their unlisted
shares.
What is CGT?
In general, CGT is a tax levied on the capital gains accrued from the sale of investments, including stocks, bonds, cryptocurrencies, precious metals, and real estate. This tax is imposed at the time of selling the investment.
While CGT generally covers a wide range
of assets, the proposed CGT in Malaysia as announced in Budget 2024, will only be imposed on the gains from the sale of specific chargeable assets, which includes shares of a company incorporated in Malaysia not listed on the stock exchange and shares of a controlled company incorporated outside Malaysia if the company owns real property situated in Malaysia.
CGT on Domestic Source & Foreign
Source
When it comes to capital gains, they are typically categorized into two segments: Domestic Gains and Foreign Gains.
Domestic gains include gains from the disposal of capital assets situated in Malaysia. This includes gains from the disposal of –
- Unlisted shares of companies incorporated in Malaysia;
or
- Shares in foreign companies that own real property in Malaysia or shares of another controlled company or both, where the defined value of the real property or shares of the relevant company is not less than 75% of the value of its total tangible asset.
Conversely, foreign gains typically involve gains from the disposal of capital assets situated outside Malaysia, which are then remitted into
Malaysia. It includes all types of capital assets, including shares on foreign stock exchanges, bonds, real property, etc.
What is the tax rate for Domestic Gains and Foreign Gains?
It's important to note that the tax treatment for each category will differ. In the case of the disposal of capital assets situated in Malaysia that are being acquired before 1
March 2024, taxpayers may choose to pay CGT at either 10% on the chargeable income or 2% of gross disposal price. Conversely, for assets acquired from 1 March 2024 onwards, a fixed rate of 10% on the chargeable income from the disposal of shares applies.
However, starting from 1 January 2024, taxpayers holding investments in foreign countries are now subjected to the prevailing income tax rate on chargeable income received in Malaysia
from outside the country.
Who will be affected by CGT?
As per the CGT regulations, companies, limited liability partnerships, trust bodies, and cooperative societies are subject to CGT on the chargeable income derived from the disposal. On the other hand, disposal by individuals is exempt from CGT but will be subject to Real Property Gains Tax (RPGT) on
profits derived from the disposal of real property or shares in a Real Property Company.
Furthermore, it is noteworthy that the government has proposed CGT exemption for the disposal of shares in connection with internal restructuring, initial public offering (IPO), and venture capital companies. It was also recently announced that unit trusts will be exempt from tax on CGT.
