Real Property Gains Tax (RPGT)
Rising Global Consultants
Real Property Gains Tax
Real Property Gains Tax (RPGT) is a form of capital gains tax in Malaysia, also known as Real Property Gains Tax. It is a tax imposed on profits made from the sale of property, and those who sell property for a profit must pay this tax to the Inland Revenue Board. Under the Real Property Gains Tax Act 1976, the tax is levied on taxable gains derived from the disposal of real estate. The taxable gain is the difference between the selling price and the purchase price of the property, and this difference is subject to taxation. RPGT applies to both residents and non-residents, and the tax is calculated on net capital gains, which is the selling price minus the purchase price and any incidental expenses incurred during the purchase (such as stamp duty, legal fees, advertising costs, etc.). Additionally, individuals (not companies) may be eligible for certain exemptions
Who should pay for RPGT?
- Individuals (citizens, permanent residents, non-citizens, and foreigners)
Regardless of citizenship status, individual property owners are required to pay RPGT based on their taxable gains. The taxable gain is the profit when the disposal price exceeds the purchase price of the property. For example, if the selling price is RM 500,000 and the purchase price is RM 400,000, the property owner would pay RPGT on the RM 100,000 profit
- Company
Excluding companies whose core business is real estate [Real Property Companies (RPC)]; the sale of shares by such companies is not subject to RPGT. However, it is only applicable when the immovable assets or shares of the RPC represent at least 75% of the company’s total tangible assets. If the RPC share percentage falls below 75%, the company will lose its RPC status, thereby removing its RPGT obligations. Companies must make provisions for RPGT accordingly
RPGT Frequently Asked Questions (FAQ)
1) You are allowed a one-time exemption from Real Property Gains Tax (RPGT) in your lifetime when selling a property (use this lifetime opportunity wisely!).
2) Profits from the transfer of real estate between family members (e.g., husband and wife, parents and children, and grandparents and grandchildren) can be exempt from Real Property Gains Tax (RPGT)
In these cases, the seller is considered to have neither gained any profit nor incurred any loss from the sale, and the buyer is deemed to have purchased the property at the same price as the seller’s original purchase price, including other allowed costs. Except for the family member transfers mentioned above, other forms of property transfers, such as those between siblings, are not eligible for exemption
3) A 10% profit or RM10,000 per transaction (whichever is higher) is exempt from tax
In the 2019 Budget, the tax rate for Real Property Gains Tax (RPGT) was increased. The government’s aim in raising the tax rate is to enhance its ability to manage long-term finances by increasing revenue. For those looking to minimize RPGT on real estate gains, the only option is to sell the property after holding it for 5 years
For citizens and permanent residents, tax exemptions do not apply to asset transfers between siblings. However, if the asset is transferred as a gift from a donor in Malaysia and the transfer is between a husband and wife, parents and children, or grandparents and grandchildren, the exemption can be approved
As of January 2019, the RPGT rates are as follows：
Allowable losses refer to the losses incurred from the disposal of receivables. If such a loss is realized, it should be accounted for in RPGT
List of Allowable Expenses for RPGT:
- Legal fees, Accounting fees, Surveyor fees
- Real estate fees (sales commissions)
- Administrative fees
- Maintenance or renovation costs to maintain or upgrade the property, such as interior design and furniture from IKEA for home renovation
- Costs to defend or uphold ownership or rights to the property
- Advertising costs for the disposal of the property
Steps for Calculating RPGT for Individuals:
- Determine Total Chargeable Gain
Gross Chargeable Gain: Acquisition Price – Disposal Price
- Then, determine the Net Chargeable Gain
Net chargeable gain: Total chargeable gain – allowed expenses – RPGT exemption – allowed losses
- Calculate the chargeable amount
Chargeable amount = RPGT tax rate (based on property ownership duration) × Net chargeable income
Here are the steps to calculate RPGT for companies:
- Calculate acquisition price
Acquisition Price: A / B × C, where
A = Number of shares held by the shareholder
B = Total number of shares issued by the company
C = Market value of the property on the date of acquisition
- Calculate the Total Gross Profit
Gross Profit: Selling Price – Acquisition Price
- Net Assessable Profit
Net Assessable Profit: Gross Profit – Allowed Expenses – RPGT Exemptions – Allowed Losses
- Tax Payable
Tax Payable = RPGT Rate (based on property ownership duration) × Net Assessable Profit
For Malaysian citizens and permanent residents, when the buyer pays the initial deposit, the lawyer will withhold 3% of the property sale price for RPGT payment. For foreigners and non-citizens, the withholding rate is 7%. The seller’s lawyer must pay the amount to the tax authority within sixty (60) days from the date of the sale and purchase agreement
After 60 days, any outstanding payments will incur a penalty of 10% of the RPGT amount, to be borne by the seller