Malaysia Finance Act 2024

The Finance Act 2024 (“the Finance Act”) has been gazetted on 31 December 2024 following the Budget announcement.

Below please find the key changes to the Finance Act:

Updates on Capital Gains Tax (“CGT”)

New Definition of “Another Controlled Company”

Section 15C of the Income Tax Act 1967 provides that CGT is applicable on the disposal of shares of a foreign controlled company ("Relevant Company") that owns:

real property in Malaysia,
shares of another controlled company, or
both,

where the defined value of (1), (2) or (3) is not less than 75 % of the value of its total tangible assets.

Another Controlled Company is now defined as “a controlled company which owns real property situated in Malaysia (including any right or interest thereof) or shares in another controlled company, or owns both, where the defined value of the real property or shares, or both, is not less than 75 % of the value of its total tangible asset”.

With the new definition, there is a possibility that Malaysian CGT will be applicable even though the disposal of shares happens outside Malaysia. Exemptions can potentially be applied with an in force double tax treaty.

Determination of change of status from “Relevant Company” to “non-Relevant Company”:
Where at any date a Relevant Company disposes (1), (2) or (3) and with the disposal, the defined value of (1), (2) or (3) owned by the Relevant Company is reduced to less than 75 % of the value of its total tangible assets, the Relevant Company shall not be regarded as a Relevant Company from the date of disposal;
Determination of acquisition date of shares of a Relevant Company:
Where on the date of acquisition of the shares of a Relevant Company, the defined value of (1), (2) or (3) owned by the Relevant Company is less than 75 % of its total tangible assets and the Relevant Company subsequently acquires (1), (2) or (3) and with the acquisition, the defined value of (1), (2) or (3) owned by the Relevant Company is increased to 75 % or more of the value of its total tangible assets, the shares of the Relevant Company shall be deemed to be acquired on the subsequent acquisition date;
Acquisition date and price of Real Property Company (“RPC”) shares acquired prior to 1 January 2024:
Where a Relevant Company is an RPC prior to 1 January 2024, the acquisition date and price of the shares of the RPC as determined based on Paragragh 34A, Schedule 2 of the Real Property Gains Tax Act 1976 shall be deemed to be the acquisition date and price of the shares of the Relevant Company under Section 15C.

Global Minimum Tax (“GMT”)

The Finance Act introduced a further refinement to the GMT including a,n alignment of the GloBE Model Rules. Key features include:

Marketable Transferable Tax Credit (“MTTC”)

The primary requirements for the MTTC involve compliance with the legal transferability and marketability standard. Generally, these criteria are met if the credit can be transferred to an unrelated party within 15 months at a price of at least 80 % of its net present value.

Financial Reporting Standard for Domestic Top-up Tax (“DTT”)

For the purposes of DTT, the Financial Accounting Net Income or Loss of a Constituent Entity (“CE”) in Malaysia (excluding Permanent Establishments) must be determined based on financial statements prepared according to the permitted accounting standards in Malaysia, provided that:

All CEs in Malaysia have the same financial year as the Ultimate Parent Entity, and
The financial statements of all CEs in Malaysia are required to comply with Malaysian laws and must be audited by a certified company auditor.

A Permanent Establishment of a Main Entity that fulfills the above criteria and has separate financial statements prepared by the Main Entity will also use financial statements based on Malaysia's permitted accounting standards for DTT purposes.

Dividend Tax on Dividend Received by Individual Shareholders

The 2 % dividend tax will be applicable on annual dividend income exceeding RM100,000 which is distributed by the resident company and received by the individual shareholder.

The company is required to issue a certificate to individual shareholders specifying:

The gross amount of the dividend, and
The amount of the dividend paid or credited, or, in the case of dividends consisting of property instead of money, the market value of the property at the time of distribution.

Any expenses incurred in relation to dividends paid, credited, or distributed to an individual, up to a maximum of RM100,000, will not be tax deductible for the individual.

Implementation of Self-Assessment System for Real Property Gain Tax (“RPGT”)

Effective 1 January 2025, taxpayers are required to assess and submit their own RPGT Returns electronically. The returns furnished will be deemed as assessments and the RPGT is payable within 90 days from date of disposal. 10 % late payment penalty will be imposed for payments made after the due date.

Following this, the Inland Revenue Board (“IRB”) also issued the RPGT Audit Framework and the key points are as follows:

Audit Coverage Period: The audit will typically cover property disposals made within the three preceding years of assessment. However, the period may be extended to five years if audit findings justify it.
Exceptions for Fraud or Deliberate Default: In cases involving fraud or deliberate default, the audit period is exempt from the time limits mentioned above (as per Section 15(2) of the RPGT Act).
Penalties: While penalties for underpaid taxes can be as high as 100 % under Subsection 30(2) of the RPGT Act, the framework offers a reduced penalty of 45 % for cases discovered during the audit process.
Voluntary Disclosures: Taxpayers are encouraged to make voluntary disclosures regarding underreported taxes before the IRB begins audit actions.

Treatment of RPGT Losses

Previously, RPGT losses were allowed as a deduction against total chargeable gain from a year of assessment (“YA”) including previous disposals within that YA. Unabsorbed RPGT losses could be carried forward to be utilised against chargeable gains from subsequent disposals.

Effective 1 January 2025, RPGT losses are only allowed to be utilised against the chargeable gain from a subsequent disposal in the same YA in which the disposal is made. This change is consistent with the treatment of losses under the CGT regime.

Implementation of Self-Assessment System for Stamp Duty

The self assessment system requires duty payers or their appointed agents to input information into the STAMPS system, perform a self-assessment of the stamp duty value for relevant instruments or agreements, and ensure timely payment within the specified deadlines.

Effective 1 January 2025, any person exercising the right of access or the right to take possession of instruments or documents shall carry a warrant in a prescribed form issued by the Collector when performing stamp duty audit and investigation activities.