Tag: Stamp Duty

The Malaysian Treasury, also known as the Ministry of Finance, is in charge of all policies that pertain to taxation.

On the other hand, the Inland Revenue Board (IRB) is in charge of the enforcement of the tax laws that concern the key areas:

1. Income tax
2. Development tax
3. Real property gains tax
4. Share transfer tax
5. Estate duty
6. Stamp duty
7. Petroleum income tax
8. Film hire duty
9. Promotion of investments
10. Business activity in Labuan

Note that the taxes stated in (ii),(iv),(v) and (viii) above have since been abolished.

The enforcement of laws about indirect taxation is under the purview of the Royal Malaysian Customs Department.

There is, of course, a tax on entertainment, a tax on gambling, and a tax on sweepstakes in addition to the types of taxes already mentioned. However, these are managed by other agencies and the relevant State Authority.

What is Stamp Duty

Stamp duty is a type of tax collected in Malaysia and applied to a wide range of written documents, as outlined in the First Schedule of the Stamp Duty Act 1949 (“the Act”).

Hence, Stamp Duty will be applied, in general, to all types of instruments, including legal, commercial, and financial ones.

The Stamp Act of 1949 imposes two different kinds of duties, which are referred to as “fixed duties” and “ad valorem” duties, respectively.

Ad valorem duties are assessed in connection to the value of the consideration disclosed in an instrument. In contrast, fixed duties are imposed without any relation to the consideration or amount declared in an instrument. For fixed duty, generally, the amount payable starts at a nominal value of RM10 per instrument.

The Stamp Act of 1949 includes a list of instruments in its First Schedule liable to duty at either the fixed rate or the ad valorem rate. The spectrum of instruments that are subject to stamp duty has a nature that is all-encompassing in its nature.

Administrative Aspects

If an instrument is executed within Malaysia, it must be stamped within thirty days of the execution of the instrument. If the document is not executed in Malaysia, it must be stamped within thirty days of its initial arrival in the country, even if it was executed outside of Malaysia.

Hence, instruments that are required to be stamped but are not done so within the allotted time will be subject to penalties (normally, 30 days from execution of documents).

Before January 1, 2001, the fine was either RM25 or four times the amount of stamp duty that was overdue, whichever was higher.

As of January 1, 2001, the penalty structure was changed to a graded level and varied from RM25 or 50% of the outstanding duty, whichever was greater, all the way up to RM100 or 200% of the outstanding duty, whichever was greater.

However, from January 1, 2003, there was a significant reduction in the following aspects of the punishment structure:

Examples of Instruments / Documents Subjected to Stamp Duty

Subject to certain provisions in the Stamp Act 1949 (the Act) and certain exemptions contained therein and in any written law currently in force, the instruments specified in the First Schedule of the Act are chargeable with the duties specified in that Schedule:-

• Transfer of shares;
• Hire purchase agreement and guarantee thereto;
• Real properties Transfer (Sale and Purchase of Land, Houses, Buildings, etc.)
• General stamping of contracts/agreements
• Tenancy, lease or rental agreements
• Security documents
• Letter of indemnity;
• Letter of guarantee;
• any other agreement approved by the Collector of Stamp Duty.

The following are the rates of stamp duty for some common instruments and documents:-

A. Properties

B. Stock, Shares or Marketable Securities: 0.3%

In situations in which the shares in question are not quoted on the Kuala Lumpur Stock Exchange (KLSE), the IRB has made available on its website the following set of technical guidelines, which have been written in Bahasa Malaysia, to provide guidance for the calculation of stamp duty on instruments of transfer of shares.

Both 2019 and 2020 guidelines are intended to provide guidance on calculating the stamp duty that must be paid on instruments of transfer of shares:-

• Garis Panduan Mengenai Duti Setem Ke Atas Suratcara Pindah Milik Saham Yang Tidak Tersenarai Di Bursa Malaysia Berhad (2019 Guidelines)
• Garis Panduan Mengenai Duti Setem Ke Atas Suratcara Pindah Milik Saham Dalam Syarikat Yang Tidak Tersenarai Di Bursa Malaysia Berhad (2020 Guidelines)

Both 2019 and 2020 Guidelines state that the audited accounts of the company must be submitted with the Form of Transfer of Securities.

Companies that meet the qualifying criteria for Audit Exemption following Practice Directive No. 3/2017 (Qualifying Criteria for Audit Exemption for Certain Categories of Private Companies) issued by the Companies Commission of Malaysia (CCM) are, however, exempted from this requirement.

This directive was issued by the CCM and outlines the qualifying criteria for audit exemption for certain categories of private companies.

The categories of companies that would qualify for the audit exemption are:

• Dormant companies;
• Zero-revenue companies; or
• Threshold-qualified companies

Why should the Document / Instrument be Stamped?

• Validity of the unstamped instruments
• Instruments not duly stamped are not admissible as evidence
• Effective Stamped Instruments

Definition of “Duly Stamped”

The words “duly stamped” are defined in section 2 of the Act as meaning:

“an instrument bearing the adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with the law for the time being in force in the Federation.”

The words “duly stamped” was also explained in Chop Tiang Kok Hang v Hock Cheong & Co [1934] MLJ 74 referred to by Ong F.J. in Navaradnam v Suppiah Chettiar. Huggard C.J. said:

"According to this definition, an instrument, in order to be duly stamped, must be stamped in accordance with the law for the time being in force in the Colony, and I interpret this to mean that the instrument must bear a stamp of the proper value, it must be stamped in the proper manner with the proper description of stamp, and it must have been stamped at or within the time prescribed by law." 

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