Let’s delve into the Capital Gains Tax (CGT) for unlisted shares in Malaysia:
- Introduction:
- CGT is a tax imposed on gains from the disposal of capital assets by companies, limited liability partnerships (LLPs), co-operatives, and trust bodies.
- It was announced in the Budget 2024 that CGT would be introduced from March 1, 2024, specifically targeting the sale of shares in unlisted Malaysian companies.
- Scope of CGT:
- CGT applies to the following categories:
- Unlisted Shares: Gains from the disposal of shares in unlisted companies incorporated in Malaysia.
- Section 15C Shares: Shares of a controlled company incorporated outside Malaysia that derive value from real property in Malaysia under section 15C of the Income Tax Act 1967 (ITA 1967).
- Foreign Capital Assets: Gains from the disposal of capital assets situated outside Malaysia and remitted into Malaysia.
- Tax Rates:
- For unlisted shares and section 15C shares, the CGT rate is either 10% or 2% (optional rate for assets acquired before January 1, 2024).
- Foreign capital assets are subject to the prevailing income tax rate (e.g., 24% for companies).
- Exemptions:
- Certain disposals are exempt from CGT:
- Individuals are exempt from CGT on gains from the disposal of foreign capital assets meeting economic substance requirements.
- Exemptions apply to gains from IPO-exercised shares approved by Bursa Malaysia, restructuring of shares within the same group, and venture capital companies [Pending for Gazette Order]
- Unit trusts are also exempt from CGT.
- Guidelines:
- The Inland Revenue Board (IRB) has issued guidelines for CGT on unlisted shares, providing essential information and addressing implementation questions.
- These guidelines cover treatment for unlisted shares and section 15C shares but do not address foreign capital assets.
Remember that this new CGT aims to regulate capital gains from unlisted shares, contributing to Malaysia’s tax framework.
Q&As
1. Q: What are considered incidental costs related to the acquisition of capital assets?
A: Incidental costs related to the acquisition of capital assets include:
- Fees, commissions, or remuneration paid for the services of any valuer, accountant, agent, or legal advisor such as –
- Legal fees paid for the preparation of sale agreements including payments made in relation to the acquisition of capital assets only;
- Fees to valuers to ascertain the market value of capital assets at the time of acquisition; and
- Commissions paid to agents or any other person to obtain sellers;
- Transfer costs such as stamp duty paid for the acquisition of capital assets; and
- Advertising costs to obtain sellers.
2. Q: What is the basis period or year of assessment for Capital Gains Tax (CKM)?
A: The basis period or year of assessment for CKM is the tax year in which the disposal transaction occurs.
3. Q: Who is subject to Capital Gains Tax (CKM) on the disposal of shares?
A: Companies, limited liability partnerships, trusts, and cooperatives, including Labuan entities subject to tax under ACP (the disposer), are liable for CKM.
4. Q: How is the taxable income from the disposal of relevant company shares determined?
A: The taxable income is determined by the difference between the disposal and acquisition amounts, adjusted for any related disposal and acquisition expenses.
5. Q: What constitutes a disposal of capital assets?
A: A disposal of capital assets includes relinquishing rights, settling, or transferring ownership through agreements or legal force, including share capital reductions and company repurchases of its shares.
6. Q: What defines a ‘related party’ transaction for capital asset disposals?
A: A transaction is considered between related parties if the same person controls both companies involved, or if a person controls one company and a related person (or they together) controls the other company.
7. Q: How is the market value of exchanged assets determined in a disposal?
A: The market value of exchanged assets is considered the disposal consideration. If the market value of the received/exchanged asset cannot be determined, the market value of the disposed capital asset is used.
8. Q: What are the tax implications for disposing of shares in a controlled company incorporated outside Malaysia?
A: Disposals of shares in controlled companies incorporated outside Malaysia that own Malaysian real estate or shares in other controlled companies are deemed to arise in Malaysia and are subject to CKM under section 15C.
9. Q: What are the criteria for a foreign incorporated company to be considered a “controlled company” for the purposes of Capital Gains Tax (CKM)?
A: A “controlled company” is defined as a company with no more than 50 shareholders and controlled by no more than 5 persons, as provided under Section 139 ACP.
10. Q: What is the period within which amendments to the tax return can be made?
A: Amendments to the tax return can be made within 6 months from the due date of the tax return submission.
11. Q: What is the deadline for Capital Gains Tax payment upon disposal of capital assets?
A: The tax payment must be made within 60 days from the date of disposal.
12. Q: Are taxpayers who dispose of capital assets subject to the provisions of Section 107C ITA 1967 regarding the submission of estimated tax payable and installment payments?
A: No, taxpayers disposing of capital assets are not subject to the provisions of Section 107C ITA 1967 regarding the submission of estimated tax payable and installment payments.
13. Q: How long can current year adjusted losses from the disposal of capital assets be carried forward?
A: Current year adjusted losses can be carried forward to be deducted against the same source of adjusted income for a consecutive ten-year assessment period.
14. Q: What happens to the remaining adjusted loss balance after the ten-year period?
A: Any remaining adjusted loss balance after the ten-year period must be disregarded.
15. Q: How is the acquisition value of capital assets calculated for the purpose of Capital Gains Tax?
A: The acquisition value is calculated by adding the amount or value of consideration in money or money’s worth for the acquisition of the capital asset to any incidental costs of acquisition, and then subtracting any compensation received for damage, destruction, or depreciation of the asset.
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