In Malaysia, there are several types of property taxes that property owners need to be aware of and each of these property taxes serves a specific purpose and is important for property owners to understand in order to fulfill their financial obligations to the government.

5 different property taxes in Malaysia

 

1. Property Stamp Duty (Memorandum of Transfer)

The most frustrating taxes are the ones that hit you long before you even step foot into your new property. A Memorandum of Transfer in Malaysian property transactions represents a key legal document that facilitates the transfer of property ownership from the seller to the buyer. 

The Stamp Duty, in particular, is a substantial expense and plays a crucial role in the real estate process in Malaysia, involving various taxes and fees that are essential for the successful transfer of property rights.

The first type, Property Stamp Duty or Memorandum of Transfer (MOT) Stamp Duty, is often mistaken for SPA Stamp Duty, which is actually a negligible RM10.00 fee for each SPA copy stamped.

Property Stamp Duty, on the other hand, is determined by the property's purchase price as specified in the Sales and Purchase Agreement (SPA), without factoring in any discounts or rebates offered by the developer. Essentially, it's the tax you pay for the transfer of ownership from the previous owner or developer to yourself.

So, why do we have such a love-hate relationship with this Malaysian property tax? Well, quite simply, it's because it comes with a hefty price tag!

The tax is tiered, so you pay an increasing fixed percentage on the first RM100,000, the following RM400,000 and then the remaining amount after that. The table below, explains it better.

Let's illustrate with an example to clarify things. Say your property price on the Sales and Purchase Agreement (SPA) is RM700,000. Here's how you'd calculate the Property Stamp Duty:

• 1% on the first RM100,000 – RM1,000
• 2% on the next RM500,000 – RM10,000
• 3% on the next RM100,000 – RM3,000
• That adds up to a substantial RM14,000. (That's quite a sting!)

Typically, Property Stamp Duty (or MOT Stamp Duty) is paid upfront alongside your property purchase. However, in the case of a strata title transfer from a new development, it might be deferred for up to a year or even longer.

 

2. Loan Agreement Stamp Duty

Let's shift our focus to the Loan Agreement Stamp Duty using the same example.

Calculating Loan Agreement Stamp Duty is much more straightforward, both in terms of computation and financial impact.

To find the Loan Agreement Stamp Duty, you simply multiply the loan amount by 0.5%.

For instance, for a RM700,000 property, after a 10% down payment, the loan amount would be RM630,000. Therefore, the Loan Agreement Stamp Duty would be RM630,000 x 0.5% – amounting to RM3,150.

Just like Property Stamp Duty, the Loan Agreement Stamp Duty is also paid upfront alongside your property purchase.

These two types of stamp duties are expenses you'll encounter when buying your property, so there's no need to worry about how to handle these payments. In most cases, developers don't have schemes in place to absorb these taxes.

 

3. Cukai Taksiran

Property Assessment Tax, known as Cukai Taksiran in Malaysia, might not be well-known among new property investors in the country.

So, what exactly is Cukai Taksiran?

Assessment Rates, also referred to as 'Cukai Taksiran' or 'Cukai Pintu,' represent property taxes that are typically collected by local authorities, usually the municipal councils. These rates are determined based on the estimated annual rental value of a property and serve as a means to generate revenue for supporting local services and infrastructure within a given area. This tax is intended to fund the development and upkeep of local infrastructure, including activities like area cleaning and upgrades.

The tax amount is determined by multiplying the annual rental value of the property by a fixed rate, which can range from 2% to 9%. The rate depends on the property's classification, such as residential, low-cost, serviced apartments, landed houses, commercial, or industrial. Different property types have different tax rates, with low-cost flats at the lowest rate of 2% and luxury serviced residences at the highest of 9%.

Cukai Taksiran is due twice a year, with payments made in two installments within separate periods: from 1st January to 28th February, and from 1st July to 31st August.

While the rates don't vary significantly across different city hall districts, the annual rental value of the property can differ. This is because certain areas are expected to command higher rents. The specific value is determined by the individual district city halls.

In reality, the impact of Cukai Taksiran isn't particularly substantial. Let's consider an actual example:

Property: Luxury Condo in Gohtong Jaya
Annual Rental Value: RM9,300
Tax Rate: 8.5%
Cukai Taksiran: RM790.50

 

4. Cukai Tanah

Cukai Tanah, commonly referred to as quit rent or land tax, is the levy imposed on any form of ownership on a piece of land, whether it be the land itself or any structures present. The calculation of Cukai Tanah varies depending on factors such as the type and location of the property, with it being a modest fee and differing based on these considerations within a state, contingent on the specific location of the property.

This tax is assessed at a fixed rate per square meter of the property. However, determining the precise rates for each state proves challenging as they are subject to significant variation based on property type, and are not readily available on land office websites.

Similar to Cukai Taksiran, there's no need for excessive concern about Cukai Tanah. In fact, it's something that should likely not cause much worry at all.

For example, in Kedah, the charge is RM0.35 per square meter for landed residential properties and ranges from RM0.50 to RM1.50 per square meter for strata residential properties. The latter category's Cukai Tanah rate starts at RM0.50 and increases based on the property's value.

So, if you were to own a brand new 1200 sqft (112 square meters) condominium, your annual payment would amount to approximately RM167.

 

5. Real Property Gains Tax

Real Property Gains Tax (RPGT) is a tax that can significantly impact your investment returns, and it is only applicable when you sell a property.

In essence, it operates as a form of capital gains tax, but with some distinctions.

RPGT is imposed on the net gains derived from the sale of your property. These net gains represent the total capital gains after accounting for all the expenses associated with the property sale, including legal fees, stamp duties, and other miscellaneous administrative charges.

For example, if your overall profit from the property sale, after subtracting all associated fees, amounts to RM100,000, you would be taxed solely on this RM100,000.

The tax rate for RPGT differs from a typical Capital Gains tax (which is not levied in Malaysia on any form of capital appreciation). RPGT employs a progressive scale to determine the amount you are required to pay.

The duration of property ownership plays a crucial role. Selling a property within the first three years of ownership incurs a 30% tax on your net gains. This rate decreases to 20% after the third year, 15% after the fourth year, and eventually drops to 0% after five years of ownership.

It is important to note that these rates apply to citizens and permanent residents. Non-citizens and companies are subject to a slightly different scale, with a minimum tax rate of 5% regardless of how long the property has been owned.

So, based on the above, let’s say you’re going to be taxed on this RM100,000 profit.

That would mean that selling before 3 years, you would pay a thunderous RM30,000 or RM20,000 before 4 years and RM15,000 before 5 years.

RPGT is paid through the lawyers who handle the sale of the property. The purchasers’ lawyers are required to retain 3% of the purchase price from the deposit and remit the same to the Inland Revenue Board within sixty (60) days from the date of the Sale and Purchase Agreement (SPA) to meet the RPGT payable if the seller is Malaysian.