Both houses of Malaysia’s Parliament have passed changes to the capital gains tax (CGT) and e-invoicing rules. Two bills—the Income Tax (Amendment) Bill 2024 and the Labuan Business Activity Tax (Amendment) Bill 2024—are awaiting royal assent before being gazetted.
With respect to the CGT rates on the disposal of capital assets that are deemed to be derived from Malaysia under ITA section 15C, it is proposed that such a disposal would be eligible for the CGT rates on the disposal of capital assets situated in Malaysia.
David Lai
BDO in Malaysia
Capital gains tax
Effective 1 January 2024, Malaysia introduced a CGT through the Finance (No. 2) Act 2023, under which gains or profits from the disposal of capital assets are treated as income chargeable to income tax under the Income Tax Act 1967 (ITA) (for prior coverage, see the article in the February 2024 issue of Corporate Tax News). The following changes are proposed to the rules:- Definition of capital asset: Currently, a “capital asset” means movable or immovable property, including any rights or interests thereof. To restrict the scope of CGT, it is proposed that capital asset be redefined to mean:
- Movable or immovable property situated outside Malaysia, including any rights or interests thereof; or
- Movable property situated in Malaysia that is a share of an unlisted company incorporated in Malaysia (including any rights or interests thereof) owned by a company, limited liability partnership (LLP), trust body or co-operative society.
- Disposal of capital assets deriving value from real property in Malaysia: Currently, ITA section 15C provides that gains or profits accruing to a person on the disposal of capital assets that are shares of a controlled company (the “relevant company”) incorporated outside Malaysia are deemed to be derived from Malaysia for CGT purposes if the relevant company owns real property situated in Malaysia, shares of another controlled company or both. It is proposed to restrict the application of this rule to a company, LLP, trust body or co-operative society.
- Definition of shares: The ITA currently contains two definitions of share/shares, one in section 2(1) and the other in section 65C. The definitions are inconsistent. In section 2(1), share in relation to a company includes stock other than debenture stock. Meanwhile, in section 65C, shares mean all or any of the following:
- Stock and shares in a company;
- Loan stock and debentures issued by a company or any other corporate body incorporated in Malaysia;
- A member’s interest in a company not limited by shares, whether or not it has share capital; and
- Any option or other right in, over or relating to shares as defined in a) to c).
- CGT rate: The existing CGT rates on the disposal of capital assets by a company, LLP, trust body or co-operative society are as follows:
| Disposal of capital assets in Malaysia that were acquired before 1 January 2024 | 10% on the chargeable income from the disposal of the capital assets or 2% on the gross disposal price of the assets. |
| Disposal of capital assets in Malaysia that were acquired on or after 1 January 2024 | 10% on the chargeable income from the disposal of the capital assets. |
| Disposal of capital assets other than the above | At the prevailing rate to the company, LLP, trust body or co-operative society on the chargeable income from the disposal of the capital assets. |
With respect to the CGT rates on the disposal of capital assets that are deemed to be derived from Malaysia under ITA section 15C, it is proposed that such a disposal would be eligible for the CGT rates on the disposal of capital assets situated in Malaysia.
- Exemption: An exemption from CGT is currently available on gains or profits from the disposal of capital assets situated in Malaysia, except for the disposal of shares of an unlisted company incorporated in Malaysia and the disposal of shares under section 15C. As a result of the revision to the definition of capital asset, this exemption is no longer necessary and thus is proposed to be deleted.
- Effective date of amendments: The proposed amendments relating to CGT would come into operation once the Income Tax (Amendment) Bill 2024 is in effect.
E-invoicing
E-invoicing is being implemented in Malaysia in stages between 1 August 2024 and 1 July 2025, which is expected to enhance the efficiency of tax administration management. The following changes are proposed to the e-invoicing rules in the ITA:- Duty to keep records and issue receipts: Currently, if a person is required to submit a consolidated transaction invoice to the Director General, they must issue a printed receipt for every amount received in respect of goods sold or services performed. To ease the administrative burden, it is proposed to remove the requirement for printed receipts and allow receipts to be issued in any manner.
- Duty to issue self-billed e-invoices: Subject to conditions as may be prescribed by the Director General, a person is required to issue a self-billed e-invoice for any goods acquired or services enjoyed in accordance with the conditions imposed. It is proposed that this requirement be extended to e-commerce platform providers.
- Effective date of amendments: The proposed amendments relating to e-invoicing would apply retroactively as from 1 January 2024.
David Lai
BDO in Malaysia