Whether you’re a property investor, an owner simply looking to sell your current home to purchase your dream home or a corporate group engaging in a corporate restructuring exercise, it is important to be aware of all costs associated with a real estate transaction including the real property gains tax (RPGT) in Malaysia.

RPGT is a form of capital gains tax levied on profits arising from the disposal of real property or real property company (RPC) shares. Real property is defined to mean any land situated in Malaysia and any interest, option and other right in or over such land.

The effect of the definition of real property is that RPGT can be levied on interests or ownerships which amount to less than a full title to the land.

The RPGT Act, 1976 has been amended a number of times over the years to cater to the economic needs of the country. Currently, companies as well as individuals that are citizens or permanent residents of Malaysia will be subject to RPGT at the following rates:

• Disposal within three years – 30%,
• Disposal in the fourth year – 20%,
• Disposal in the fifth year – 15%, and
• Disposal after the fifth year – companies (10%), Malaysian citizens or permanent residents (5%). For non-citizens or non-permanent residents of Malaysia, the RPGT rate is 30% for disposals in the first five years and 10% for disposals after five years.

Based on the Short-Term Economic Recovery Plan or Penjana package announced last year, Malaysian citizens are exempted from RPGT on gains from the disposal of up to three residential properties from June 1, 2020 to Dec 31, 2021.

RPGT exemption is also available for disposals of properties by Malaysian citizens in the sixth or subsequent year after the acquisition date where the consideration does not exceed RM200, 000.

The other main exemptions from RPGT that are available for individuals are as follows:

• Exemption of RM10, 000 or 10% of the chargeable gain, whichever is greater,
• Malaysian citizens or permanent residents are given a once in a lifetime exemption for the disposal of a private residence, and
• Gifts between husband and wife, parent and child or grandparent and grandchild provided that the donor is a citizen of Malaysia. This exemption is not applicable for transfers between siblings.

Transfers of real properties between companies in the same group to bring about greater efficiency, or for purposes of reorganisation, reconstruction or amalgamation could be exempted from RPGT if certain conditions are fulfilled and the prior approval of the Director General of Inland Revenue is obtained.

For disposals of real property that take place from Oct 12, 2019, the market value of the property on Jan 1, 2013 will be deemed to be the purchase price for properties that were acquired prior to 2013.

This would give rise to a higher cost base and lower profits, thus reducing the property seller’s tax burden.

Incidental costs incurred in disposing properties can be deducted in calculating the taxable gains.

These would include fees for legal services, surveyors, sales commission etc. A common problem faced by many taxpayers is that RPGT returns are filed without taking into account incidental costs, resulting in higher RPGT payable.

Generally, Malaysia does not charge any capital gains tax (neither does Malaysia have a capital gains tax regime) on the sale of shares, the exception being profits arising from the sale of RPC shares.

An RPC company is a controlled company which holds real property or shares in another RPC where the market value of the real property or RPC shares is not less than 75% of the value of the company’s total tangible assets.

It follows then that shares in public listed companies are not regarded as RPC shares as these are not controlled companies.

The incorporation of the RPC legislation into the RPGT Act, 1976 with effect from Oct 21, 1988 was to cover a loophole that existed previously, whereby taxpayers could avoid RPGT by disposing shares in the company instead of selling the real property owned by the company.

However, under the RPC concept, the shares are deemed to be chargeable assets that are subject to RPGT.

Some interesting trivia – in a Malaysian High Court ruling, it was held that shares in a property development company would not be regarded as RPC shares since the development land held by the property developer is subject to income tax and not RPGT.

The High Court’s decision was premised on the rationale for the introduction of the RPC concept, which was to avoid the “mischief” conducted by taxpayers to avoid RPGT.

The Court of Appeal overruled the High Court’s decision, ruling that a property development company will be regarded as a RPC based on the literal interpretation of what constitutes real property under the RPGT Act, 1976, as real property includes land situated in Malaysia, notwithstanding that the development land itself is subject to income tax and not RPGT.

In a merger and acquisition exercise which involves the transfer of shares, it is important to evaluate whether the shares being transferred are RPC shares and subject to RPGT.

There is a myriad of issues to be aware of in dealing with RPGT, an interesting area of taxation law in itself.

Harvindar Singh is managing partner of Harvey & Associates. The views expressed here are his own.

Source: TheStar.com.my

Penang has made the installation of fibre optic cable mandatory for all new housing schemes and buildings in a move to accelerate the development of its telecommunications infrastructure.

State Transport and Infrastructure Committee chairman Zairil Khir Johari said Penang has enforced fibre optic installation as a basic utility on par with water and electricity supply.

“Penang is the first state in Malaysia to do so. We are now in the process of replacing outdated copper cables and are expecting to complete this process by the end of next year.

“Fibre is to pave the way for faster internet. So, fibre is our focus. We want to fiberised as soon as possible,” Zairil told Buletin Mutiara in an interview recently.

Zairil said it is compulsory for developers of new housing development or buildings to instal fibre optic when seeking planning permission from the local council just like the need to provide water and electricity supply, without which the developers could not obtain the Certificate of Completion and Compliance (CCC) for their finished project.

He said the fibre optic installation, however, is not compulsory if you build a single house.

For old housing schemes, Zairil said the state has allowed telecommunication companies to lay fibre optic cables in existing ‘longkang’ (drains) to minimise cost.

The fiberasation process is part of the Penang Connectivity Master Plan (PCMP) which the state government has introduced in 2019 to develop its telecommunications infrastructure as well as to realise its aim of a gigabit city.

According to Zairil, the decision by the Penang government to make fibre optic installation mandatory has received recognition and praise from the Malaysian Communications and Multimedia Commission (MCMC) Minister Datuk Saifuddin Abdullah through a media statement late last year.

“This Covid-19 situation has shown us how important it is to have a stable and fast internet as people have to work from home and students have to embark on online learning during the lockdown. Now, we begin to appreciate and value the importance of a good telecommunications infrastructure,” said Zairil.

He said the PCMP is in line with the Penang2030 vision of ‘A Family-Focused Green and Smart State that Inspires the Nation’ that Chief Minister Chow Kon Yeow had launched in August 2018.

He added that on May 11, 2019, Chow had met the chiefs of seven major telcos and the MCMC in their first meeting to discuss the state’s desire to enhance its telecommunications infrastructure.

A special task force was formed with Chow as the chairman to coordinate, plan and implement all matters related to telecommunications in the state with the tagline, ‘Facilitated by the State, Guided by MCMC and Delivered by Telcos’.

“To date, the implementation of the PCMP is 48 percent complete, while another 20 percent are in progress and the remaining 32 percent will be implemented according to the set time period.

“As of the first quarter of 2021, Penang has achieved 99.68 percent of 4G LTE (Long Term Evolution) network in populated areas compared to the national rate of 93.77 percent.

“The target is to have only 4G by the end of next year, and get ready for 5G. 5G requires fibre; no fibre, no 5G. So, whatever it is, what we prepare for 5G today will help us to be 5G ready,” Zairil explained.

Source: Buletin Mutiara

EcoWorld announced its financial results for 2Q 2021 yesterday. EcoWorld hits 88% sales target for FY2021 in 7months. Declares 2sen interim dividend. Strong 2Q2021 results with steady sales momentum across all projects.

Amidst a challenging backdrop, EcoWorld is encouraged by the strong results achieved with continued steady sales momentum contributed by Klang Valley, Iskandar Malaysia and Penang projects.

EcoWorld will continue broadening their digitalisation efforts to enhance Team EcoWorld’s agility and competitiveness to emerge stronger post-pandemic. They are also positive of a robust recovery in consumer and business confidence when the current lockdown is lifted and travelling restrictions eased. Visit www.ecoworld.my/investor-relations to know more.

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Lenders cashed in on pandemic relief measures as strong purchases of residential properties and passenger cars helped expand household loans faster in the first quarter, according to data from the World Bank.

“Outstanding household loan growth increased to 6 percent in Q1 2021 (Q4 2021: 5.4 percent), mainly driven by loans for the purchase of residential properties and passenger cars,” the international institution said in the June edition of its Malaysia Economic Monitor.

“In part, this was driven by the tax exemption measures announced by the government in its economic stimulus packages,” the bank added.

However, growth in credit card loans declined, suggesting a drop in overall spending activity during the pandemic, the bank said.

The report was launched two days ago.

Malaysia’s domestic financial sector was well equipped to weather the second movement control order that lasted close to a month, with banks maintaining adequate capital and liquidity positions during the first quarter, the monitor said.

The banking sector’s overall return on equity stood at 8.5 percent against 9.2 percent in the fourth quarter of 2020, with return on assets estimated to stand at 1 percent, just a 0.1 percentage point lower than the previous October-December period.

“Liquid assets held by the banking system remained adequate to support financial activity, with a coverage ratio of 145 percent in Q1 2021 (Q4 2020: 148 percent), well above the minimum statutory requirement of 100 percent,” the report said.

“Furthermore, banks continued to maintain an adequate capital buffer, with the tier 1 capital ratio standing at 14.9 percent at the end of March 2021.”

Overall loan impairment ratio in March was stable at 1.6 percent in the same month despite higher impairments from households amid continued pressure on household income, the bank said.

Source: MalayMail.com