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Malaysian Tax Law – Stamp Duty – Government Contracts, Procurement & PPP



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1. What is Stamp Duty

In Malaysia, Stamp duty is a tax levied on a variety of written
instruments specifies in the First Schedule of Stamp Duty Act 1949
(“the Act“). In general term, stamp duty
will be imposed to legal, commercial and financial instruments.

There are two types of Stamp Duty namely ad valorem duty and
fixed duty. For the ad valorem duty, the amount payable will vary
depending on type and value of the instruments. For fixed duty,
generally the amount payable starts at a nominal value of RM10 per
instrument.

An instrument is required to be stamped within 30 days of its
execution if executed within Malaysia. If the instrument is
executed outside Malaysia, it must be stamped within 30 days after
it has been first received in Malaysia.

In this section, we will explain about the stamp duty procedures
in Malaysia and the importance of having your instruments or
documents stamped in accordance with the law.

2. Examples of Instruments / Documents Subjected to Stamp
Duty

2.1 First Schedule of Stamp Duty Act 1949 laid down
all the types and categories of instruments subject to the specific
stamp duty. It includes certain exception where stamp duty will be
exempted. Among the example of the instruments subjected to stamp
duty are as follows:

  1. Shares Transfer

  2. Real properties Transfer (Sale and Purchase of Land, Houses,
    Buildings, etc.)

  3. General stamping of contracts / agreements

  4. Tenancy, lease or rental agreements

  5. Security documents

  6. Selling of annuity

2.2 The rates of duty vary according to the nature
of the instruments and transacted values.

Example of the calculation of the stamp duty are as follows:












Non-listed shares, stocks or marketable securities (e.g.
Transfer Form Section 105 Companies Act 2016)

RM3 for every RM1,000.00 or any fraction thereof based on
consideration, or value whichever is greater. The Stamp Office
generally adopts one of the 2 methods for valuation of unlisted
ordinary shares for purposes of stamp duty:


– net tangible assets; or


– sale consideration.

Service Agreement

Stamp duty of 0.5% on the value of the services / loans.
However, stamp duty may be subject to ad volarem rate of 0.1%
(depending on the type of the Service Agreement)1.

Loan Agreements

For loan instruments involving loan in Ringgit Malaysia, 0.1%
rate is available for loans without security. For stamp duty on
foreign currency loan agreements is generally capped at
RM2,000.00.

Tenancy Agreement

(i) Less than 1 year (RM1 in every RM250 of the annual rent)


(ii) Between 1 to 3 years (RM2 in every RM250 of the annual
rent)


(iii) More than 3 years (RM3 in every RM250 of the annual
rent)

The above formula is to be calculated on the amount in excess of
RM2,400.00 of the annual rent.


*in excess* means, the first RM2,400.00 of the annual
rent is exempted from stamp duty.

2.3 Among the example of instrument exempted from
stamp duties are as follows:

  1. Government contracts (such as service agreement entered by the
    governmental bodies / ministries)

  2. Instruments relating to merger and acquisitions executed by
    small and medium enterprises
    (“SMEs“)2

  3. Instruments in connection with the transfer of property or
    shares between associated companies3

  4. Certain exemption provided by the government which announced
    from time to time (e.g. exemption on instrument on purchase of
    low-cost houses, purchase of first residential property, etc.)

3. Why Document / Instrument should be Stamped?

3.1 Validity of the unstamped
instruments

Stamp duty is chargeable on instruments and not on transactions.
If a transaction can be affected without creating an instrument of
transfer, no duty is payable.

The Act does not state clearly whether or not unstamped
instruments are valid and enforceable. The legal position to
address the issue of the validity of unstamped instruments was
established in a case of Malayan Banking Bhd v Agencies Service
Bureau Sdn Bhd & Ors (1982) 1 MLJ 198
where it was held
that unstamped instrument only affects the admissibility of the
instrument in evidence, but it does not render that particular
instrument to be invalid. Hence, the contract is still rendered
enforceable but inadmissible in court as evidence.

3.2 Penalties

Section 52 of the Act stipulates that the instruments specified
under the First Schedule of the Act must be duly stamped by the
Lembaga Hasil Dalam Negeri (LHDN) which translate to the
Inland Revenue Board of Malaysia (IRB).

The stamping must be done in the manner specified under Section
40 and Section 47 of the Act to enable the instruments to have a
complete legal effect by being admissible in court as evidence. As
mentioned at the above, an unstamped or insufficiently stamped
instrument is not admissible as evidence in a court of law, nor
will it be acted upon by a public officer.

As mentioned at the above, the instruments subjected to stamp
duty must be stamped within the stipulated time. Section 47A of the
Act provides that an unpaid instrument will be payable together
with the penalty as follows:








Within 3 months

RM25.00 or 5% of the amount of the deficient duty, whichever sum
be the greater.

More than 3 months but not later than 6
months

RM50.00 or 10% of the amount of the deficient duty, whichever
sum be the greater.

More than 6 months

RM100.00 or 20% of the amount of the deficient duty, whichever
sum be the greater.

4. How to proceed with stamping

Firstly, the instrument must be submitted to the Inland Revenue
Board (LHDN) for their assessment of the duty payable.

Secondly, upon assessment has been completed, the LHDN will
issue the Assessment Notice containing the amount of the duty
payable (inclusive of the penalty, if any) within certain
timeframe.

Thirdly, upon successful payment of the stamp duty, the
instrument will be stamped by franking machine or a stamp
certificate will be issued, depending on the method of stamp
application was made.

The above process may be completed either on the LHDN officer at
the counter or via the electronic system provided by the LHDN i.e.
the Inland Revenue’s Stamp Assessment and Payment System
(STAMPS system).

5. Conclusion

Our firm provides advice on the dutiable instrument to identify
if the instrument is subject to any payable stamp duty in
accordance with the law together with the applicable stamp duty
amount. We are also a registered agent to submit the electronic
assessment to the LHDN and apply for payment of stamp duty for
certificates to be issued accordingly.

Footnotes

1. The Lembaga Hasil Dalam Negeri (LHDN) will assess and
determine the rate payable.

2. Pursuant to Stamp Duty (Exemption) (No.18) Order 2021
[P.U.(A) 502/2021].

3. Pursuant to Section 15A Stamp Act 1949.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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