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Although commonly referred to as capital gains tax (CGT), gains from the disposal of capital assets are treated as ‘income’ and subject to income tax under the Income Tax Act 1967 (ITA 1967).
For this purpose, a new class of income described as ‘gains or profits from the disposal of capital asset’ was introduced under a new section 4(aa) of the ITA 1967.
Understanding the basics
Who are the taxable persons?
Companies
Limited liability partnerships (LLPs)
Co-operatives
- Trust bodies
(Individuals are excluded)
What are taxable capital assets?
Unlisted shares: Shares of unlisted companies incorporated in Malaysia
Section 15C shares: Shares of a foreign controlled company deriving value from real property in Malaysia under section 15C of the ITA 1967. See examples below
Foreign capital assets: Movable or immovable property situated outside Malaysia including any rights or interest thereof, such as shares of companies incorporated outside Malaysia, intellectual property, buildings and land, paintings, and so on
Where the gains or profits from the disposal of shares are revenue in nature, such gains or profits are treated as business income under section 4(a) of the ITA 1967 and are subject to tax at the prevailing income tax rate of the disposer.
How are shares defined?
Shares, in relation to a company, includes stock other than debenture stock.
What is the CGT tax rate?
| Taxable assets | Unlisted shares and section 15C shares |
Foreign capital assets |
| CGT rate | 10% on net gain (chargeable income) OR 2% on gross disposal price (optional rate for shares acquired before 1 January 2024) |
Prevailing income tax rate on gains received in Malaysia
|
Section 15C shares: Illustrative examples
The gains from the disposal of shares of a controlled company incorporated outside Malaysia (‘Foreign Controlled Company’) shall be deemed to be derived from Malaysia if the Foreign Controlled Company derives value from real property in Malaysia pursuant to section 15C of the ITA 1967.
For illustration purposes, the scenarios under section 15C can be depicted as follows. Please note that permutations are non-exhaustive.
Foreign Controlled Company owns real property situated in Malaysia
Under section 15C(2)(a), shares in Foreign Controlled Company are in-scope shares for CGT purposes if the following assessment is met:
The defined value (i.e., market value) of real property situated in Malaysia (including any right or interest thereof) owned is not less than 75% of the value of its total tangible assets (TTA).
Foreign Controlled Company owns shares in another controlled company (‘Another Controlled Company’) which in turn owns real property situated in Malaysia
Under section 15C(2)(a), shares in Foreign Controlled Company are in-scope shares for CGT purposes if the following assessment is met:
The defined value (i.e., market value) of real property situated in Malaysia (including any right or interest thereof) owned is not less than 75% of the value of its total tangible assets (TTA).
Acquisition date and price
From the perspective of the shareholder of the Foreign Controlled Company, the shares in the Foreign Controlled Company is deemed to be acquired on:
- The date when the Foreign Controlled Company (i.e., ‘relevant company’) becomes a section 15C company. In such situations, the acquisition price is deemed to be equal to a sum determined in accordance with the formula A/B X C under the provision of section 15C(4) of the ITA 1967, where:
- A ‘is the number of shares of the relevant company…’
- B ‘is the total number of issued shares in the relevant company at the date of acquisition of the shares of the relevant company…’
- C ‘is the defined value of the real property or shares or both owned by the relevant company at the date of acquisition of the shares of the relevant company…’
- If Foreign Controlled Company is already a section 15C company, on the actual date of acquisition of the shares of the Foreign Controlled Company, the acquisition price is equal to the consideration paid for the shares. Where applicable (e.g., transaction between connected persons), market value is to be adopted in place of the actual consideration paid.
Foreign Controlled Company owns both real property situated in Malaysia and shares in Another Controlled Company which in turn owns real property situated in Malaysia
Under section 15C(2)(c) of the ITA 1967, shares in Foreign Controlled Company are in-scope shares for CGT purposes if the following assessments are satisfied:
- The defined value (i.e., market value) of real property situated in Malaysia (including any right or interest thereof) owned by Another Controlled Company is not less than 75% of the value of Another Controlled Company’s TTA; and
- The defined value (i.e., market value) of real property situated in Malaysia (including any right or interest thereof) and defined value of Another Controlled Company owned by Foreign Controlled Company is not less than 75% of the value of Foreign Controlled Company’s TTA.
The assessments are based on the ‘defined value’ of shares or real property owned by the tested entities. According to section 15C(5) of ITA 1967, ‘defined value’ means ‘the market value of real property or the acquisition price of shares of another controlled company as determined under section 15C(4)’.
The example below illustrates the timing to perform the 75% threshold test based on the CGT Guideline issued by the Inland Revenue Board of Malaysia. Here are the scenario and key facts around the disposer, Sweetgo.
| Acquisition of real property or shares in another controlled company by Sweetgo (relevant company) | Date of acquisition / revaluation | Market value of asset acquired / revalued (RM) |
TTA (RM) |
| Land in Kulim | 1.4.2024 | 4.3 million |
4.5 million |
Revalued in 2025 |
6.1 million |
8 million | |
1.6.2026 |
7 million |
13 million | |
Shares of Giant Panda* |
1.6.2026 | 4.5 million |
* At the date of acquisition of shares of Giant Panda by Sweetgo, the defined value (i.e. market value) of real property situated in Malaysia owned by Giant Panda exceeded 75% of the Giant Panda’s TTA.
Determination of section 15C shares status of Sweetgo
| On 1.4.2024 (Acquisition of land) |
|
| 2025 (Revaluation of land) |
|
| On 1.6.2026 (Acquisition of shares) |
|
Compliance obligations and exemptions
CGT returns are to be filed as follows:
| Taxable assets | Unlisted shares and section 15C shares |
Foreign capital assets |
Disposed between 1 January 2024 to 29 February 2024 |
CGT return is not required | Foreign capital gains are to be declared in the annual income tax return form of the respective chargeable person. For companies, this will be the Form e-C |
Disposed on 1 March 2024 or later |
CGT return (e-CKM Form) is to be filed electronically and CGT is to be paid within 60 days from the date of each disposal |
Gains arising from disposal of foreign capital assets received into Malaysia are eligible for exemption if economic substance requirements (ESR) are met.
Economic substance requirements
Key conditions
The key conditions to be met by the disposer to qualify for exemption are:
- employ adequate number of employees with necessary qualifications to carry out the specified economic activities in Malaysia; and
- incur adequate amount of operating expenditure for carrying out the specified economic activities in Malaysia.
What if the prescribed adequacy thresholds are not met?
In the absence of prescribed adequacy thresholds, the IRB has stated in the Guideline for CGT on Foreign Capital Assets that factors which will be considered for each taxpayer are:
- number of employees, considering the capital or labour intensity requirements of the business
- whether the employee works full-time or part-time
- whether office premises have been used or is sufficient for the activity.
Outsourcing impact on ESR
Specified economic activities of a taxpayer which are outsourced will be taken into account for ESR adequacy purposes. Key conditions to observe include:
- activities are to be carried out in Malaysia
- the taxpayer implements sufficient monitoring and control
- the outsourcing entity is generally expected to charge an arm’s length price for performance of the functions
- the number of employee and operating expenses incurred by the outsourcing entity is equivalent to the level of specified economic activity and there is no double counting if the outsourcing entity provides services to more than one person.
Examples:
Manufacturing business
A manufacturing company in Malaysia which the IRB considers to have adequate ESR is one which hires 150 employees and incurs operating expenditure of RM1 million
Investment holding company
A resident investment holding company, which does not employ any employee, could meet the ESR adequacy tests when it outsources its investment and asset management activities.
Businesses which require certainty especially in a self-assessment environment can consider approaching the IRB for a confirmation on its compliance with the ESR conditions prior to filing their tax return.
Calculating your CGT
Use our interactive calculator to estimate your CGT for year of assessment (YA) 2024
Individual taxpayers are not subject to CGT.
Did you know that in addition to the difference between the value of the consideration for the disposal and acquisition, i.e. the “gain”, certain expenditures incurred and sums received may qualify for deduction or are taxable (by way of reduction of the deductible acquisition costs)? Below include some examples which are taken into account.
Have you incurred any of these expenditure in disposing of the shares?
Professional fees for services of any valuer, accountant, agent or legal adviser
RM
Stamp duty
RM
Cost of advertising to find a buyer
RM
Subtotal (incidental costs for disposal)
RM
Have you incurred any of these expenditure in acquiring of the shares?
Professional fees for services of any valuer, accountant, agent or legal adviser
RM
Stamp duty
RM
Cost of advertising to find a seller
RM
Subtotal (incidental costs for acquisition)
RM
Others
Expenditure incurred for enhancing / preserving the value of assets
RM
Expenditure incurred for defending the title or rights over the assets
RM
Estimated CGT based on the information provided
Disposal price
RM
Less: Acquisition price
RM
Estimated gain / (loss)
RM
Capital losses are not subject to CGT.
CGT payable upon remittance of gains into Malaysia
Gain received in Malaysia The amount would form part of the chargeable income
RM
Prevailing tax rate for YA 2024 Refer here for information
CGT payable
RM
Note: The above calculation is for illustrative purposes only. In determining the gains from the disposal of foreign capital assets that are chargeable to tax, expenses wholly and exclusively incurred for the acquisition and disposal of capital assets are allowed under section 65E(2) ITA 1967. For example, legal fees, appraiser fees, advertising, and expenses to increase or maintain capital value.
How we've worked this out
Disposal price
RM
Tax rate
RM
CGT payable
RM
Estimated CGT based on the information provided
Consideration value for disposal
RM
Less: Expenditure incurred for enhancing / preserving the value of defending the title or rights over the assets
RM
Less: Incidental costs on disposal
RM
Disposal price
RM
Consideration value for acquisition
RM
Add: Incidental costs on acquisition
RM
Acquisition price
RM
Estimated chargeable gain / (capital loss)
RM
Tax rate
CGT payable
RM
Capital losses
Where the disposal of a capital asset results in a loss, the said loss may be used to offset against the gains from subsequent disposals.
Any capital losses accumulated can be carried forward up to 10 YAs to be offset against future gains from disposals of capital assets.
Where the disposal of a capital asset results in a loss, the said loss may be used to offset against the gains from subsequent disposals.
Any capital losses accumulated can be carried forward up to 10 YAs to be offset against future gains from disposals of capital assets.
Disclaimer:
This CGT calculator does not constitute legal, accounting or other professional advice. It is intended only as a general illustrative guide and is neither a definitive nor exhaustive analysis / discussion of the law nor a substitute for professional advice.
Users should discuss with professional advisers how the information may apply to their specific situations.
PwC does not collect or store any information entered into the CGT calculator. All of the entered data appears only on the user's end and is automatically deleted once the calculator is closed. Unauthorised reproduction is expressly prohibited.
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