Member Article

In this article, Tang Yen Yi examines the PENJANA Short-Term Economic Recovery Plan in relation to the property sector.

During these unprecedented times of a global pandemic due to COVID-19, the Government of Malaysia announced the recovery plan for the country’s economy: PENJANA Short-Term Economic Recovery Plan (“PENJANA”).

PENJANA includes plans to stimulate the economy with incentives for real estate transactions. The Home Ownership Campaign which was first introduced in 2019 was reintroduced by the Government as part of PENJANA in June 2020. By Federal Government Gazette P.U. (A) 216/2020 and P.U. (A) 217/2020 both dated 28 July 2020, the Stamp Duty (Exemption) (No. 3) Order 2020 and the Stamp Duty (Exemption) (No. 4) Order 2020 (collectively, “Exemption Orders”) came into operation on 1 June 2020 pursuant to the Exemption Orders an individual is entitled to exemption from the stamp duty chargeable on the instrument of transfer and loan agreement for residential properties, subject to the stipulated requirements.

The Exemption Orders apply only to Malaysian citizens purchasing residential properties. For the purpose of the Exemption Orders, “residential property” means a house, a condominium unit, an apartment or a flat in Malaysia and includes a service apartment and a small office home office (“SOHO”), owned by an individual, jointly or solely, which is used only as a dwelling house.

A “property developer” referred to in the Exemption Orders means a property developer registered with the:

• Real Estate and Housing Developers’ Association Malaysia (“REHDA”);

• Sabah Housing and Real Estate Developers Association (“SHAREDA”); or

• Sarawak Housing and Real Estate Developers’ Association (“SHEDA”).

Subject to paragraph 2(1) of each of the Exemption Orders, the stamp duty exemptions apply only to the purchase of a residential property under the Home Ownership Campaign 2020/2021, the value of which is more than RM300,000.00 but not more than RM2.5 million and the loan agreement for the same property, subject to the conditions stipulated below.An individual shall submit to the Inland Revenue Board Malaysia a Home Ownership Campaign 2020/2021 Certification issued by REHDA, 15 SHAREDA or SHEDA for the purpose of obtaining the stamp duty exemption.

Stamp duty exemption on acquisition of residential property

The stamp duty exemption shall only be for the stamp duty that is imposed on instruments of transfer for the first RM1 million or less from the value of the residential property and stamp duty of RM3.00 shall be imposed for every RM100.00 of the balance amount of the value of the residential property which is in excess of RM1 million.

The conditions to be fulfilled to qualify for the exemption of the stamp duty chargeable on all instruments of transfer are provided in paragraph 2(3) of the Stamp Duty (Exemption) (No. 4) Order 2020:

“2. (3) The stamp duty exemption under subparagraph (1) shall only apply if — the sale and purchase agreement for the purchase of the residential property is between an individual and a property developer;

the purchase price in the sale and purchase agreement referred to in subparagraph (a) is a price after a discount of at least ten per cent from the original price offered by the property developer except for a residential property which is subject to controlled pricing;

and the sale and purchase agreement for the purchase of the residential property is executed on or after 1 June 2020 but not later than 31 May 2021 and is stamped at any branch of the Inland Revenue Board of Malaysia"

For the purpose of exemption of stamp duty, paragraph 2(4) of the Stamp Duty (Exemption) (No. 3) Order 2020 provides that the value of the residential property shall be based on the market value.

Example of calculations of the stamp duty payable on the instrument of transfer with exemption of stamp duty under this Order:

Value of the residential property: RM1.5 million

Calculation of the stamp duty chargeable:

Under the Exemption Orders, the total stamp duty payable for a residential property with the purchase price of RM1.5 million will be RM15,000.00.

If not for the Exemption Orders, the stamp duty payable under the Stamp Act 1949 for the same purchase price of RM1.5 million would be as follows:

Stamp duty exemption on loan agreement for acquisition of residential property

Unlike the Stamp Duty (Exemption) (No. 4) Order 2020 which provides for stamp duty exemption up to only the first RM1 million of the value of the residential property, the Stamp Duty (Exemption) (No. 3) Order 2020 provides for the exemption of 100% of the stamp duty chargeable on the loan agreement to finance the purchase of residential property.

The conditions to be fulfilled for such exemption of the stamp duty chargeable on the loan agreement are provided in Paragraph 2(2) of the Stamp Duty (Exemption) (No. 3) Order 2020:

“2. (2) The stamp duty exemption under subparagraph (1) shall only apply if — the sale and purchase agreement for the purchase of the residential property is between an individual and a property developer; the purchase price in the sale and purchase agreement referred to in subparagraph (a) is a price after a discount of at least ten per cent from the original price offered by the property developer except for a residential property which is subject to controlled pricing;

and the sale and purchase agreement for the purchase of the residential property is executed on or after 1 June 2020 but not later than 31 May 2021 and is stamped at any branch of the Inland Revenue Board Malaysia.”

Real property gains tax exemption

Other than the acquisition of residential property, individuals who are Malaysian citizens who dispose of their residential properties between 1 June 2020 and 31 December 2021 will be exempted from payment of real property gains tax (“RPGT”).

By Federal Government Gazette P.U. (A) 218/2020 dated 28 July 2020, the Real Property Gains Tax (Exemption) Order 2020 came into operation on 1 June 2020 and a Malaysian is exempted from payment of tax on the chargeable gains accruing on the disposal of a residential property, subject to the conditions stipulated below.

For the purposes of this Order, “residential property” has the same definition provided in the Stamp Duty (Exemption) (No. 3) Order 2020 and the Stamp Duty (Exemption) (No. 4) Order 2020.

The conditions to be fulfilled for the exemption of RPGT are provided in Paragraph 3(2) of the Real Property Gains Tax (Exemption) Order 2020:

“3. (2) The exemption referred to in subparagraph (1) shall be applicable on the condition that —

not more than three units of residential property disposed of shall be eligible for each disposer;

the residential property disposed of is not acquired within the period from 1 June 2020 until 31 December 2021 —

by way of a transfer between spouses; or

by way of a gift between spouses, parent and child, or grandparent and grandchild where the donor is a citizen; and

the sale and purchase agreement for the disposal of the residential property is executed on or after 1 June 2020 but not later than 31 December 2021 and is duly 17 stamped not later than 31 January 2022 or where there is no sale and purchase agreement, the instrument of transfer for the disposal of the residential property is executed on or after 1 June 2020 but not later than 31 "December 2021 and is duly stamped not later than 31 January 2022.”

For a conditional contract which requires the approval of the Federal Government or a State Government, the exemption shall only be applicable if the contract for disposal of the residential property is executed on or after 1 June 2020 but not later than 31 December 2021 and is duly stamped not later than 31 January 2022, and the approval of the Federal Government or the State Government concerned for the disposal of the residential property is obtained on or after 1 June 2020.

Despite the exemption of RPGT, Malaysians who dispose of their residential property between 1 June 2020 and 31 December 2021 are still required to comply with any requirement to submit any return or to furnish any other information under the Real Property Gains Tax Act 1976.

Conclusion

The cost of acquiring a new residential property from a property developer during the period from 1 June 2020 until 31 May 2021 is reduced by the reduction of stamp duty chargeable on the instrument of transfer and exemption of stamp duty chargeable on the loan agreement, subject to the conditions stipulated in the Stamp Duty (Exemption) (No. 3) Order 2020 and Stamp Duty (Exemption) (No. 4) Order 2016.

On the other hand, for a disposer, the cost of disposing of any residential property is reduced by the exemption of RPGT, subject to the conditions stipulated in the Real Property GainsTax (Exemption) Order 2020.

TANG YEN YIK

REAL ESTATE PRACTICE GROUP

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