ALTHOUGH the taxation of capital gains on the sale of unlisted shares was introduced on Jan 1, 2024, there is still lingering confusion in the minds of taxpayers when the underlying assets of such shares are largely real property. The question that comes to the minds of taxpayers is when there is a disposal of such shares, whether capital gains tax (CGT) or Real Property Gains Tax (RPGT) should apply.
With the introduction of CGT, RPGT has not been withdrawn. However, under certain circumstances, RPGT will not apply but instead CGT will be applicable. CGT will only apply on the sale of unlisted shares by companies, trust, limited liability partnerships and cooperatives from March 1, 2024 although the tax was introduced on Jan 1, 2024 due to a special exemption provided by the Ministry of Finance for the two-month period.
Under RPGT, companies which hold real estate where the market value exceeds 75% of the value of the total tangible asset of that company will be labelled as a “real property company” (RPC). The RPC status can be triggered anytime it exceeds this threshold.
Listed companies will not become RPCs because they will not be controlled companies. Controlled companies are companies with not more than 50 shareholders and controlled by five or fewer persons.
On the surface , it would appear that when you sell the shares of unlisted RPCs, both CGT and RPGT could apply. However, the latest Finance (No. 2) Act 2023 and the subsequent amendments have clarified that if both are applicable, the gains from the disposal of RPC shares will only be aught under CGT.
It should be noted that if unlisted RPC shares owned by individuals are sold, CGT will not apply but instead, RPGT will apply.
From Jan 1, 2024, the rate of CGT applicable on the disposal of unlisted RPC shares will be subject to either 2% of the consideration or 10% on the gains from the disposal.
The 2% rate will only be applicable if you have bought the shares before Jan 1, 2024. The 10% will apply to such RPC shares purchased after Jan 1, 2024.
All sales of RPC shares by individuals before Jan 1, 2024 will be subject to scale rates of RPGT between 0% to 30%.
The 0% rate will apply if the shares were held for more than five years.
For others including companies will be subject to the scale rates between 10% to 30%. From Jan 1, 2024 onwards, the RPGT rates will not change for individuals, but companies, LLPs, trust bodies and cooperatives will be now subject to CGT instead of RPGT.
When shares When shares of foreign companies owning shares of unlisted RPC companies or real properties in Malaysia are disposed, CGT in Malaysia will be applicable on the sale of the foreign company’s shares.
However in practice, if the shareholders of the foreign companies do not comply in filing the tax returns, it will be difficult for the IRB to enforce the collection of the tax since the transaction is taking place entirely outside Malaysia.
The overlap between CGT and RPGT is minimal. RPGT will be confined to disposal of real estate.
However, if CGT is widened beyond the sale of unlisted shares in the future, taxpayers must reexamine their position whenever there is disposal of any capital assets.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
This article was originally published by the sun daily.