Capital gains tax

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?

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

  • Companies, LLPs and trust bodies: 24% (headline rate)
  • Co-operatives: 0% - 24% (scaled rates)

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).

CGT scenario 1

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)(b) 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 of shares of Another Controlled Company owned by Foreign Controlled Company is not less than 75% of the value of Foreign Controlled Company’s 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. 
CGT scenario 2

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)’.

CGT scenario 3

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)
  • The defined value of real property owned is less than 75% of its TTA [4.3 million ÷ 7.5 million ⨉ 100% = 57.33%]
  • Shares of Sweetgo are not section 15C shares
2025
(Revaluation of land)
  • Determination of section 15C status is irrelevant as there was no acquisition of real property or shares of another controlled company
On 1.6.2026
(Acquisition of shares)
  • The defined value of real property and shares of another controlled company owned is more than 75% of its TTA [(7 million + 4.5 million) ÷ 13 million ⨉ 100% = 88.46%]
  • Shares of Sweetgo are section 15C 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

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

 

Estimated CGT based on the information provided

Disposal price

RM

Less: Acquisition price

RM

Estimated gain / (loss)

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

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.

Taxable events

A taxable event is triggered upon:

  • Disposal of the following capital assets
    • unlisted shares of a company incorporated in Malaysia
    • section 15C shares
  • The gains from the disposal of foreign capital assets are received in Malaysia

Meaning of ‘disposal'

‘Disposal’ means to sell, convey, transfer, assign, settle or alienate whether by agreement or by force of law and includes a reduction of share capital and purchase by a company of its own shares.

Meaning of ‘received in Malaysia’

‘Received in Malaysia’ means transferred or brought into Malaysia whether in the form of cash or through electronic funds transfer, or both.

Disposal date

Generally, the date of disposal is determined as follows:

  • Where there is a written agreement for the disposal, the date of such agreement.
  • Where there is no written agreement, the date of completion of the disposal which is the earlier of the following dates:
    • transfer of ownership; or
    • receipt of full consideration by the disposer

Conditional contracts

Where the disposal or acquisition is subject to approval from the government or a state government, the disposal or acquisition date will be the date of such approval, or where the approval is subject to conditions, the date of the last of all such conditions being satisfied.

Market value of capital asset

Under certain circumstances, the consideration for acquisition or disposal shall be equal to the market value of the capital asset. These circumstances include:

  • disposals not at arm's length,
  • disposals by way of gift,
  • disposals wholly or partly for a consideration that cannot be valued,
  • disposals between connected persons,
  • assets taken into trading stock.

Valuation of shares

The CGT Guideline provides that the net tangible assets (NTA) based on the financial statements of the company is an acceptable valuation method in determining the market value of shares.

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