Property Taxes in Malaysia can be quite a challenge to a first time buyer or investor. You might be shocked to find out the different taxes imposed on you when you purchase or even own a property. The following are the property taxes that you should know before a major property decision.
Taxes incurred with owning and managing real estate
Quit Rent (Cukai Tanah)
Commonly known as cukai tanah, this tax that is relevant to anyone owning a property. Essentially, it is the price you pay for owning a land in Malaysia and yearly income to the state government. The price you pay for quick rent varies in accordance to the land size and property asset category. You will have to pay quit rent on an annual basis regardless of whether the property is freehold and leasehold or whether it is a strata titled property. The quit rent rate depends on the each state government’s decision to set and amend.
Assessment Tax (Cukai Taksiran / Pintu)
If your property is located within a local authority (Majlis Pembandaran), you will be required to pay an assessment tax based on the annual rental value. The final sum is calculated based on the property type, location and multiplied by a set of routes. For residential properties, it is levied at a flat rate of 6% and can be paid in 2 instalments.
Taxes incurred when acquiring and transacting real estate
During the completion of a property transaction, the legal documents such as the SPA and Loan agreement needs to be recognized and notified to the government. Stamp duties must be paid for any property transfer related documents to be legally recognised. The amount of stamp duty required is levied in proportion of the property’s value.
Real Property Gains Tax (RPGT)
Since the abolishment of capital gains tax in 2007, capital gains through property transfers are no longer subjected to income tax laws. There is, however, the real property gains tax, which is levied on any disposal of real property or shares of property companies. RPGT is a type of capital gains tax that charges you based on your profit gained through property transactions. One reason why RPGT was introduced is to discourage flipping properties where people renovate old properties and mark up prices. This is to prevent property prices from greatly increasing above market value as a result of speculation. As the names suggest, you are only taxed through any profits gained from the disposal of the property, hence no taxes need to be paid if there is a break even or a loss.
Goods and Service Tax (GST)
If you are renting out or selling a residential property, your income generated will be exempted from GST. However, the income gained through commercial properties are taxable by means of letting out or even disposing of commercial properties in some circumstances. To have commercial property to be taxable under the 6% GST, the homeowner must own 2 or more commercial properties or a commercial property valued at more than RM 2 million. Alternatively, the homeowner may own a land larger than 1 acre or earn more than RM 500,000 through yields from the properties.
Property taxes can be troublesome and unwelcoming to an average homeowner. With the different property taxes around limiting and shifting your decisions, it is important to take each of them into consideration as it can add up additional costs to your property portfolio. On the bright side here are some tax saving tips that can help you reduce your costs.