(Tax update) Real Property Company (RPC) under Capital Gain Tax (CGT)

What is an RPC?

A Real Property Company (RPC) in the context of Malaysian tax law is typically a company whose primary business is dealing with real property, such as land or buildings. This can include activities like buying, selling, developing, or renting real estate.

Technically speaking, we use 75% of the value of the company’s total tangible assets as benchmark to define RPC .

Tax Treatment of RPCs:

Traditionally, gains or profits from the disposal of shares in Malaysian RPCs were subject to Real Property Gains Tax (RPGT) under Paragraph 34A, Schedule 2 of the Real Property Gain Tax Act 1976.

However, with the introduction of Capital Gains Tax (CGT), there have been amendments to these provisions.

Tax Computation and Formula:

The specific computation and formula for the taxation of RPCs under RPGT would depend on various factors such as the period of holding the property, the nature of the gains (capital or income), and specific exemptions or relief available.

Typically, RPGT is calculated based on the difference between the acquisition cost and the disposal price of the real property or shares in the RPC. The tax rates range from 0% to 30% depending on the factors mentioned above.

Challenges in RPC Tax Computation (Past) and Taxpayer Preferences

Previously, calculating taxes for Real Property Companies (RPCs) in Malaysia was complex due to complicated Real Property Gains Tax (RPGT) rules. Factors like how long the property was held, various exemptions, and the property's market value made the process challenging.

This complexity led many Malaysian taxpayers to consult lawyers instead of tax agents for RPGT issues, believing lawyers were better suited to handle the legal aspects of property taxes.

We HATE RPC companies as most of them trust lawyers than us.

Summary of Income Tax (Exemption) (No.7) Order 2023:

This order provides an exemption from income tax on gains or profits from the disposal of shares in unlisted Malaysian companies between 1 January 2024 and 29 February 2024.

This exemption does not apply to gains or profits taxable as business income under section 4(a) of the Income Tax Act 1967.

For RPC shares, traditionally subject to RPGT, there seems to be a "2-month tax holiday period" due to the CGT exemption and the lack of simultaneous reversal of amendments in RPGTA.

Our Comments on RPC Shares

Before CGT, gains from disposal of shares in Malaysia were considered capital gains and not subject to income tax.

With CGT's implementation, RPGT on gains from disposal of RPC shares by companies, LLPs, trust bodies, or co-operative societies (except Labuan entities) is not applicable from 1 January 2024.

However, due to the 2-month CGT exemption on unlisted shares and no simultaneous amendment reversal in RPGTA, there's a temporary "tax holiday" for gains from RPC shares disposals.

Past Blog

Capital gain tax https://www.ktp.com.my/blog/malaysias-budget-2024-capital-gain-tax-part1/23nov23

Exemption Period on CGT https://www.ktp.com.my/blog/capital-gain-tax-malaysia-2024/04jan24

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