Stamp duty is a crucial component of the Malaysian tax system, playing a pivotal role in various financial and legal transactions. Whether you're buying property, entering into agreements, or engaging in other financial activities, understanding how stamp duty works is essential.
What Is Stamp Duty in Malaysia?
Stamp duty essentially functions as a fee imposed on legal documents integral to property transactions, including the instrument of transfer and loan agreement. While it may seem complex at first glance, rest assured, we're here to help you understand better.
First and foremost, it's crucial to understand that stamp duty falls into two different categories:
1) Fixed Duties: These duties are charged at a set price. It includes stamps for individual policies or document copies.
2) Ad Valorem Duties: In contrast, Ad Valorem Duties are variable costs based on the transaction value that legal documents represent. These include taxes based on the value associated with property transfers or loan agreements.
In essence, stamp duty operates within a dual framework: a fixed tier for the instrument of transfer (Fixed Duties) and a variable cost contingent on the value stipulated in the loan agreement (Ad Valorem Duties). This understanding is important for navigating the stamp duty landscape effectively.
Stamp Duty Malaysia On Instrument of Transfer (Fixed Duties)
Stamp duty is a tax based on specific tiers, with its own percentage for each level. The tiers are as follows:
Property Price | Percentage |
First RM100,000 of the property price | 1% |
From RM100,001 to RM500,000 | 2% |
From RM500,001 to RM1 million | 3% |
Everything above RM1 million | 4% |
Now, how does this concept translate into practical terms? Let's explore an example.
Consider a property valued at RM700,000 today; this property would incur charges across the first three tiers that we discussed earlier.
Stamp duty would be charged according to 1% on RM100,000 of value, 2% on RM400,000 and 3% on RM200,000 of value. So what will the stamp duty be?
Stamp duty owed on the first RM100,000 value
= RM100,000 x 1%
= RM1,000
Stamp duty owed on the next RM400,000 value
= RM400,000 x 2%
= RM8,000
Stamp duty owed on the next RM200,000 value
= RM200,000 x 3%
= RM6,000
Thus, RM1,000 + RM8,000 + RM6,000 = RM15,000 stamp duty owed in total.
Stamp Duty Malaysia On A Loan Agreement (Ad Valorem Duties)
It’s also important to factor in the stamp duty owed for any loan agreement which may be entered into as part of a property purchase.
As an important legal document, the loan agreement is also liable for stamp duty. Stamp duty on a loan agreement is a flat 0.5% rate, applied to the full value of the loan.
So, for a property priced at RM700,000, you would typically apply for a 90% loan (RM630,000) – as 10% of the property price will be for the down payment, which you would need to fork out yourself.
Thus, if you take out a loan of RM630,000 to cover your hypothetical property purchase above, you’re liable for a stamp duty of RM3,150 on that loan (0.5% x RM630,000).
So, for your property worth RM700,000, this is how you calculate your total stamp duty for the instrument of transfer AND loan agreement:
Stamp duty for instrument of transfer + Stamp duty on loan agreement = Total stamp duty to be paid
[(First RM100,000 x 1%) + (Next RM400,000 x 2%) + (Next RM200,000 x 3%)] + 0.5% of loan amount (RM630,000)
= (RM1,000 + RM8,000 + RM6,000) + (0.5% x RM630,000)
= RM15,000 + RM3,150
= RM18,150
Stamp Duty Exemption For 2023
Announced during the revised Budget 2023, for first-time homebuyers who purchase a home valued at RM500,000 and below, full stamp duty exemption will apply until the end of 2025.
While residential properties purchased worth between RM500,0001 to RM1 million will get a 75% stamp duty exemption up until 31st December 2023.
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