Stamp Duty in Malaysia: Rates, Exemptions & Penalties

In Malaysia, stamp duty is a required tax on legal documents and instruments of transfer, serving to generate government revenue and regulate economic activities. It prevents fraud, supports public services, and helps control speculative behaviour in the property market by increasing transaction costs. 

This dual function reinforces legal integrity, stabilizes sectors like real estate, and contributes to the country's overall economic governance and development. Here is everything you need to know about Stamp Duty in Malaysia, including rates, exemptions and penalties.

What is Stamp Duty?

Stamp duty is a tax imposed on various legal, commercial, and financial documents, commonly called "instruments." These instruments can include agreements, contracts, deeds, licenses, and other written documents specified by law. 

Stamp duty aims to validate and formalize these documents and ensure they are legally recognized. Failure to pay stamp duty or properly stamping documents within the required timeframe may result in legal consequences, such as penalties or invalidation of the document.

Stamp Duty Amount 

The amount of stamp duty payable typically varies depending on the nature of the instrument and, in some cases, the value of the transaction or property involved. There are generally two types of stamp duty:

1. Ad Valorem Duty: This type of stamp duty is calculated as a percentage of the value of the transaction or property. The rate of duty may vary based on the nature of the instrument and the consideration involved.
2. Fixed Duty: Fixed duty imposes a specific amount of stamp duty, irrespective of the value of the transaction or property. It is typically applied to certain types of instruments, such as agreements or licenses.

Types of Documents Subject to Stamp Duty

Stamp Duty is not imposed on the transactions themselves but rather on the documents that represent or record these transactions. Here are types of documents subject to Stamp Duty in Malaysia

• Sale and Purchase Agreements: These are agreements for the sale of immovable property, such as land and buildings.
• Transfer Documents: Documents that signify the transfer of ownership of property, such as grant of probate or letters of administration.
• Loan Agreements: Documents pertaining to the borrowing of money, where the terms and conditions of the loan are outlined.
• Mortgage and Security Documents: Instruments that create a security interest in property to secure a loan.
• Leases and Tenancies: Agreements for leasing or renting out property, both commercial and residential.
• Share Transfer Documents: Documents involved in the transfer of shares in Companies.
• Debentures: Instruments acknowledging or creating debt.
• Partnership Agreements: Documents that establish the terms of a partnership between individuals or entities.
• Memorandum of Understanding (MoU): Non-binding documents that outline the intentions of parties to enter into a contract.
• Insurance Policies: Policies that are related to certain types of insurance coverage.
• Trust Deeds: Documents establishing a trust for managing assets for beneficiaries.
• Powers of Attorney: Legal documents authorizing one person to act on behalf of another.

Stamp Duty Rates

The rates of duty vary based on the nature of the instruments and the transaction values. Here's a consolidated overview of the stamp duty rates in Malaysia:

Stamp Duty on Sale and Purchase Agreements (SPA)

RM10 per agreement. This is paid for the document on a fixed amount basis. This is separately charged at a fixed amount other than the stamp duty on the Instrument of transfer.

Stamp Duty on Instruments of Transfer

This is calculated for a Memorandum of Transfer (MOT) or Deed of Assignment (DOA) as per the price/ consideration. It is calculated based on a tiered system:

For Foreign companies: Stamp duty rate is 4% 

Stamp Duty on Service Agreements and Loan Agreements

A stamp duty of 0.5% is applicable on the value of services or loans. However, stamp duty may be remitted more than 0.1% for certain instruments.

Stamp Duty on Shares and Securities

Stamp Duty Payment and Procedures in Malaysia

Stamp duty must be paid within 30 days from the date of execution of the property transaction. Stamp duty can be paid in 2 major ways

1. STAMP Certificate: An electronic stamp certificate, reflective of the duty paid, is issued when stamping applications are processed online via the LHDNM website (https://stamps.hasil.gov.my). 
2. Compound Duty: Compound duty, combining ad valorem and fixed duty as prescribed by Section 9 of the Stamp Act 1949, is applicable to specific types of instruments, including:

• Cheques
• Policies of insurance
• Contract notes
• Memorandum of Association & Article of Association
• TNB Electric Supply form

Stamp Duty Exemptions and Special Cases

The government occasionally provides exemptions, reductions, or remissions on Stamp Duty for certain types of transactions or for specific groups of people.

Here are the major exemptions and remissions.

1. Stamp Duty Exemption for First-Time Homebuyers:
   • First-time homebuyers purchasing homes valued at RM500,000 and below can enjoy a full stamp duty exemption until the end of 2025.
   • Residential properties purchased between RM500,001 to RM1 million will receive a 75% stamp duty exemption only until 31st December 2023.
   • Starting from 2024, first-time homebuyers purchasing homes above RM500,001 will not benefit from any stamp duty exemption.
2. Flat Rate Stamp Duty for Foreigners:
   • Effective 1 January 2024, foreigners (non-citizens and foreign-owned companies, excluding Malaysian permanent residents) will be subject to a flat rate stamp duty of 4% on property transfer instruments, as announced in Budget 2024.
3. Stamp Duty Exemptions for Transfers between Loved Ones:
   • In Budget 2024, it was announced that a fixed stamp duty fee of RM10 will replace the previous variable rate for real estate transfer documents between loved ones.
   • This change applies to cases where beneficiaries are relinquishing their rights to eligible beneficiaries following a will, Faraid, or the Distribution Act 1958.
4. Insurance and Takaful Products
   • Exemption for Perlindungan Tenang insurance products with an annual premium or takaful contribution not exceeding RM150, valid until December 31, 2025
   • Exemption for insurance policies or takaful certificates issued to micro enterprises or SMEs with an annual premium not exceeding RM250, for policies issued between January 1, 2022, and December 31, 2025
5. Other Exemptions
   • Stamp duty exemption on financing agreements under specific programs like the Oil Palm Smallholders Replanting (TSPKS) and the Oil Palm Smallholders Agriculture Input (IPPKS) soft loan schemes
   • Various exemptions for restructuring and industry-specific initiatives as announced in annual budgets

Reliefs on Stamp Duty

The Inland Revenue Board of Malaysia (LHDNM) provides relief from stamp duty under Sections 15 and 15A of the Stamp Act 1949 for the following cases:

1. Corporate Restructuring
2. Mergers of Companies
3. Transfer of Property Between Associated Companies

Applications for stamp duty relief under Sections 15 and 15A must be submitted to the nearest State Director’s Office for consideration.

Late Payment of Stamp Duty in Malaysia

All legal instruments must be stamped within 30 days of execution (if signed in Malaysia), or within 30 days of arrival (if signed overseas).

Penalties for Late Stamping: If the instrument is not stamped on time, the following penalties apply:

• Within 3 months of the deadline: RM50 or 10% of the unpaid duty (whichever is higher).
• After 3 months from the deadline: RM100 or 20% of the unpaid duty (whichever is higher).

Effective Date: These penalty rates apply from 1 January 2025.

Consequences of Non-Compliance with Stamp Duty Regulations

There are two major consequences of non-compliance with stamp duty.

• Validity of Unstamped Instruments: While unstamped instruments, such as contracts, may still be legally enforceable, but not necessarily valid in court proceedings.
• Effectiveness of Stamped Instruments: Certain instruments, particularly those involving transfers of tangible assets like real estate or shares, must be properly stamped to be legally effective. 

Conclusion

Stamp duty in Malaysia is a tax imposed on legal and financial instruments, governed by the Stamp Act of `1949 and administered by the Inland Revenue Board (LHDN). It plays a dual role in generating government revenue and regulating economic activities, particularly in property and financial markets. The tax is categorized into ad valorem duty (based on transaction value) and fixed duty (a nominal amount), with rates varying depending on the type of instrument and value involved.

Key instruments subject to stamp duty include property transfers, tenancy agreements, loan agreements, and share transfers. For property transfers, stamp duty rates are progressive, ranging from 1% to 4%, while exemptions are available for first-time homebuyers, family transfers, and specific government initiatives. Recent changes introduced by the Finance Act 2024 include mandatory stamping for all instruments, a minimum duty of RM10 for certain cases, and the groundwork for implementing a self-assessment system in phases.

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