The Malaysian Inland Revenue Board (LHDN) has introduced a significant tax relief under P.U.(A) 289/2024. This order provides a 100% Capital Gains Tax Exemption Malaysia for qualifying companies involved in internal group restructuring. If your business is looking to streamline operations by transferring unlisted shares, understanding these guidelines is essential to maximizing your tax savings.
Key Takeaways
- 100% Exemption: Full tax waiver on gains from the disposal of unlisted shares.
- Group Requirement: Applies strictly to transfers within the same group of companies.
- Restructuring Period: Valid for disposals between 1 March 2024 and 31 December 2028.
- Refund Basis: You must pay the tax first and claim a refund after 3 years.
Eligibility for CGT Exemption in Malaysia
To benefit from the Capital Gains Tax Exemption Malaysia, the “Disposer” must be a company, LLP, trust body, or cooperative society. The most critical condition is that the restructuring must involve an “Acquirer” who is a Malaysian tax resident company.
Furthermore, the restructuring exercise must aim to increase the operational efficiency of the group. This is not for external sales but for internal reorganization aimed at long-term growth and better management.
Key Conditions Under P.U.(A) 289/2024
LHDN has set strict parameters to ensure the Capital Gains Tax Exemption Malaysia is used for genuine corporate exercises.
1. The 75% Share Consideration Rule
The payment for the shares being transferred must be made primarily in the form of new shares. Specifically, at least 75% of the payment must be “share-for-share,” while the remaining 25% can be in cash.
2. Internal Group Relationship
Both the selling and buying entities must remain within the same group for a minimum period. If the shareholding structure changes significantly within three years, the exemption may be revoked.
The Application and Refund Process
Unlike other tax reliefs, the Capital Gains Tax Exemption Malaysia under this scheme follows a “Pay First, Refund Later” policy.
- Reporting: Within 60 days of disposal, file the CKM form and pay the tax.
- Waiting Period: The company must maintain the restructured state for 3 years.
- Application: Submit a written application to LHDN after the 3-year mark.
- Tax Refund: Once LHDN verifies all conditions are met, the tax paid will be refunded.
Why Operational Efficiency Matters
LHDN requires a justification for the restructuring. You must prove that the move helps in areas like reducing administrative costs, simplifying the group structure, or centralizing management. Without a clear “Operational Efficiency” justification, the Capital Gains Tax Exemption Malaysia claim may be rejected during the audit phase.
Frequently Asked Questions (FAQ)
Q: Can I apply for this exemption for an IPO?
A: No. If the disposal is for the purpose of an IPO, it falls under a different order [P.U.(A) 290/2024] and cannot use this restructuring exemption.
Q: What happens if the Acquirer sells the shares within 3 years?
A: The exemption will be disqualified. The group must maintain the ownership structure to satisfy LHDN’s anti-avoidance requirements.
Q: Is there a deadline for the disposal?
A: Yes, the disposal must take place no later than 31 December 2028 to qualify for this specific Capital Gains Tax Exemption Malaysia.
ANC Group – Your Personal Tax Advisor
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Our tax consulting services include business tax, transaction tax, personal tax, and corporate income tax. We don’t just guide you in interpreting and applying complicated taxation rules, but to explore new opportunities and business trends.
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If you need professional tax advisory services regarding the Malaysia Income Tax Act 1967, our team is ready to assist you. Contact us here to discuss how we can support your business.
