Stamp Duty In Malaysia Doesn't Have To Be So Hard!

Stamp duty is a tax on legal documents and is divided into two categories. We cover the tiers, how to calculate it, stamp duty exemption for first-time homebuyers, as well as updates to stamp duty for 2020.
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Stamp duty is an important consideration in all real estate transactions. In any property purchase or transfer, it’s vital to properly assess all costs involved.

That’s not always an easy task however, so here’s a handy guide from us on what stamp duty is all about.

 

What Is Stamp Duty? 

Stamp duty is a essentially a fee on legal documents such as the instrument of transfer and loan agreement when you purchase a houseStamp duty can be complicated, but never fear, we're here to help you understand it better!

First off, you need to know that it's divided into two categories:

  • Fixed Duties are charged at a set price, and include stamps for individual policies or copies.
  • Ad Valorem Duties are variable costs based on the value of a transaction that legal documents represent. These include taxes such as those based on the value of a property transfer or loan agreement.

What this basically means is, stamp duty is applicable at a fixed tier for the instrument of transfer (Fixed Duties) AND on a variable cost, depending on the value on the loan agreement (Ad Valorem Duties).

 

Stamp Duty On Instrument of Transfer

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Stamp duty is a tax based on specific tiers, with its own percentage for each level. The tiers are as follows (with effect from 2019):

  • 1% on the first RM100,000 of the property price
  • 2% charge from RM100,001 to RM500,000
  • 3% charge from RM500,001 to RM1 million
  • 4% charge for everything above RM1 million

Stay with us! Now, what does that mean in practice? Let’s explore a simplified example. A property valued at RM500,000 today would be liable for charges across the first two tiers that we mentioned above.

Stamp duty would be charged according to 1% on RM100,000 of value and 2% on RM400,000 of value. So what will the stamp duty be?

  • RM1,000 stamp duty owed on the first RM100,000 value (1% x RM100,000)
  • RM8,000 stamp duty owed on the next RM400,000 value (2% x RM400,000)
  • Thus, RM1,000 + RM8,000 = RM9,000 stamp duty owed in total

If that all sounds complicated, don’t worry, a quick Google Search for stamp duty calculators will lead you right to a nifty tool to do the number crunching for you!

 

Stamp Duty On A Loan Agreement

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.

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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, if you take out a loan of RM500,000 to cover your hypothetical property purchase above, you’re liable for a stamp duty of RM2,500 on that loan (0.5% x RM500,000).

Let’s go through this step-by-step. For your hypothetical property worth RM500,000, 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%)] + 0.5% of loan amount (RM500,000)
= (RM1,000 + RM8,000) + (0.5% x RM500,000)
= RM9,000 + RM2,500
= RM11,500

Remember this calculation as we'll explain below how the stamp duty exemptions come into play 😉

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Stamp Duty Exemption For First-Time Buyers

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Announced changes to stamp duty in Malaysia in 2018 mean that first-time buyers are now exempt from certain stamp duty charges.

This exemption was confirmed in Budget 2019 put forward by the Malaysian Government. Yay!

First-time buyers purchasing a house will be exempted from stamp duty on the first RM300,000 of the property price on any instrument of transfer and the loan agreement, for Sale and Purchase Agreement completed between 1 January 2019 and 31 December 2020.

Yup, that means it's full exemption for the stamp duty on both instrument of transfer and loan agreement if your property price is RM300,000 and below! That's a maximum of RM6,500 savings!

But we know it's hard to find properties in that price range these days...so, for those buying homes priced between RM300,001 and RM500,000, these are the exemptions you will get:

  • RM5,000 exemption on the instrument of transfer [(1% x First RM100,000) + (2% x Final RM200,000) = (RM1,000 + RM4,000)]
  • RM1,500 exemption on the loan agreement (0.5% x RM300,000)

Looking at the previous example of a property priced at RM500,000 whereby the total stamp duty you have to pay is RM11,500, this is how you calculate it with the first RM300,000 exempted:

  1. Total stamp duty to be paid on a RM500,000 property = RM11,500
  2. Total stamp duty exemption for the first RM300,000 = RM5,000 (instrument of transfer) + RM1,500 (loan agreeement)
  3. Thus, RM11,500 - (RM5,000 + RM1,500) = RM5,000

This means you have to pay a total of RM5,000 for your stamp duty on instrument of transfer and loan agreement if your property is priced at RM500,000.

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There's Now A New Stamp Duty Exemption!

With the COVID-19 pandemic hitting Malaysian shores and bringing about the Movement Control Order (MCO), our economy suffered a major blow as a result.

In order to help stimulate the economy once more and help the people where possible, Prime Minister Tan Sri Muhyiddin Yassin announced the Short-Term Economic Recovery Plan (PENJANA) on 5th June 2020.

In it, were two notable mentions of a stamp duty exemption, under the reintroduced Home Ownership Campaign (HOC) taking effect from June 2020:

  1. Instruments of transfer and loan agreement for the purchase of residential homes priced between RM300,000 to RM2.5 million will enjoy a stamp duty exemption. This is subject to a minimum 10% discount by the developer, and an exemption on the instrument of transfer is limited to the first RM1 million of the property price.
  2. A full stamp duty exemption is given on loan agreement effective for Sales and Purchase Agreements (SPA) signed between 1st June 2020 to 31st May 2021.
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What Were The Changes To Stamp Duty In 2019?

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The stamping fee for a contract agreement in Malaysia was impacted by a number of changes to the nation’s property market.

For example, the National Home Ownership Campaign 2019 (HOC 2019) had introduced new incentives to support the property market.

A waiver of stamp duties were applied on qualifying properties within the scheme until 31 December 2019. To qualify, properties must be purchased from developers who have registered with:

  • Real Estate And Housing Developers' Association (REHDA)
  • Sabah Housing And Real Estate Developers' Association (SHAREDA)
  • Sarawak Housing And Real Estate Developers' Association (SHEDA)

In addition, the developers would need to have discounted the sale price of the property by at least 10%.

Under this campaign, first-time buyers of properties priced between RM300,000 and RM2.5 million from certain developers qualified for stamp duty exemption on the entirety of the loan agreement, and the instrument of transfer for the first RM1 million of the house value.

The remaining value was subjected to a 3% rate. It meant no stamp duties will be charged on instruments of transfer of purchase up to RM1 million, and for loan agreements up to RM2.5 million.

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For example, if you purchased a home priced at RM1.2 million under this campaign, you'd only need to pay stamp duty for RM200,000 of the instrument of transfer (at a reduced rate of 3%).

This means your stamp duty will come to RM6,000. For purchases below RM1 million, you won’t have to pay any duties.

Stamp duty changes are also set to be implemented to the highest band of stamp duty this year. As of 1 July 2019, the stamp duty on instruments of transfer for properties exceeding RM1 million is to be raised from 3% to 4%.

 

What Are The Changes To Expect in 2020?

There are only two that you'd need to take note of in 2020:

  1. For the Rent-To-Own (RTO) scheme, whereby Malaysians are allowed to rent a property first with the option to buy it later, the stamp duties for instrument of transfer (between Developer to Bank and Bank to Tenant/Purchaser) will be exempted.
  2. For the 50% exemption on stamp duty for instruments of transfer between parents and children, it will now ONLY be applicable if the recipient is a Malaysian citizen. This took effect for real property transfers executed from 1 January 2020.

 

We're committed to helping homebuyers make clearer, easier choices when it comes to finding their next home. We hope this simple guide has helped build your understanding of how stamp duty applies in Malaysia! If you’re looking to take that next step, why not search for your dream property on PropertyGuru today.

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