How to Get Exemption in RPGT for Commercial and Industrial Property in Malaysia

When selling commercial or industrial property in Malaysia, Real Property Gains Tax (RPGT) can significantly affect your net profit. However, there are lawful ways to reduce or gain exemption from RPGT. Understanding the exemption provisions under RPGT for commercial and industrial property in Malaysia is crucial for business owners, investors, and real estate developers.

What Is Real Property Gains Tax (RPGT) in Malaysia?

Real Property Gains Tax (RPGT) is a tax levied on the profit made from the disposal of real property, including commercial and industrial buildings, factories, shop lots, and even vacant land. RPGT is governed under the Real Property Gains Tax Act 1976, administered by the Inland Revenue Board of Malaysia (LHDN).

For companies and non-citizens, RPGT can range from 10% to 30% depending on the holding period. The longer the property is held, the lower the tax. However, tax exemption mechanisms do exist and can be effectively utilized if you understand the law and act accordingly.

Holding Period and RPGT Rates for Commercial & Industrial Properties

Here’s a quick look at the RPGT rates for companies and non-Malaysians for commercial and industrial properties:

Key Scenarios for RPGT Exemption on Commercial & Industrial Property

1. Transfer Between Family Members (Limited Scope)

While full exemption applies for residential properties transferred between parents and children, commercial and industrial property transfers are not exempted under this category. However, if the ownership is under a sole proprietorship or partnership, certain restructuring may qualify for relief if properly structured.

2. Exemption under Paragraph 4C and 4D of Schedule 2

One of the most critical exemptions relevant to businesses is under Paragraph 4C and 4D of Schedule 2 of the RPGT Act. This provides tax relief when companies restructure internally.

Applicable scenarios include:

• Transfers between related companies with 100% shareholding.
• Group restructuring exercises that are certified by LHDN.
• Assets transferred under a merger, acquisition or corporate exercise, approved by authorities.

To qualify:

• The transferor and transferee must be part of the same group.
• Approval must be obtained from Lembaga Hasil Dalam Negeri (LHDN).
• The transferee must retain the property for at least 5 years.

3. Exemption for Compulsory Acquisition

If a property is compulsorily acquired by the government under the Land Acquisition Act 1960, you may qualify for RPGT exemption. This often applies to industrial and commercial land acquired for public development.

To qualify:

• Proof of compulsory acquisition must be documented.
• Approval and exemption application must be made to LHDN.

4. Reinvestment Relief under the Income Tax Act

Although not a direct RPGT exemption, reinvestment allowance under the Income Tax Act 1967 can offset the taxable gains when disposing of old industrial buildings for the purpose of reinvesting into new ones.

To utilize this:

• The proceeds from the sale must be reinvested in qualifying industrial buildings or machinery.
• A claim must be made in the company’s tax return.
• Subject to LHDN’s verification and audit.

5. Losses and Deductions

Under certain conditions, losses from previous property disposals or related expenses (e.g., legal fees, stamp duty, agent commission) can be deducted, reducing the taxable gain. This isn’t an exemption, but it can lower your net RPGT liability.

Allowable deductions include:

• Original purchase price.
• Renovation and improvement costs.
• Professional fees (lawyer, valuer, agent).
• Advertisement expenses.

Step-by-Step Guide to Apply for RPGT Exemption

1. Engage a Tax Advisor or Legal Expert
   • Especially for complicated corporate structures and group relief claims.
2. Gather Supporting Documents
   • Sales and purchase agreements
   • Shareholding certificates
   • Land title documents
   • Valuation reports
   • Company registration and financial statements
3. Apply for Pre-Transaction Ruling
   • For corporate restructures, you can request a ruling from LHDN to confirm if the transfer qualifies for Paragraph 4C or 4D exemption.
4. Submit RPGT Forms
   • File CKHT 1A/CKHT 2A (for disposal) and CKHT 3 (for acquisition) within 60 days of the sale.
   • Attach relevant exemption claim documents.
5. Follow Up with LHDN
   • Always follow up with the officer in charge, especially if approval is pending for exemption or deferment.

Important Considerations

• Timing matters: If the exemption involves a shareholding test, ensure compliance is met before the transfer.
• Valuation compliance: In some cases, LHDN will impose a market value adjustment to prevent under-reporting of gains.
• Documentation is key: Exemptions are only granted when full documentation is available and accurate.

Frequently Asked Questions (FAQs)

1. Can I get RPGT exemption for selling a shop lot owned by my company?

Not automatically. You must prove that the sale is part of a group restructuring exercise or falls under another qualifying exemption such as compulsory acquisition or reinvestment relief.

2. Is RPGT exemption available for industrial land acquired more than 5 years ago?

Yes, if held for more than 5 years, only 10% RPGT is applicable for companies. Exemption may apply if the land was compulsorily acquired or involved in a group internal transfer.

3. What if I reinvest the gains from one factory into another?

If structured properly, you may claim reinvestment relief under the Income Tax Act. It is not an RPGT exemption, but it helps reduce overall tax liabilities.

4. Can I delay RPGT payment during LHDN approval for exemption?

You must still submit RPGT forms and withhold 3% of the consideration to LHDN. If your exemption is approved later, you can apply for a refund.

5. What happens if I wrongly claim an exemption?

Penalties and surcharges may apply if you submit a false exemption claim. Always ensure your claim is backed with verifiable documents and preferably validated by a tax consultant.