Real Property & Conveyancing

(1) Are there restrictions on foreign ownership or occupation of real estate (including foreign ownership of shares in companies holding real estate)? Are there restrictions on foreign guarantees or security for ownership or occupation and on lending for the purchase of real estate?

Restriction on foreign ownership or occupation of real estate is governed by the Malaysian National Land Code 1965 (“NLC”), guidelines issued by the Economic Planning Unit of the Prime Minister’s Department (“EPU”) and State Authorities.

Under Section 433B of the NLC, foreign interest may acquire land only with approval of State Authority. Any sale which contravenes Section 433B is invalid. Unless approval is not required or unless a sale has been exempted, any deed or instrument executed by foreign interest under a power of attorney to deal with the real estate is also invalid and will not be capable of being registered.

Guidelines by EPU

From time to time, the EPU issues guidelines in relation to acquisition of real estate by ‘foreign interest’ who may be:

(a) individual who is not a Malaysian citizen;
(b) individual who is a Permanent Resident;
(c) foreign company or institution; and/or
(d) local company or local institution where non-citizen holds more than 50% of the voting rights.

These guidelines are adopted by each State Authority but with variations.

Each State Government in Malaysia has set a minimum real estate purchase price when foreign interest is buying the real estate.

(2) Briefly outline the typical main provisions of a corporate real estate sale contract and main real estate provisions of a typical share purchase agreement.

The typical main provisions of a corporate real estate sale contract are:-

(a) parties to the contract;
(b) detailed description of the real estate;
(c) condition precedent to complete the transaction such as obtaining State Authority approval;
(d) purchase price of the real estate;
(e) mode and manner of the payment of purchase price;
(f) completion period of the transaction;
(g) warranties provided by parties; and
(h) remedies available for parties for breach of contract.

In addition to the above provisions, the typical main real estate provisions of a share purchase agreement are:-

(a) conditions precedent such as obtaining approval from the relevant authority or consent from the existing chargee of the real estate;
(b) due diligence enquiry on the target company and the real estate owned by the target company;
(c) warranties provided by the seller and the target company on the real estate; and
(d) real property gains tax if the target company is a real property company.

(3) Is stamp duty/transfer tax (or equivalent) payable on the purchase of real estate? Who pays, what are the rates and are there any exemptions? Does it apply to the transfer of shares in a company holding real estate and at what rate? Is value added tax (VAT) (or equivalent) payable on the sale or purchase of real estate?

Stamp Duty

Any transfer of real estate in Malaysia will attract ad valorem stamp duty which is calculated based on the purchase consideration or its market value, whichever is higher.

Unless otherwise indicated, the stamp duty is payable by buyer being the transferee of the real estate.

The formula for the stamp duty calculation is as follows:

(a) 1% on 1st RM100,000;
(b) 2% on RM100,001 until RM500,000;
(c) 3% on RM500,001 and above; and
(d) 4% on RM 1,000,001 and above (wef Jan 1, 2018).

There are situations whereby certain exemptions or rebate or deduction are given on the stamp duty payable such as:-

(a) transfer by way of love and affection;
(b) first time buyer on residential real estate with the purchase price of RM300,000.00 and below:
• 100 % exemption will be granted
(c) first time buyer on residential real estate with the purchase price of more than RM300,000.00 until RM500,000.00:
• RM5,000.00 from the total amount of stamp duty chargeable will be remitted.

Real Property Gains Tax

The seller has to pay real property gains tax (“RPGT”) on any gain of the sale transaction within 60 days from the date of disposal. With effect from 1 January 2014, the revised RPGT rates for the disposal of real estate and shares in real property companies will be as follows:

Real Property Conveyancing chart

Exemption: The disposal of an asset by way of a gift shall be regarded as a no gain no loss disposal provided any of the donor is a citizen.

Transfer of Shares

As for transfer of shares in company holding real estate, the stamp duty is 0.3% of the price or value on the date of transfer, whichever is greater. No RPGT will be imposed unless there is a transfer of share of a real property company (which is, in essence, one with 50 or fewer members and controlled by five or fewer persons whose holdings of real property or shares in a real property company with a defined value of at least 75 per cent of its total tangible assets).

Section 15 and 15A of the Stamp Act exempts stamp duty on share transfer of intergroup companies, subject to certain conditions being met.

Goods and Services Tax

The buyer has to pay Goods and Services Tax (“GST”) (which is equivalent to VAT) at 6% for the purchase of a commercial real estate in Malaysia.

However, purchasing a residential real estate is exempted from GST.