Capital Gains Tax on Unlisted Shares in Malaysia

For fifty-seven years Malaysia taxed income and left capital alone. That ended on 1 January 2024, and the tax that replaced the old certainty is still the thinnest-documented charge in the system — including on the one question every seller asks first, which is whether to pay 10% or 2%.

What exactly is taxed?

Capital gains tax was introduced by the Finance (No. 2) Act 2023 (Act 851), which inserted paragraph 4(aa) into the Income Tax Act 1967 and added Chapter 9 to govern the mechanics. It is not a separate statute. CGT is a new class of income inside the existing Act, which is why it is administered through the ordinary income tax machinery rather than a standalone regime like RPGT.

The charge currently reaches three things:

• Shares of an unlisted company incorporated in Malaysia.
• Shares of a relevant company under s.15C — a controlled company incorporated outside Malaysia that owns Malaysian real property or shares in another controlled company.
• Foreign capital assets received in Malaysia by a resident, which sit outside Chapter 9 and follow the foreign-source income rules instead.

The scope is limited to instruments that are equity in nature. Paragraph 6.3 of LHDN’s Guidelines lists the markers: no fixed dividend right, a residual claim ranking behind other claimants on liquidation, no maturity date, and voting rights. Ordinary shares, preference shares and redeemable preference shares are in. A plain loan note is not.

Who actually pays it?

This is where most summaries mislead by omission. The chargeable person is a company, limited liability partnership, trust body or co-operative society, including a Labuan entity subject to tax under the Income Tax Act 1967.

Individuals are not chargeable persons. A founder selling their own shares in a Sdn Bhd is outside CGT entirely. That is not the same as tax-free — if the facts show a trade rather than an investment, the gain lands under paragraph 4(a) as business income at full rates, which is a far worse outcome than 10%.

The 10% or 2% election

The rate sits in Part XXI of Schedule 1 and turns entirely on when the asset was acquired.

Asset acquired	Rate
Before 1 January 2024	10% of the chargeable gain, or 2% of the gross disposal price — the disposer chooses
On or after 1 January 2024	10% of the chargeable gain, no election

The 2% alternative is charged on the gross amount or value of the consideration for the disposal, with no deduction for what the shares cost. It exists because companies holding shares acquired decades ago often cannot evidence a reliable acquisition price.

The arithmetic is simple once you see it. The 2% option is cheaper whenever the chargeable gain exceeds roughly 20% of the disposal price:

• Shares bought for RM200,000, sold for RM1,000,000. Gain RM800,000. 10% of the gain is RM80,000. 2% of gross is RM20,000. Elect 2%.
• Shares bought for RM950,000, sold for RM1,000,000. Gain RM50,000. 10% of the gain is RM5,000. 2% of gross is RM20,000. Take the 10%.

The election is only available on pre-2024 assets. A company that acquired shares in March 2024 and sells them in 2026 has one rate and no choice.

The date the tax really started

CGT has effect under the Act from 1 January 2024 — but the Guidelines record that implementation runs from 1 March 2024. Disposals in the window from 1 January to 29 February 2024 were exempted by the Income Tax (Exemption) (No. 7) Order 2023, P.U.(A) 410/2023 and the Income Tax (Exemption) (No. 2) Order 2024, P.U.(A) 57/2024.

Most published summaries give a flat “from 1 January 2024”. For a disposal executed in that two-month window the difference is the whole liability.

How section 15C catches foreign companies

Section 15C is the anti-avoidance limb, and it is the part practitioners under-read. It deems the gain on disposal of shares in a controlled company incorporated outside Malaysia to be derived from Malaysia where that company owns Malaysian real property, or shares in another controlled company, or both.

Two definitions do the work:

• A controlled company has not more than 50 members and is controlled by not more than five persons, per s.139.
• The company becomes a relevant company when the defined value of the Malaysian real property, or of the shares in another controlled company, is not less than 75% of the value of its total tangible assets.

Defined value means market value for real property, and the acquisition price determined under s.15C(4) for shares. Total tangible assets take in fixed assets, current assets and investments. Intangibles — patents, copyrights, trademarks — are excluded from the denominator, which mechanically pushes the real-property ratio up and pulls more structures into the net than owners expect.

Holding Malaysian land through a Singapore or BVI holding company does not escape Malaysian tax on the shares.

Valuing the shares

Consideration is deemed equal to market value, and the Guidelines set out when a stated price will be accepted: both parties exist, they are not related persons, the deal is at arm’s length, there is no undue influence, and the parties have sufficient knowledge.

Where that fails — most obviously in a transfer between connected persons under s.65E(8) — market value governs. LHDN accepts the net tangible assets method as a reasonable valuation basis:

Net tangible assets value = Total Assets − Intangible Assets − Total Liabilities

divided by the total number of shares issued. Example 4 of the Guidelines applies exactly this to a transfer between two companies under common control and accepts the resulting figure.

Filing: 60 days, twice over

Both clocks are the same and both are short.

1. File the CGT return form through e-Filing as the e-CKM form within 60 days from the date of disposal.
2. Pay the tax within 60 days from the date of disposal.
3. Amend if needed within six months after the filing deadline, under s.77B.

Every disposal is declared separately and treated as a separate source of gains. A company that sells three tranches of shares on three dates files three returns, not one annual aggregate — Example 1 of the Guidelines makes this explicit with three disposals straddling a September year end.

And there is no CP204. Paragraph 16.4 confirms that s.107C does not apply to disposals of capital assets, so there are no instalments and no estimate to revise.

Common mistakes

• Assuming individuals pay CGT. They do not. But an individual whose dealings look like a trade pays income tax at full rates, which is worse.
• Taking the 2% election as the default “cheap” option. On a low-margin disposal, 2% of gross can be four times the 10% charge on the gain.
• Trying to elect on a post-2024 asset. The election exists only for capital assets acquired before 1 January 2024.
• Treating 1 January 2024 as the start date. Disposals up to 29 February 2024 were exempted by gazette order.
• Ignoring s.15C on offshore holding structures. The 75% test uses tangible assets only, so intangible-heavy groups cross the threshold more easily than the raw balance sheet suggests.
• Filing annually with the Form C. The return is per disposal, within 60 days.
• Still filing CKHT forms for RPC shares held by a company. Since 1 January 2024 that disposal is a CGT event.

What’s next

Before you sign a share sale agreement, fix three things in writing: the acquisition date of every tranche being sold, whether the rate election is available, and whether the target’s balance sheet crosses the 75% real-property threshold. All three change the tax, and all three are far harder to evidence after completion than before.

If the shares being sold are in a company that owns Malaysian land, work out whether the disposal is a CGT event or an RPGT event before you file anything — the answer depends on whether the disposer is a company or an individual, and the two regimes use different forms, different rates and different deadlines.