Arbitrary Rule Change To RPGT

How arbitrary rule change affects house buying decision

As a foreigner buying a house in Malaysia, what are the important factors to consider when making that decision?

There are many important factors to consider such as:

#1 top of the list is will we have arbitrary rule change governing foreigners buying Malaysia properties.

#2 what is the real property gain tax (RPGT) when selling the property.

#3 how liquid is the disposing of Malaysian properties when applies to foreigners?

#4 how safe is the security situation in Malaysia?

In this blog post, we will just talk about the #1 – arbitrary rule change factor and #2 – real property gain tax factor only.

From what has happened in my case, the arbitrary rule change has led to a hefty 7% retention tax and a 10% RPGT tax rate (up from 0%).

Real property gain tax

As a foreigner, I have bought a Malaysian house for my own stay under the MM2H residency visa.

After I was blacklisted, I could not use this house any more and I faced many challenges with holding on to this house.

We sold the property in August 2019 to move on with my life back in Singapore as I am unable to manage this property.

As my house was bought and hold for more than 5 years, we will be subjected to a 10% tax on any profit made from the sales.

The following example would show how this is calculated and all figures used are hypothetical:

Purchase (cost) price on Sales and Purchase document is: RM1,000,000

Selling price stated on Sales and Purchase document is: RM1,200,000

To arrive at the profit from the sale, the following deductibles are allowed as these are costs incurred on acquiring the property:

State consent levy: RM10,000

Agent’s commission (2% of selling price): RM24,000

Lawyer’s fee: RM1,800

Expenditure or enhancing/preserving the value of the asset: RM30,000

Total of above deductibles: RM65,8000

Profit is calculated as follows: (1,200,000-1,000,000-65,800) = RM135,000

Hence RPGT is (10% of RM135,000) = RM13,500

7% of selling price withholding tax

Before the completion of the sale, the lawyer must forward a withholding tax of (7% of the RM1,200,000) = RM84,000 to Lembaga Hasil Dalam Negeri Malaysia (LHDN).

To put it simply, Malaysia LHDN collected RM84,000 to make sure that a foreigner will pay the RM13,500 (tax on any profit gained from buying Malaysia property).

As can be seen from the above calculation, there is a huge difference of RM70,500 between what has been collected against what is owed.

Is there any strong reason for collecting so much more (5 times more) than what was due?

You can read my posts here & here on my update on this retention sum that puts me at the mercy of LHDN’s manipulations.

Foreigners left to hang high and dry

Excerpt from the link above:

Further to the above, on 1st January 2018, the Finance (No.2) Act 2017 came into effect with amendments to the Real Property Gains Tax Act of 1976. Pursuant to the amendments, it is worth noting that if you are a foreigner wishing to dispose of a property, a sum not exceeding 7% must be retained by the purchaser’s lawyer for RPGT purposes.”

The above is new amendment law that was put into place by the ex-Finance Minister, Mr Lim Guan Eng.

There are two major change by the ex-Finance Minister that impacted foreigners and left them hanging high and dry through a retroactive law.

1) The RPGT payable by foreigners was change from 0% (wef from 1 Jan 2010) to 5%. Then it was changed from 5% to current 10% (wef from 1 Jan 2018) for properties held for more than 5 years from acquisition.

2) The 7% retention for RPGT purpose.

Again it is a rules change that are applies retroactively and a case of shifting the “goal posts” to meet “certain objectives”.

For me I have faced with the perils of holding a house that I am unable to access, maintain and use situation. There is no reprieve even with appealing to MM2H and to Immigration.

We are fortunate enough to get rid of the house in our force-to-sell and desperate-to-sell situation.

The hefty 7% retention sum is still being withheld by LHDN for around eight months now and a whole host of issue ongoing on the RPGT by LHDN.

My next post will continue on this RPGT and what I have encountered with LHDN.

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