RPGT and Retention Sum Policy and Refund

RPGT and Retention Sum policy

Real Property Gain Tax (RPGT) and Retention Sum policy was a trap for foreigner who bought properties in Malaysia. Its aim is to make foreigners lose their hard-earned money to help the Malaysia coffers that had been depleted.

I had written two earlier posts that explained on the RPGT here and the origin of the newly gazette Retention Sum policy here.

This policy was enacted by the ex-Finance Minister (FM), Mr Lim Guan Eng, wef 1st January 2018. Then he was newly appointed but is now ousted and facing corruption charge currently.

The Retention Sum policy requires the seller to deposit 7% of the total acquisition price of the property into the account of the LHDN.

By the way, this 7% of the acquisition price is a hefty sum and could be 5 times the amount of the tax obligation of foreign owners seeking to sell off their property.

Why policy is anti-foreigners

One of the purposes is for them to works out as high a rate payable as can be seen from my experience. It is easy to works backward to see how much they can makes you pay for the RPGT. Firstly, you will notice that the Notice of Assessment (NOA) that you receive will have a high tax amount chargeable.

Then you will experience an appeal process that is deliberately difficult. It is intended to drive you to your wit ends to wears you down through a lengthy period of engagement.

Below is an account of my experience with LHDN with regards to RPGT.

It was a bad experience that I have encountered for the properties that I offloaded.

It was bad because the NOA was unreasonable due to the reason that all allowable deductibles were arbitrarily denied.

My lawyer’s correspondences with LHDN generally takes a long time to receive their reply.

We ended up with an unusually long delay of nearly 14 months for the refund of the excess. Over this long period we lose out on the bank interests.

What to expect when you sell your Malaysia property

More than one and a half year ago in April of 2019 we finally sold our Malaysia properties. Prior to making the decision to let go of the property, we were unable to use as well and problematic to maintain in my current situation.

We managed to find a buyer for our property. And we were told about this Retention Sum that is applicable to foreigners before agreeing to the sale.

We have to deposit a 7% Retention Sum into LHDN’s account before we can complete the process for the sale of the property.

See screen grab below of this Retention Sum Policy:

https://www.pwc.com/my/en/publications/2019/2019-2020-mtb/real-property-gains-tax.html

This is a hefty amount which could be as much as 5 times more than your actual tax obligations (based on our tax obligation of 10% of the real property gains).

The conjured justification for the Retention Sum is that foreigner will scoots away without fulfilling their tax obligations. But to date, there is no official data to support the idea that foreigner had scoot away without meeting their tax obligations.

Image of the cheque to LHDN below showing the forced hefty retention sum of 7% of the selling price and the date is before the completion date of the Sales and Purchase around end of 2019.

Hefty 7% retention sum paid on 22.10.2019 before the Sales process can be completed

The above is one of the “shifting of goal posts” by the ousted FM (formerly from the opposition camp).

All these “shifting of goal posts” will adds new unforeseen cost and risks to foreigners when investing in Malaysia.

More anti-foreigners policy put in place

We bought our properties in year 2010 and we have owned them for more than 9 years from the date of SPA signed.

The RPGT policy applicable in our case were 0 % after more than 5 years of ownership before this gazette came into play.

See below screen grab from https://loanstreet.com.my/learning-centre/rpgt-in-malaysia for the history of RPGT changes through the years.

https://loanstreet.com.my/learning-centre/rpgt-in-malaysia

This ex-FM shifted the goal posts to implement even more anti-foreigners policy as below:

“Shifting of goal posts” by FM

From RPGT of 0% for property held for more than 5 years to (a) 5 % for citizens/permanent resident and (b) 10 % for non-citizens/foreigners. This policy change in the RPGT rate in conjunction with the Retention Sum is anti-foreigners. It would do well for foreigners to stay away from buying Malaysia properties.

Below is the screen grab of the RPGT rates:

https://www.iproperty.com.my/guides/do-you-know-that-the-perpetual-5-rpgt-is-a-tax-on-inflation-ctr/

In our case, we have now been subjected to a 10% RPGT instead of 0% RPGT after more than 5 years of ownership. In other words, we got “played” by the “shifting of goal posts”.

This is the second unforeseen cost and risks to investing in Malaysia properties.

This unforeseen added cost of 10% (beyond 5 years) to 30% tax (within 5 years) is indeed punishing anyone buying a property for long term beyond 5 years ownership/holding as against short term speculation.

It is no longer an asset that can be a hedge against inflation. Even for investment purpose, the interest cost of holding the property long term added together with the RPGT of 30% for holding up to 5 years would have make it a lose-money investment for foreigners.

As can be seen from the table below, foreigners who had to sell before the 5th year of ownership is subject to a high rate of 30% RPGT in comparison to the other two categories. This is then becomes the justification to set the Retention sum to such a hefty sum. It is indeed a cunning move against foreigner investors.

Screen grab reference of the new RPGT regime birthed by the ousted ex-FM:

https://www.propertyhunter.com.my/news/2019/07/6773/article/all-you-need-to-know-about-real-property-gains-tax-rpgt

What the LHDN did with the Retention Sum

With such a big sum of our money as Retention Sum in LHDN’s account, this has opened up manipulations by LHDN to engineer ways and means to swipe out as much of that amount as possible.

The following is my experience with LHDN:

  1. I received a NOA with the 10% penalty on late payment. How in the world would I have a late payment with this hefty Retention Sum already being collected upfront?
  2. LHDN issued a Notice Of Assessment (NOA) to my Power of Attorney (POA). It claims that she is liable to a 30% RPGT. They later aborted it when we put in a vigorous appeal.
  3. LHDN did not allows any deductions for enhancement & preservation (renovation), legal fees, agent fees, stamp duties & State Consent fees. We have submitted all supporting receipts when filing returns to LHDN. LHDN hopes to balloon the amount of RPGT that can be deducted from the Retention Sum.
  4. Throughout the whole process of dealing with LHDN, I was provided with confusing and inaccurate NOA via my lawyer. This I can see clearly from hindsight is to delay as long as possible and to complicate the refund process.
  5. My lawyer has to bear with long period of waiting and stonewalling in her correspondences with LHDN. It psychologically wears you down, makes you tired out and hopes that you will gave up pursuing.

In other words, the purpose is to swipe off as much of the Retention Sum as possible. It could be even more so they do not have to refund you anything.

I could expand more on this with supporting facts in a separate post. Read here.

Actual NOA by LHDN on the half share of our Property

LHDN sent a Notification of Assessment (NOA) on the 05.12.2019 to my wife for her 1/2 share of RPGT. It was time-stamped, received on 30th Dec 2019 by our lawyer. Image of the NOA below:

Guess what the actual Notice of Assessment (NOA) to my missus for her RPGT from LHDN looks like?

See the image of the NOA below:

With the money being retained in LHDN’s account, it was an opportunity for them over-charge us.

We were allowed the following deductions according to their Act:

  • Enhancement & preservation (renovation)
  • Legal fees, agent fees, bank fees
  • Stamp duties
  • State Consent fees.
  • Administrative fees
  • Other expenses

However there is no deduction as can be seen on image that all these is RM 0.00.

With this RPGT Retention Sum, it has indeed leads to LHDN arbitrarily denying us any allowable deductions.

This is the third unforeseen cost and risks to foreigners investing in Malaysia.

Copy of Actual Notice of Assessment

A piece of advice to all foreigner-investors thinking of investing or buying a Malaysia property; Foreigners would do well not to touch it even with a ten-feet pole.

Therefore it is not worth the amount of grief that you gets, coupled with a huge downside for this sector. Currently Johor is experiencing a big supply-overhang of properties. This has leads to many Johor properties being auctioned off by banks at very ridiculously low prices.

A RPGT regime hatched to boost the depleted coffers

The below screen grab tells us the real intents of this RPGT policy change is to burden everyone. It is especially more so for helpless foreigners. The ex-FM stated this in his reply to Dewan Rakyat – “…. its attempt to boost the nations coffers,” The coffers were depleted due to the 1MDB debts:

https://www.thesundaily.my/local/govt-collected-rm91-86m-as-rpgt-for-properties-of-over-five-years-lim-BA1121425

“Beware of getting onto a pirate boat”

“You either vomits blood or you patiently bears the pain

Ex-MM2H Resident

#RPGT7%RetentionSum

#JohorProperties

#LelongProperties

#BadJohorInvestments

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