RPGT Retention Sum Abuses Foreign Investors

RPGT retention sum abuses foreign investors is written for foreigner disposing Malaysia property. It is especially so when relating to residency, investments, taxes and bureaucracy. You will be guided through what is RPGT Malaysia LHDN.

Writing from my experiences and encounters with LHDN, I laid out the facts to support my unpleasant experience. At the same time to expose one of the perils from investing in Malaysia. This post is about the RPGT, in particular the policy on Retention Sum for foreigners. LHDN is Lembaga Hasil Dalam Negeri Malaysia which is the Income Tax Authority in Malaysia which also is responsible for RPGT Malaysia tax collection.

The RPGT Retention Sum applicable to foreigners is a hefty 7% of selling price of your property. With this big sum of our money as in LHDN’s account, it leads to manipulations within LHDN. Manipulations to engineer ways and means to swipe out as much of that amount as possible.

Foreigners at LHDN’s mercy because of RPGT Retention Sum.

In other words, the purpose is to swipe off as much of the RPGT Retention Sum as possible so they do not have to refund you anything. It could even be more than the retention sum if it is possible with them as we are at their mercy.

Read on further on my experiences and encounter with LHDN. This is a continuation of my earlier posts here, here and here.

I heard that there are many cases out there with similar experiences. Hopefully this blog post could throw some lights to those in similar situations and helps to initiate some collective actions.

Various serious issues, errors & inaccuracies

Issue # 1 – 30% RPGT on Power of Attorney

Retention sum
Image of letter stating the 30% RPGT chargeable on Power of Attorney

Reference Section 3.2 – 30% RPGT on appointed Power of Attorney (POA)

This 30% RPGT was aborted as advised on the 9th September, 2020 in response to this appeal letter.

Issue #2 – Confusing Notice of Assessment with errors and inaccuracies

RPGT retention sum
Image of letter showing the active verb “should be” indicates errors & inaccuracies

Reference Section 3.3 , 3.4, 3.5, 3.6, 3.9, 3.10 and 3.12 – active verb “should be” indicates errors & inaccuracies

Throughout the whole process of dealing with LHDN, I was provided with confusing and inaccurate NOA via my lawyer. This makes me suspect from hindsight is a deliberate attempt on foreigners disposing of Malaysia property to drag the process as long as possible and complicate the refund process.

Issue 3# – Deductions for exemption of gains. Is foreigner disposing Malaysia property disallowed?

foreigner disposing Malaysia property
Image of letter showing submission of original receipts for all expenses

Reference Section 3.11 – We submitted documents required for deduction for exemption of gains.

However LHDN has arbitrarily disallowed all deductions for enhancement & preservation (renovation), legal fees, agent fees, stamp duties & State Consent fees. The deduction were substantial and would thereby reduced the amount of tax payable by me and increased the amount collected by LHDN. Makes senses?

Issue #4 – Retention Sum paid upfront, yet 10% penalty

foreigner disposing Malaysia property
Image of letter showing cheque payment made under PIBB cheque No xxxxxxxxx in Sect 5.11

Reference Section 4 – 10% late payment penalty.

LHDN charged a 10% late payment penalty for failing to paid within 60 days. How could this be when the RPGT Retention Sum was already paid upfront?

Issue #5 – Notice of Assessment dated 05-03-2020 but received on 2nd June 2020

RPGT Malaysia LHDN
Image of letter showing Notice of Assessment

Reference Section 5.1, 5.2 – Date of these two NOA does not reflect true date received.

There is inaccuracies and confusion here with regards to the NOA date. This is because I received the NOA on the 1st June, 2020. I received it via post office mail delivery at my home address. This is a period lapse of about three months. The lawyer received my email with NOA attachment and hereto to letter as copy for reference.

Upon receiving the Notice of Assessment at my address for correspondence, I acted immediately with an email to my lawyer to follow through by sending this letter dated 4th June 2020. As foreigners disposing of Malaysia property the lawyer acting for me must be reliable.

Timeline of refund process & delays

The fact of this long delay and LHDN creating a confusing situation is beyond the ordinary. This is beyond incompetency when I have more than RM100k to be refunded from LHDN’s account. It appears that this is a good ploy by LHDN on foreigner disposing Malaysia property are usually back in their own country and have difficulty to keep up with LHDN.

Start Date

  • 19th Sept, 2019 > Section 5.9 and 5.10 indicates 19th Sept, 2019 (date of covering letter) as the date for submission of Form 502, original receipts for tax deduction and filing of RPGT documents or starting date. All these forms are applicable to foreigner disposing on Malaysia property.
  • 5th March, 2020 (after about five and a half months) > HLDN officially issued Notice of Assessment but my lawyer did not received nor myself. We are not aware of this NOA.
  • 1st  June, 2020 (after about eight and a half months) > Received two NOA via postage mail to my address. One is for me and the other is for my POA. Requested lawyer to clarify with LHDN immediately
  • 4th June 2020 > Lawyer sent letter marked “By Hand” and “URGENT” to LHDN to seek clarifications. We reproduced a copy of this letter here.
  • 9th September 2020 (after about eleven and a half months) > LHDN sent a revised NOA. Per the revised NOA, the 30% RPGT on my POA was removed but LHDN had arbitrarily disallowed my deductions for exemption of gains.

After one year for a foreigner disposing Malaysia property

  • 2nd October, 2020 (after about twelve and a half months) > I emailed to LHDN directly regarding the status of my refund. On the same day, LHDN immediately sent a cheque to my lawyer in the afternoon. They also informed me that the outstanding refund due to my wife will be processed by another LHDN unit which will be delayed. It seems like this different unit is unaware to process the refund till notified by me on 17th November 2020.
  • 6th November, 2020 (after about thirteen and a half months) > No response from LHDN. Requested lawyer to call LHDN’s contact Tel on 7th November, 2020. Based on call, lawyer advised to write email  directly to LHDN in order.
  • 17th November, 2020 > Sent email directly to follow up on the other half share refund that is still pending action. Received immediate reply from them requesting for bank account information for crediting purposes.
  • 10th & 12th December, 2020 > Received two partial payments and stopped. Last partial payment is still outstanding.
  • 17th December, 2020 (after about fourteen months) > Waiting on LHDN’s response on outstanding amount & unresolved outstanding issues that were raised to them. Has the RPGT Malaysia foreigner status affects the way LHDN treats us?

Griefs from LHDN RPGT Retention Sum

There was a long delay of about eight and a half months (19-09-2019 to 02-06-2020) before I received the official Notice of Assessment from LHDN.

Based on the NOA dated 05-03-2020, LHDN took about five and a half months to assess my RPGT based on review of all copies of all documents provided by lawyer as listed on letter dated 4th June 2020.

The NOA contains full of errors, inaccuracies, arbitrarily disallowing deductions for foreigner disposing Malaysia property & seeking to charge my Power of Attorney a RPGT of 30%.

There was a 3 months period of non-reply from LHDN to my lawyer up to 9th September 2020. We received confirmation the 30% RPGT Malaysia foreigner on my POA was aborted.

However other issues that were highlighted by my lawyer were ignored by LHDN.

Manipulations from LHDN RPGT Retention Sum hit foreigner disposing Malaysia property

One such issue is the issue stated on Section 3.11 – [Part d. Exemption of gain – we have submitted Vendor’s original receipts for expenses of Property’s renovation costs for tax deduction purposes and please consider;] was  ignored. It was a shock to learn of this or is it a deliberate move due to the fact that I am a paying RPGT Malaysia foreigner status.

LHDN arbitrarily disallowed any deduction to maximize “swiping” off as much of the RPGT retention sum as possible since we are at their mercy.

My lawyer could not do anything except telling me to wait and wait for my refund of excess tax payment

After about one year of waiting, I decided to email direct to LHDN on the 2nd October, 2020, questioning my refund status.

On the same day, LHDN had immediately sent a cheque to my lawyer in the afternoon.

As of writing, LHDN had still not refunded an outstanding amount of money.

LHDN did not issued official receipts for our payment of 7% RPGT etention sum to acknowledge receipt of payment as indicated in Section 7.

Conclusion about Investing in Malaysia properties

MM2H foreigner investors ended up being trapped by their “shifting goal posts” every few years.

These anti-foreigners “shifting goal posts” are:

  • The minimum purchase price of Johor properties for foreigners “goal posts keeps shifting”. The minimum purchase price was below RM500,000 when we bought our property in 2010. It was above RM500,000 and once again to RM1,000,000 after 2014. Because of this constant “shifting of goal posts” many foreigners ended up “trapped” as prices will not rise so much to the RM1,000,000 mark. The price above RM1,000,000 for foreigners restrict selling to other foreigners and thereby selling to Malaysian only at depressed prices. Foreigners are hanging high and dry through these goal posts shifting.
  • The increase in RPGT Malaysia rate is much higher for foreigner and applied retroactively. For foreigner disposing Malaysia property, it gets worse for those less than five years due to the 2018 change where it is flat 30% throughout the five years.
  • The 7% RPGT retention sum for foreigners that puts investors at their mercy and may have their money swipe off arbitrarily with little or no recourse with RPGT Malaysia LHDN.

The above clearly shows unclear systems, failed procedures, inefficiencies as well as little to no professionalism from politicians and bureaucrats. The twists, the turns and the “left hanging high and dry” as exemplify with this HSR project.

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