Lee Hishammuddin Allen & Gledhill
Can anyone (including foreigners) own and occupy real estate in your jurisdiction (including shares in property owning companies)? Are there any restrictions?
Yes. Foreigners can own and occupy real estate in Malaysia and can hold shares in property owning companies subject to certain restrictions.
Foreign purchasers are not allowed to acquire: (i) properties valued less than RM1 million per unit; (ii) residential units under the category of low and low-medium cost as determined by the State Authority; (iii) properties built on Malay reserved land; and (iv) properties allocated to Bumiputera interest in any property development project as determined by the State Authority.
Bumiputera means a Malay individual or aborigine as defined in the Federal Constitution.
Further conditions relating to the obtaining of approval from the Economic Planning Unit, Prime Minister’s Department and the relevant Ministries, State Authorities or Government Departments apply on property acquisitions by foreigners depending on the category and value of the real estate. We can help you with the relevant applications.
Are there restrictions on lending for the purchase of real estate by foreign companies? If so briefly give an outline?
No restrictions. Foreign companies can obtain foreign currency borrowings from licensed onshore banks.
Foreign companies can also obtain any amount of ringgit borrowing from licensed onshore banks (excluding licensed international Islamic banks) to finance the purchase of residential and commercial properties in Malaysia except for the purchase of land only.
Buying
Please provide a short summary of the fees and costs (including tax) relating to buying real estate in your jurisdiction.
(i) Stamp duty is chargeable on the sale and purchase agreement, the transfer instruments of the real estate such as a Memorandum of Transfer or a Deed of Assignment and the loan agreement (if loan is obtained to finance the purchase of the real estate). The amount of stamp duty payable is prescribed under the Stamp Act 1949, subject to amendments by the Finance Act and penalties may be imposed for any late stamping. (ii) Registration fee will be imposed on the Memorandum of Transfer upon presentation of the same for registration at the relevant Land Registry. The amount varies from state to state and a penalty may be imposed for any late registration of instruments. (iii) Legal fees for the sale and purchase of real estate are prescribed by the provisions of the Solicitors’ Remuneration (Amendment) Order 2017. (iv) Real estate fees such as agent or valuation fees, if applicable, are governed by the provisions of the Valuers, Appraisers and Estate Agents Rules 1986. Stamp duty and registration fee are generally borne by the purchasers but it can be contracted otherwise in the sale and purchase agreement.
Owning
Are there taxes applicable to owning real estate and can the burden of the taxes be passed to someone else (e.g. a tenant or an occupier - not being the owner)?
Property tax is payable to the local authorities is imposed on all real estate including shops and factories. Generally, there are 2 types of property tax, namely quit rent and assessment tax which are governed by the National Land Code 1965 and the Local Government Act 1976 respectively. The amount varies from state to state. Quit rent is payable annually whereas assessment tax is payable in two instalments annually.
The burden of paying for quit rent and assessment tax may be passed down to tenants or occupiers subject to the commercial agreements between the parties.
If the owner derives income from the real estate, such as rental income, such income is subject to income tax. The burden of income tax is not transferable. Tax on rental income for foreigners depends on whether they are tax resident or non-tax resident in Malaysia.
Disposal of real estate may be subject to real property gains tax (“RPGT”) or income tax. This depends on whether the real estate is being held as investment asset or stock in trade. RPGT is charged on chargeable gains arising from the disposal of real estate as well as shares in the real property companies based on the Real Property Gains Tax Act 1976. For individual foreigners, if the disposal of the real estate is within 5 years after the date of acquisition, the rate of tax is 30%. The rate of tax is 10% if the disposal is in the 6th year after the date of acquisition of the real estate or thereafter.
Tax Breaks
Are there tax breaks or other incentives for foreigners to buy real estate in your jurisdiction? If so what are they?
Malaysia My Second Home (“MM2H”) is a programme created by the Malaysian Government specifically to allow foreigners who meet the criteria to reside in Malaysia for an extended period of time. It provides many incentives and benefits for foreigners who participate in the MM2H program, such as:
(i) Foreign sourced income is not subject to income tax in Malaysia by virtue of the Income Tax Act 1967;
(ii) Participants in the program will be granted a renewable 10-year social visit pass with multiple-entry visa;
(iii) Participants in the MM2H program will be able to access a lower minimum price threshold for residential properties of all types. Such prices are, however, dependant on each state.
How is the ownership of Real Estate evidenced in your jurisdiction?
In Peninsular Malaysia, each owner of a real estate will have an issue document of title which is a copy/extract of the register document of title. The register document of title is conclusive evidence of the title to the land described being vested in the person or body named in it as proprietor. The Registrar or Land Administrator is in control of the register documents at all times.
In Sabah, the Sabah Land Ordinance goes no further than providing that registration vests and divests title which is evidenced by a document of title but does not provide for a conclusive register.
In Sarawak, the Sarawak Land Code makes provision for an issue document of title but does not make express provision for the conclusiveness of the register.
Is it possible to keep the identity of owners of real estate confidential in your jurisdiction?
No. Information submitted to the Land Office becomes public and is open for public searches to those that know the particulars of the real estate. Any person may make private or official searches in respect of any real estate at a prescribed fee.