Introduction
Malaysia's government is modelled after the British system with
certain modification. The government of Malaysia is based on a
parliamentary system, led by an elected Prime Minister.
The country incorporates of 13 states and 3 federal territories.
The Federal Government is responsible for external affairs,
defence, internal security, justice, federal citizenship, finance,
commerce, industry, taxation, customs, shipping, navigation and
fisheries, communications and transport, education, medicine and
health, social security and tourism. The States have powers over
land and land administration, Islamic law, Malay customs, permits
and licenses for mining, agriculture, forests and so on.1 Politically, Malaysia has long been
stable.
Malaysia is a member of the British Commonwealth family and its
legal regime adopts the British Westminster constitutional system
and is of common law system.2
In general, foreigners may directly acquire immovable properties
in Malaysia value no less than 250,000 Ringgit.
Different states of Malaysia have their own laws on land and
real estate. For example, in KL region, leasehold (99 years) as
well as freehold title may be acquired, even for condominiums (that
is called the strata title). In Sabah state, however, freehold
titles are only granted to native lands, which can only be acquired
by natives Malays (exclude Malaysian citizens who are not
originally Malays).
Private property rights are protected. Many contracts often
include a mandatory arbitration clause.
In terms of the fiscal system of Malaysia, it has moderate tax
rates. The top individual income tax is 28%. As of April 2007, the
government has abolished the capital gains tax on real estate.
Legal Guide
LAW
The Malaysian legal system is based on English common law.
Malaysia's judicial system is comprised of Superior Courts
(including Federal Court, Court of Appeal and High Courts),
Subordinate Courts (including Sessions Courts, Magistrates' Courts,
Syariah Courts and other courts such as Penghulu Courts or Native
Courts). The Federal Court reviews decisions made by the Court of
Appeal and has original jurisdiction in constitutional matters and
in disputes between states or between the federal government and a
state.3
In respect of the real estate sector, following are some of the
relevant laws:
- Constitution
- Federal Territory (Planning) Act 1982 (Act 267)
- Town and Country Planning Act 1976 (Act 172) (June 2003)
- Street, Drainage and Building Act 1974 (Act 133)
- Town Planners Act 1995 (Act 538)
OWNERSHIP & RIGHTS
Each state of Malaysia has powers over land and land
administration. Therefore, ownership of lands in differs among the
states. In the KL region, leasehold (99 years) as well as freehold
title may be acquired, even for condominiums (that is called the
strata title). In Sabah state, however, the current Sabah land laws
do not permit anyone (including foreigners) to hold freehold
non-native land titles in Sabah. All lands in Sabah are leasehold
lands except for lands under native titles. Only native Malays are
entitled to own native titles.
In general, foreigners may acquire immovable properties in
Malaysia that are over 250,000 Ringgit without seeking approval
from the Foreign Investment Committee. However, State Authority
Consent is always required for foreigners to acquire immovable
properties in Malaysia.
Foreigners do not need to join the Malaysia My Second Home
(MM2H) scheme to be able to acquire properties in Malaysia,
although the scheme does provide certain incentives for foreigners
to live in Malaysia. Details of the MM2H scheme can be found at:
http://www.mm2h.gov.my/
BUYING PROCEDURE
The buying procedure for an off-plan property is in general as
follows:
1. Reserve the property
Once you have
chosen your ideal property, a reservation agreement is to be signed
with the seller and a reservation deposit needs to be paid (will
form part of the purchase price).
2. State Authority Consent
This is an
approval and written consent from the State Authority permitting
the sale and transfer of the said property by the seller to the
buyer. The procedure of obtaining the consent is fairly
straightforward. Property buyers can obtain the consent form from
and submitted at the High Commission of Malaysia.
3. Mortgage Application (if
applicable)
When buying off-plan property, housing
mortgages in Malaysia often start upon signing the property
preliminary purchase contract. Meaning, mortgage repayments start
well before the completion of the property. Therefore, those buyers
who require mortgage/leverage for purchasing their properties in
Malaysia, it is strongly suggested that buyers to confirm mortgage
offers before exchanging the preliminary purchase contract.
4. Exchange Contract
Before singing
preliminary purchase contract, buyers are suggested to consult a
local law firm or conveyancing lawyer on analysing the
risks and/or any unfavourable terms of the contract. Upon
signing of the contract, first instalment/payment is often
required.
5. Title Transfer
The land registration
system in all states of Malaysia is the Torrens system, which is
administered by the State Land Offices and coordinated by the
Department of Land and Mines.4
Torrens system is a registration system on titles of
lands. The main character of the Torrens system is the
guaranty by the government of properly registered titles.
It is in common practice that developers and/or property sellers
and their lawyers will be registering the title for property
buyers.
Taxation (for non-residents individuals*)5
PURCHASING TAXATION
| CATEGORY |
TAX/FEE RATE |
| Stamp Duty |
First MYR100,000 – 1%
Next MYR400,000 – 2%
Balance/remaining – 3%
|
| State Authority Consent |
minor |
| Caveat fee |
minor |
| Registration of teh Instruments |
minor |
| Document Fees |
minor |
| Statutory
Declaration |
minor
|
OWNERSHIP TAXATION
| category |
tax/fee rate |
scope/remark |
| Income Tax on Rents |
28% |
Certain exemption may be allowed, such as interest
received from bank. Outgoings & expenses wholly &
exclusively incurred in the production of the gross income can be
deducted. Such outgoings & expenses include (1) repairs and
maintenance costs, (2) costs of insurance, (3) cost of rent
collection e.g. hiring of estate agent, lawyers to prepare rental
agreement etc (4) cost of administration of property e.g. service
charges/sinking fund contribution to developer (but does not
include any deposits paid) (5) general running expenses e.g. quit
rent, assessment (6) costs of renewal of lease (7) interest on loan
taken to purchase property (but excludes principal portion of the
loan instalment payment) |
| Quit Rent |
|
a local authority tax similar to that of the council tax in the
UK,
depending on the value and location of the property |
| Assessment Tax |
|
a local authority tax assessed on the annual rental of
property |
SALES TAXATION
| category |
tax/fee rate |
scope/remrk |
| Capital Gains Tax (CGT) |
NIL |
As of 1 April 2007, Malaysian government has abolished the CGT
on real estate. |
* A non-resident under Malaysian tax law is a person stays less
than 182 days in Malaysia in a year, regardless of the citizenship
or nationality of this person.
As at 24 March 2008, Malaysia has entered into double taxation
agreement with 60 countries, including Australia, Canada, China,
France, Germany, Ireland, Italy, Japan, Netherlands, New Zealand,
Norway, Russia, Singapore, South Africa, Spain, Switzerland,
U.A.E., the UK, the USA and so on. For more information on
Malaysia's double taxation agreements, please refer to Inland
Revenue Board of Malaysia's website at: http://www.hasil.org.my/
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