Following a new gazette on 29 December 2023, the effective date for the capital gains tax (“CGT”) on gains or profits received from the disposal of shares of unlisted companies formed in Malaysia will start from 1 March 2024, in line with the original announcement in the Malaysia’s Budget 2024. To recap, a capital gains tax of 10% will be enforced against gains or profits received pursuant to the shares disposal.
Implementation issues
There are still many questions that need to be answered with respect to the proposed capital gains tax. For example, it is unclear if founders and angels may also be subject to capital gains tax or not as venture funds are likely to be exempt from such tax. The government also said that companies that get listed on the local stock exchange may also be exempted from capital gains tax. These exemptions are not mentioned in the recent bill so it may be likely to be included in a subsidiary legislation this year.
The new tax may likely impact the local startup scene. I have met several investors and founders that mentioned that they are exploring the idea of redomiciling the affected investee entity elsewhere to avoid the tax exposure. To illustrate, only Singapore and Hong Kong do not have CGT in our neighbouring region.
Final thoughts
At the date of this post, there has yet to be any clarity on the type of disposal of private equities that may be exempt from the CGT. Consequently, anyone who is planning to liquidate his or her equity stake will need to stay up to date and take decisive steps including consulting your usual tax adviser to manage any potential tax implications that may be impacted by the new proposed CGT.
Updated on 17 August 2024