For many first time or even regular property investors, buying and selling a property in Malaysia can be a complex process as it includes a range of administrative and legal procedures. A conveyancing lawyer, or formally known as a solicitor, is usually given the responsibility to manage these procedures. As a property investor, it is important to know the legal issues that are embedded in the process of transferring an asset from one party to another.
Here are several legal affairs to be aware of when buying or selling a property in Malaysia:
Sales and Purchase Agreement
A Sales and Purchase Agreement (SPA) is a legally binding contract that lists the details of a sales between two parties, which includes the buyer and seller of a property. The terms and conditions that are generally included in the agreement are the details of the property, details of all parties involved, type of loan/financing and the time of delivery of the vacant possession of the property.
A Sales and Purchase Agreement is paramount in the process of buying or selling a property as in any circumstances anything goes wrong, the parties involved will be legally protected.
Stamp Duty under the Inland Revenue Board (IRB)/ Lembaga Hasil Dalam Negeri (LHDN)
A stamp duty is a tax (similar to Property Tax) that is imposed on purchases or documents of a single property. Under the Stamp Duty Act 1949, the buyer/purchaser is required to pay the stamp duty if the transactions involve real property transfers.
In Malaysia there are two types of stamp duty:
- Ad Valorem Duty – Rate of duty varies according to the nature of the instruments and the consideration stipulated in the instruments or the market value of the property
- Fixed Duty – Rate is fixed and is imposed without any relation to the consideration paid or amount stated in the instrument.
Land Charges
In some cases where a financial institution provides financial assistance (loan) to purchasers of a property, a ‘Charge’, which is a common form of security, is registered in exchange for the loan that is granted. Under s.241 of the National Land Code Act 1965, the financial institution has the power to charge the property that is purchased under the loan.
The Charge only acts as a form of security and is not a transfer of land. This means that although the financial institution has a legal interest over the land, the purchaser still has legal ownership of the land. The original Land Title will be possessed by the financial institution, and will be returned to the purchaser once the loan has been fully repaid.
Real Property Gains Tax (RPGT)
Real Property Gains Tax (RPGT) is a form of Capital Gains Tax that is imposed by the Malaysian Government when property owners intend on selling their property. Property owners will have to pay taxes on the profits (gains) of their property, if they decide to sell their property.
If profits are made from the property, owners will have to pay the RPGT within 60 days of the sale. The tax can be either paid directly by the owner of the property to the IRB or a fee can be paid to the solicitors that are handling the sales of the property.
It is to be noted that the rate of RPGT differs depending on whether the property owner is a Malaysian citizen or a non-Malaysian citizen.
Consent
Consent is a form of confirmation or permission that is applied to allow for a sale to proceed. The need for a consent application depends on the descriptions in a title of the property or the person receiving the property.
If it is stated that the land is not to be transferred, mortgaged or Charged without the consent of the State, a consent to the state authorities would need to be applied by the seller/vendor/transferor/charger. In some cases, where the land of the property is under a Malay Reserved Land/Bumiputera Land, consent application would be rejected by the state authority if it is applied by a non-Bumiputera.
Based on the National Land Code 2016, any foreign entities who wish to purchase a property in Malaysia would be required to apply for a foreigner consent from the State Authority.
