TAXPAYERS usually do not pay attention to stamp duty unless there is a transfer of property that requires the title to be transferred, or transactions undertaken between third parties which may have to be litigated in the courts. Unless the document is stamped, it will not be accepted in the courts.
At the moment, there is no compulsion for taxpayers to stamp their documents. Generally, intercompany agreements between related parties are not stamped because they do not anticipate any disputes that will go to court. However, this will stop from 2026 with proposed amendments in the Finance Bill 2024 whereby the Inland Revenue Board (IRB) has the right to review all agreements and collect stamp duty.
How stamp duty is applied
This is a unique tax that is applied on agreements that fall within the definition of an instrument, and an instrument is defined to include any document which is handwritten, typewritten, printed, or documents electronically recorded or transmitted in an electronically readable form. This will include agreements, letters, memorandums, emails, etc.
The stamp duty liability will only arise if the instrument is listed in the First Schedule of the Stamp Act 1949 (Stamp Act) and the rate of tax is outlined for every item in the schedule.
The common mistake made by taxpayers is applying the wrong duty because of the incorrect classification of the instrument. Many taxpayers do not know how to interpret this legislation because it was enacted during the pre-independence period written in a legalistic manner.
Significant changes
The most significant change is the introduction of self-assessment in stages from Jan 1 2026 for instruments or agreements related to rental or lease, general stamping and securities; Phase 2 from 2027 will be applied on instruments for transfer of property ownership; Phase 3 from January 2028 will be for all other instruments.
Under the self-assessment regime, the burden of determining the correct duty will be entirely on the taxpayer. If it is incorrect, there will be additional duties and penalties that can range up to 100% of the additional duty if there is no prosecution. However, if the matter goes to court, the fines can range from RM1,000 to RM10,000, and may have to pay a special penalty equivalent to the underpaid duty.
It is important to remind taxpayers that all instruments under the Stamp Act will have to be stamped and this will include intercompany transactions such as provision of services and financing, sale of business, sale of goods, etc. unless it is specifically exempted by the Act.
From 2026, the IRB has the power to audit, and it can go back for five years after the date the duty is paid or would have been paid.
It is extremely important for taxpayers to avoid this problem and review all their documents and ensure that they get it appropriately stamped now to avoid the above penalties. However, many of these documents will also be subject to late stamping penalty. The late stamping penalty rates are increased from Jan 1 2025 to a maximum of 10% if is stamped within three months after the time for stamping and 20% thereafter. All documents must be stamped within 30 days from the date of execution.
Currently, under the official assessment system, all documents must be sent for adjudication, and the duty is only payable thereafter. Upon the introduction of the self-assessment system, the adjudication will only be done after the taxpayer has filed a self-assessed return which will be deemed to be an assessment on the day the return is filed. In the event the adjudication gives rise to additional duty, there will be additional assessments issued.
The changes to the Stamp Act in 2025 and 2026 are very significant because the imposition of stamp duty is now mandatory.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
