MALAYSIA’S finance minister announced the introduction of capital gains tax (CGT) on the disposal of unlisted shares by companies, trusts, limited liability partnerships and cooperatives in his Budget 2024 speech on Oct 13, 2023. In the speech, he stated that the government will consider the exemption of CGT on the disposal of shares related to certain activities such as approved initial public offering, internal restructuring and venture capital companies.
On Oct 3, 2024, two exemption orders relating to disposal of shares involved in group restructuring and IPO were issued. A summary of the gazette orders:
► Group restructuring
In order to benefit from this exemption, the restructuring of companies should be within the group, and should be part of a scheme to increase the efficiency of the operations of either the disposer company or the acquirer company, or both.
The acquirer company must pay the disposer a consideration consisting not less than 75% of its shares, and the balance of the consideration must be in cash. The disposal should take place between March 1, 2024 and Dec 31, 2028.
To benefit from the exemption, the disposer needs to apply to the Director General of Inland Revenue three years after the disposal of the shares and comply with the conditions imposed in the guidelines to be issued by the Ministry of Finance. During this period, the disposer is required to the file normal tax returns and the CGT returns (Form CGT).
Any capital losses generated from the disposal will not be allowed to be set off against other capital gains or to be carried forward.
Issues that need clarification
Since the guidelines are not out, taxpayers cannot get certainty on their position because the conditions to be imposed by the minister are currently unknown. When we refer to the term “scheme”, the question in the minds of taxpayers would be – whether the scheme has to be approved by any third parties, or any scheme approved by the board of directors to improve the efficiency of the group is permissible?
The application to the Director General of Inland Revenue can only be made three years after the disposal of the shares. Does this mean that the tax must be paid upon the disposal upfront, and the exemption is only granted three years later? This could lead to a refund situation where the taxpayer has to make another application to obtain the refund.
► Initial public offering (IPO)
The exemption period will only cover the disposal of shares between March 1, 2024 and Dec 31, 2028, and the shares should be in relation to the restructuring of any company for an IPO. The disposer must within one year from the date of disposal of the shares apply for the IPO either to Securities Commission Malaysia for listing on the Main Market, or to Bursa Malaysia for listing on the ACE Market or the LEAP Market. The approvals for the IPO must be obtained before Dec 31, 2028.
Upon obtaining the approval from either the Securities Commission or Bursa Malaysia, you should apply in writing to the Director General of Inland Revenue within one year for approval. Similar to the group restructuring exemption, any losses from the disposal of shares shall be disregarded.
Issues that need clarification
Again, the issue here will be the taxes may need to be paid upfront and a refund obtained later.
The exemption orders are welcome and provide much-needed clarity.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
