This update is relevant to taxpayers, property buyers, investors, and businesses that enter into any types of instruments, contracts and agreements in the ordinary course of business which attract stamp duty.
Here’s a summary of the proposed amendments and their implications for businesses
Key Highlights
(a) Self-Assessment System for Stamp Duty
The Budget proposes a phased introduction of a self-assessment system, requiring taxpayers to calculate and be responsible for their own stamp duty obligations independently based on the type of instrument or agreement:
- Phase 1 (effective from 1 January 2026): Applies to rentals, leases, general stamping, and securities.
- Phase 2 (effective from 1 January 2027): Applies to property ownership transfers.
- Phase 3 (effective from 1 January 2028): Covers instruments not included in Phases 1 and 2.
Impact on Businesses
- Stamp duty is a tax levied on instruments, which are presently are assessed and computed by the LHDN’s stamp office. To have a legal document properly submitted, assessed and stamped, even though done online, takes between 1 day to weeks to finally obtain a ‘stamp certificate’. The move towards a self-assessment system requires individuals and businesses to compute and assess their stamp duty obligations independently, potentially reducing the overall time taken to stamp agreements. However, this approach may bring more challenges than benefits to the tax payer.
- Without sufficient experience or professional support, both individuals and businesses may face difficulties in accurately classifying the nature of the instrument correctly. The nature of the instrument determines the stamp duty rate payable. A wrong classification of the instrument can lead to an incorrect stamp duty rate applied. Thereafter, the onus of calculating applicable stamp duties rests on the taxpayer, hence, any errors or underpayment that could lead to penalties to the tax payer.
- A move to self-assessment will likely mean that LHND’s tax audits will gradually include stamp duty audits, to check if documents have been stamped and stamped at the correct amount. Fines and penalties could swiftly follow for non-stamped or incorrectly-stamped documents.
This shift to a stamp duty self-assessment system will increase the need for businesses to rely more on professional advisory services, regular audits, accurate record-keeping and mandatory stamping procedures, to mitigate risks of penalties for non-stamping or incorrect stamping of agreements.
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This article was written by Sylvia Lock (Senior Associate) from Donovan & Ho’s corporate practice group.
Donovan & Ho is a law firm in Malaysia, and our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. Feel free to contact us if you have any queries.
