Following the rollout of Phase 1 of the Stamp Duty Self-Assessment System (“STSDS”), duty payers are obliged to submit stamp duty returns and conduct self-assessments of the stamp duty payable for instruments or agreements relating to rentals or leases, general stamping such as employment contracts and securities such as service agreements (“Phase 1 Instruments”), starting 1 January 2026.
In line with this, the Inland Revenue Board of Malaysia (“LHDN”) recently on 21 December 2025 announced a special waiver of penalty in respect of the Phase 1 Instruments stamped in 2026.¹ Under this initiative, no penalty will be imposed on stamping applications submitted between 1 January 2026 and 31 December 2026 (“Waiver Period”), subject to the limited circumstances set out below.
The special waiver purports to educate public, promote voluntary stamping compliance and facilitate a smooth transition towards STSDS by giving duty payers a one-year grace period to understand the new STSDS procedures and effectively perform electronic self-stamping.
When does this Penalty Waiver apply?
The penalty waiver applies only and specifically to Phase 1 Instruments that are stamped under the STSDS during the Waiver Period in the following limited circumstances:
- submission of an incorrect Stamp Duty Return Form (BNDS);
- provision of incorrect or inaccurate information regarding any instrument that affects the assessment of stamp duty; or
- any offences under Section 72D(2) of the Stamp Act 1949 (“SA 1949”) identified through audits conducted during the Waiver Period.
When does this Penalty Waiver NOT apply?
Based on our reading of the LHDN’s media release, the following is what the waiver does NOT apply:
- Late stamping or non-stamping: The LHDN’s recent announcement does not explicitly state that the penalty waiver further extends to late stamping or non-stamping. Therefore, penalty still applies for failing to stamp an instrument at all, or late penalty for submitting it after the 30-day stamping period.
- Applications outside the Waiver Period: The penalty waiver does not apply to any stamping applications submitted outside of year 2026.
- Instruments not under the STSDS framework: The penalty waiver is explicitly limited to instruments stamped under Phase 1 of the STSDS within 2026, but not generally to all and any other instruments submitted in 2026.
- Offences outside Section 72D(2) SA 1949: The penalty waiver only applies to offences under Section 72D(2) SA 1949 identified during audits. Any other offences which are chargeable with penalties under the SA 1949 will remain subject to penalties.
- Deliberate non-compliance beyond the Waiver Period: The objective of this special penalty waiver is aimed for transitional support and education for the public. It is an interim measure which will cease to apply once the one-year grace period has concluded unless otherwise announced by the authorities.
In conclusion, the above penalty waiver is very limited in its scope and temporary in nature. Malaysian businesses should still take diligent action, if not already done, to a) submit its previously signed but unstamped instruments for stamping, and b) train and prepare itself for the self-assessment and stamping of new instruments signed from 2026 onwards, failing which the range of penalties under the SA 1949 will continue to apply.
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This article was written by Chin Wan Xin (Associate) from Donovan & Ho’s corporate practice.
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.
