Taxes on Acquisition & Transfer of Real Estate in Malaysia

Stamp Duty & Legal Costs
The stamp duty payable by purchasers of property is based on market value at the following rates:
- 1% for first RM100,000
- 2% for next RM400,000
- 3% for the remainder

Legal fees for sales and purchases and charges for completing any transaction (subject to a minimum of RM200) are fixed at rates based on market value:
- 1% for the first RM100,000
- 0.5% for the next RM4,900,000
- 0.25% for remainder

Real Property Gain Tax
Real Property Gains Tax (RPGT) is charged on gains arising from the disposal of real property which is defined as any land situated in Malaysia and any interest, option or other right in or over such land. RPGT is also charged on the disposal of shares in a real property company (RPC). A RPC is a controlled company holding real property or shares in another RPC of which the defined value is not less than 75% of the value of the company’s total tangible assets.

The following are the rates of RPGT: -

Disposal by a company
- 30% for disposal within 2 years after date of acquisition
- 20% for disposal in the 3rd years after date of acquisition
- 15% for disposal in the 4th years after date of acquisition
- 5% for disposal in the 5th years after date of acquisition or thereafter

Disposal by persons other than companies
- 30% for disposal within 2 years after date of acquisition
- 20% for disposal in the 3rd years after date of acquisition
- 15% for disposal in the 4th years after date of acquisition
- 5% for disposal in the 5th years after date of acquisition
- 0% for disposal in the 6th years after date of acquisition or thereafter

Disposal by an individual who is not a citizen or permanent resident
If the date of disposal is from 18 Oct 1980 to 23 Oct 1986 (for assets acquired after 17 Oct 1980) the rate of RPGT is 40%.

If the date of disposal is from 24 Oct 1986 to 26 Oct 1995, the rate of RPGT is same rates as disposal by persons other has companies.

If the date of disposal is from 27 Oct 1995 to 16 Oct 1997, the rate of RPGT is 30%.

If the date of disposal is from 17 Oct 1997 onwards, the rate is 30% for disposal within 5 years after the date of acquisition and 5% for disposal in the 6th year after the date of acquisition or thereafter.

Malaysia Daily Media Highlights

UMNO election deferred
The UMNO election scheduled for next year has been deferred until after the next general election, which is due in 2009. Party president Datuk Seri Abdullah Ahmad Badawi said the decision was based on “party policy”, adding that UMNO had done this in two previous party elections. “It has proven to be beneficial to the party, as it allows us to give full attention and focus on the country’s development and projects”.

Selling Volkswagen marques
Edaran Otomobil Nasional Bhd (EON), through its wholly-owned subsidiary Euromobil Sdn Bhd, has secured the rights to market and sell all products of the German Volkswagen (VW) marques in Shah Alam, Selangor. Euromobil chairman, Datuk Syed Hisham said the addition of the VW marque to its multi brand stable will have a positive impact on EON group’s earnings as a whole in the longer term. Euromobil will now offer the VW range of Polo, Cross Polo, new Golf, Golf GTI, new Beetle, Jetta, Passat, Touareg and Touarag and Touranmodels as well as after sales support at its 3S facility in Glenmarie, Shah Alam.

De-merges Parkson
Lion Diversified Holdings Bhd is selling its Parkson retail businesses here and in China to Amalgamated Containers Bhd (ACB) for RM4.3bn via a share swap, as part of a streamlining exercise within the Lion group. LionDiv will end up with a 99.16% stake comprising 960.5m shares in ACB, which will be entirely distributed to its shareholders via a capital distribution on the basis of 13 shares for every 10 LionDiv shares. The Lion group said it was streamlining the businesses of LionDiv, ACB and Lion Corporation Bhd (Lion Corp) for them to be more focused.

Raise RM150m via private placement
Green Packet Bhd plans to raise over RM150m via a private placement of up to 40.4m shares based on an indicative issue price of RM3.93 per share. The company said the proceeds would be used to fund the capital expenditure and operating expenses for the rollout of the SONMetro Internet broadband services here and aroad.

RM391m UAE contracts
Malaysian Resources Corporation Bhd’s (MRCB) 49% stake associate Al Fattan MRCB Construction Co LLC has been awarded RM391.6m construction projects by Al Fattan Properties LLC. The company said the projects consisted of the construction of a hotel and residences building for RM341.4m cost plus basis and a RM50.2m office building. The hotel and residences building would take 24 months to complete from Dec 1, 2006, while the office building would take 10 months from Oct 25, 2006.

Eyes China's vast water treatment market
PBA Holdings Bhd fresh from the successful commission of its water treatment plant in Yichun of Jangxi province, China in June now wants to tap into the vast potential to supply and provide treated piped water to some 200 towns in China. It has received enquiries from several parties in the province expressing their interest in seeking PBA’s services to handle their water treatment operations.

Malaysia Daily Media Highlights

Khazanah to issue US$750m exchangeable bonds for TM shares
Malaysia’s state investment arm, Khazanah Nasional Bhd, will raise US$750m (RM2.8bn) from a landmark Islamic financial services centre. The bonds, which could be converted into shares of Telekom Malaysia Bhd, will be the world’s first Islamic exchangeable bond. It is also the largest-ever exchangeable paper to come out from Malaysia this year and the largest exchangeable instrument in Asia, excluding Japan, so far this ear. The issue’s initial size was US$500m (RM1.84bn) but it ended up being 1.5 times bigger. It will be issued via a special purpose company, Rafflesia Capital Ltd. “Demand was generated from quality investors from the Middle East and elsewhere, and include financial institutions, asset managers, insurance companies, pension funds, corporate and high net worth individuals”, Khazanah said.

Ramunia Takeover
Sime Darby Bhd is believed to be proceeding with a planned acquisition of an over 50% stake in Ramunia Holdings Bhd from the latter’s Chariman Datuk Azizul Rahman Abdul Samad, and a subsequent mandatory general offer for all the shares in the oil and gas fabricator.

Plans RM920m international bond issue
Ranhill Bhd plans to raise up to US$250m (RM920.5m) in international capital markets via a bond issue to fund the group’s capital investment and to refinance some of its borrowings. In a statement on Sept 27, its president and chief executive officer, Tan Sri Hamdan Mohamad said the proposed bond issue would also provide Ranhill access to a wider pool of investors. “This is in line with Ranhill’s business strategy to expand internationally,” he added. The papers will be issued to non-residents of Malaysia via a book-building process.

Bids for Vietnam highway job
Three local firms, including builder Bina Puri Holdings Bhd, are proposing to build and operate a toll highway in Vietnam. Bina Puri, which is linked to businessman Tan Sri Syed Mokhtar Al-Bukhary, has proposed its plans to the Government of Vietnam and it is currently in direct negotiations with the local authorities. “The concessionaire plans to build the highway and then collect toll over a 30-year period,” said the source.

Short-selling plan deferred to October
The planned reintroduction of short-selling, originally scheduled to take place tomorrow, has been deferred to next month. The reason for deferment was to make sure that the systems are running smoothly as well as to give stockbrokers more time to put their systems in order.

Fire Insurance Policy – Risks & Perils

It is important to get adequate insurance coverage for your premises in order to provide sufficient protection to your property. Amongst all, Fire Insurance is the most common and important insurance that is required.

There are several perils can be chosen under a Fire Insurance Policy to cover your property against risk. The premium for your fire insurance policy is depending on the perils that you want to be included in. The perils that usually available by most of the fire insurance companies are as follow: -

Fire:
Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous combustion or its undergoing any heating or drying process cannot be treated as damage due to fire. Spontaneous combustion means some goods, such as copra or coal, can spontaneously heat and catch fire, when stored in bulk.

Lightning:
Lightning may result in fire damage or other types of damage, such as a roof broken by a falling chimney struck by lightning or cracks in a building due to a lightning strike. Both fire and other types of damages caused by lightning are covered by the policy.

Explosion/ Implosion:
An explosion is a sudden increase in volume and release of energy in a violent manner, usually with the generation of high temperatures and the release of gases. An explosion causes pressure waves in the local medium in which it occurs. An explosion is caused inside a vessel when the pressure within the vessel exceeds the atmospheric pressure acting externally on its surface. An explosion may cause fire damage or concussion damage.

Implosion means bursting inward or collapse. This takes place when the external pressure exceeds the internal pressure. This policy, however, does not cover destruction or damage caused to the boilers (other than domestic boilers), economizers or other vessels in which steam is generated and machinery or apparatus subject to centrifugal force by its own explosion/ implosion. These risks can be covered in other special policy, which is specially designed to handle these risks.

Aircraft Damage:
The loss or damage to the property (by fire or otherwise) directly caused by aircraft and other aerial devices and/ or articles dropped there from is covered. However, destruction or damage resulting from pressure waves caused by aircraft travelling at supersonic speed is excluded from the scope of the policy.

Riot, Strike and Malicious Damage:
This peril is defined as ‘the act of any person taking part together with others in any disturbance of the public peace, or the action of a lawfully constituted authority in suppressing such act.

Storm, Tempest
The peril is to cover caused by abnormal weather conditions, not damage attributable to poor maintenance or wear and tear, such as a leaking flat roof.

Impact Damage:
Impact by any Rail/ Road vehicle or animal by direct contact with the insured property is covered. However, such vehicles or animals should not belong to or owned by the insured or any occupier of the premises or their employees while acting in the course of their employment.

Subsidence and Landslide including Rockslide:
Destruction or damage caused by Subsidence of part of the site on which the property stands or Landslide/ Rockslide is covered. While Subsidence means sinking of land or building to a lower level, Landslide means sliding down of land usually on a hill.
However, normal cracking, settlement or bedding down of new structures; settlement or movement of made up ground; coastal or river erosion; defective design or workmanship or use of defective materials; and demolition, construction, structural alterations or repair of any property or ground-works or excavations, are not covered.

Bursting and/ or overflowing of Water Tanks, Apparatus and Pipes:
Loss or damage to property by water or otherwise on account of bursting or accidental overflowing of water tanks, apparatus and pipes is covered.

Sprinkler Leakage:
It covers for property damage caused by unintentional discharge from an automatic sprinkler system. However, such destruction or damage caused by repairs or alterations to the buildings or premises; repairs removal or extension of the sprinkler installation; and defects in construction known to the insured, are not covered.

Taxes on Acquisition & Transfer of Real Estate in China

Stamp Duty & Legal Costs
In China, under the 1988 provisional regulations on Stamp duty, local governments are allowed to set the stamp duty within a given range. Stamp duty on sale or lease agreements for real estate is assessed at 0.03% in Shanghai and Beijing or 0.05% in Guangzhou on the value for sales, and at 0.1% of the leasing fee. All foreign-invested enterprises and foreign enterprises are subject to stamp duty since 1994.

Notarization fees are typically charged at 0.03% of the property’s purchase price. In Shanghai, up to 70% discount is sometimes given at the discretion of the notary agency, though it is not written in the tax regulations. In Guangzhou, the notarization fee is 0.3% of the transaction price but it is not compulsory.

Registration fees for mortgage contracts are charged at 0.1% of the purchase price.

Deed Tax
Deed tax is generally levied on purchasers at 3% of the total purchase price. For properties that satisfy the predefined ‘common residential property’ qualification, a discounted rate of 1.5% is applicable.

Business Tax
Business tax is levied at 5% on gross rental income for property leases and at 5% on total sales value for property sales. Sales of the only residence owned by individuals for more than two years are exempted from the tax. However, business tax is still levied at 5% on profits from the sale of a non-residential property after two years of individual ownership.

City maintenance and Construction Tax
City Maintenance and Construction Tax is levied at 1-7% of Business Tax, which is set by the local government. The highest rate is applicable to downtown locations, while foreign companies from the tax.

Land Appreciation Tax
The Land Appreciation Tax (LAT) was introduced in January 1994 and implemented in 1995. LAT applies to the sale of real estate and is levied at rate between 30% and 60% on profits from real estate sales.

- LAT Rate 30% on the portion of profit not exceeding 50% of deductible
- LAT Rate 40% for the portion over 50% but not exceeding 100%
- LAT Rate 50% for the portion over 100% but not exceeding 200%
- LAT Rate 60% for the portion over exceeding 200%

Costs deductible for the calculation of profits include the original cost of Land Use Rights, land development cost, construction cost, interest, business tax and stamp duty. A property developer may deduct 120% of the original cost of Land Use Rights, cost of land development and construction cost.

Owner-occupiers who have used a property for at least five years will be exempted from this tax, which is aimed at curbing speculative development in particular.

Investigation Prior to the Renting of Premises

During the pre-contractual stage or before entering into an acquisition or leasing contract, the tenant should be alert to the precautions below:

* Inspect the property to check whether it is in a good state of repair. A structural survey may be required to advise on the repair outlays that the tenant is likely to face. The tenant should be clear about the party who is responsible for repairs: the landlord or the tenant;

* Seek for advice on whether the property is worth the asking rental;

* Ensure the location of the boundary stones corresponds with the plan of the property as disclosed on the land title;

* Ensure whether squatters or third parties are in occupation;*

*Ensure whether essential services (electricity, water, drainage) are connected;

* Seek for clarification whether any planning permission is required for any improvement or alterations;

* Seek for clarification whether the existing or intended use of the property complies with local regulations or building laws;

* Make certain whether the property is affected by any compulsory acquisition proposal or any road widening or road building proposal by the government;

* If the building has been previously occupied, identify carefully which fixtures and fittings will be removed when the previous occupier leaves;

* Discuss with the landlord and gain the landlord’s approval for the renovation works that are required for the operation of the business before carrying them out;

Other the above mentioned points, a tenant should also pay attention to the provisions in a tenancy or lease agreement. Generally, a tenancy or lease agreement should define clearly the parties in the agreement, the demised premises, the usage of the premises, the term (commencement date and termination date), options to renew the lease, obligation of landlord and tenant respectively in maintaining the premises, rental amount and payment mode, rental adjustment rate if the tenant requests to extend the lease, assignment to sublet, condemnation insurance, as well as default and remedies.

If a tenant is renting a retail store, he should pay extra attention to the set out easement and identify clearly the square footage, common area and store location. However, if the premise is within the retail building, the tenant should discuss further with the landowner on the appurtenant right, the restriction of use, and the usage of directory boards and signs.

For the letting of office space, the tenant should also highlight the use of parking space, operating hours, permitted access and services provided by the management. In renting apartment space, the tenant should seek clarification from the landowner on the building regulations or house rules that govern the rules set by the management. The tenant should also find out whether the apartment is limited to one family and identify clearly the parking and storage space. For tenant with pets, it is also necessary to clarify with the landlord whether pets are permitted.

Getting the Right Premises for Your Business

Getting the right premises is important for running a business. The right premises will make your business easier to run and more profitable besides reducing your operational problems. To reduce your risk of overlooking some points which may turn out to be vital while operating your business, you should approach the search of your property in a logical and organized way and seek advice when necessary.

To get the right premises, first of all you need to decide roughly which area you want to operate your business. Visit the site and get a feel of the area by doing some ground research such as finding out about the traffic flow in the area, the basic amenities available, public transport and demographic patterns. Once the area has been identified, you have to decide on the location of your premises. The location of the premises will enhance the value of the business. For instance, a shop which faces a major access road will attract a substantial crowd.

Your business strategy and ongoing plans also play an essential role in determining your commercial premises. You should identify clearly the nature of your business such as the number of employees, the processes used in the business, the plant and machinery required, your expansion plans, the transportation of raw materials to your premises, etc. Your chosen premises must be able to complement your business plans.

The next step to take is to prepare a specification of the premises you want. Work together with your interior designer or your architect on the detailing that you require such as floor area for business, floor area for storage, car parking bays, loading and unloading facilities, utilities requirement and statutory requirements.
The final step to consider is financial ability. Plan your budget on how much you can afford to pay for the outgoing on the premises. Outgoing includes service charge for maintenance, utilities expenses, insurance of the building, property taxes, and capital expenses for replacement of major items. From the detailed budget, you can decide whether to purchase or to lease the premises.