Tax Exemption for Tenancy with Monthly Rent Not Exceeding RM2,000 Formalised for YA 2018

On 27 October 2017, the then Finance Minister announced during his 2018 Malaysian Budget Speech that in order to promote the rental of residential homes, the Government will grant a 50% tax exemption on rental income not exceeding RM2,000.00 per month received by resident individuals. The then Prime Minister further announced that this exemption would be effective for three years, from years of assessment 2018 to 2020.[1]
The Income Tax (Exemption) (No. 2) Order 2019 (“EO2/19”) was gazetted on 27 February 2019.  EO2/19 exempts a landlord who rents out his residential property from payment of income tax in respect of 50% of his statutory income derived from the rental of the residential property for the year of assessment 2018, subject to the following conditions being fulfilled –
  1. The landlord is an individual citizen who resides in Malaysia and is the registered proprietor of his residential property;
  1. The monthly rental amount received from each residential property does not exceed RM2,000.00;
  1. The tenancy agreement between the landlord and the tenant which has been executed and stamped comes into effect on or after 1 January 2018; and
  1. The residential property is rented out for any period from 1 January 2018 until 31 December 2018.
A landlord is required to maintain a separate account for the rent received from each residential property which is exempted from income tax under EO2/19.
For the purposes of EO2/19 -
  1. ‘residential property’ means a house, condominium unit, flat or an apartment which is built as a dwelling house; and
  1. ‘rent’ means any sum paid by a tenant to a landlord for occupation of a residential property including the use of parking space, furniture and any other amenities provided by the landlord.
It is to be noted that EO2/19 is effective only in respect of year of assessment 2018, notwithstanding that the former Finance Minister had announced in the 2018 Budget Speech that the exemption would be effective for years of assessment 2018 to 2020.
[1] See Paragraphs 184 and 185 of the 2018 Malaysian Budget Speech.