The Malaysian Government announced today¹ that it has agreed to exempt unit trusts from capital gains tax (“CGT”) and taxes on foreign-sourced income (“FSI”).²
 
The Minister of Finance II, Datuk Seri Amir Hamzah Azizan, also announced that these exemptions come into effect immediately, with the CGT exemption being applicable from 1 January 2024 to 31 December 2028, and the FSI exemption being applicable from 1 January 2024 until 31 December 2026.
 
To recap, CGT was introduced to the Income Tax Act 1967 (“Act”) through amendments under the Finance (No. 2) Act 2023 and applies, inter alia, to gains from the disposal by company, limited liability partnership, trust body or co-operative society of unlisted shares in Malaysian incorporated companies. However, CGT does not apply to the disposals of listed shares and disposals of shares by individuals. Individuals are instead subjected to the provisions of the Real Property Gains Tax Act 1976 for the disposal of real property or shares in a real property company.
 
For unit trusts, section 61(1)(b) of the Act stipulates that “provided that in the case of a unit trust, gains arising from the realisation of investments shall be treated as income of the trust body of the trust under paragraph 4(aa).” Section 4(aa) clarifies that tax is chargeable on income relating to "gains or profits from the disposal of a capital asset.”
 
The Government’s decision seeks to alleviate the unintended consequences of CGT on unit trust investors, of whom more than 90% are individuals.
 
Our previous articles relating to the Malaysian Budget 2024 and capital gains tax can be accessed here, here and here.
 
Alert by Victoria Low (Associate) of the Tax Practice of Skrine.
 

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