Covid-19: Stamp Duty Relief for M&As of SMEs

To encourage mergers of small and medium enterprises (‘SME’) and to expand their capabilities, the Prime Minister of Malaysia announced on 5 June 2020 that as one of the initiatives of the National Economic Recovery Plan (PENJANA), instruments of transfer relating to the merger and acquisition (‘M&A’) of SMEs will be exempted from stamp duty.
Below are FAQs that explain some salient features of this initiative.
  1. What is the duration for this relief?
This relief is available for eligible M&A transactions undertaken from 1 July 2020 until 30 June 2021.
  1. What types of activities are eligible for this relief?
This relief is available to all sectors, including manufacturing, agriculture, mining and quarrying, tourism, and services such as accounting services, taxation services, legal services, specialised medical practices, specialised dental practices, architectural services, engineering services, technical and vocational education services, skills training services and courier services.
  1. Is there any eligibility criteria to qualify for this exemption?
Yes, the following conditions must be satisfied:
  1. The companies/ businesses to be merged or acquired must be 100% Malaysian owned;
  1. For M&As in the manufacturing sector, the companies/ businesses to be merged must have an annual sales turnover of less than RM50 million or less than 200 full-time employees;
  1. For M&As in the services sector, the companies/ businesses to be merged must have an annual sales turnover of less than RM20 million or less than 75 full-time employees;
Applicants are required verify that they are 100% owned by Malaysians. They are also required to verify their SME status through certification by the Small and Medium Enterprises Corporation Malaysia (‘SME Corporation’).
Companies listed on the ACE Market or the LEAP Market that satisfy the eligibility criteria are eligible for the exemption whereas companies listed on the Main Market of Bursa Malaysia are not.
  1. What are the types of M&As that qualify for this exemption?
An M&A between companies, sole-proprietorships, partnerships, and limited liability partnerships qualify for this stamp duty exemption. Such entities must be registered with the Companies Commission of Malaysia1 (‘CCM’).
  1. Are there any salient legal points to look-out for in these M&As?
A “merger” must involve the combination of two existing companies to become a larger entity. A new company must be formed to acquire the assets and liabilities of the existing companies and to carry out the merged businesses. The existing companies must be liquidated and deregistered by the CCM.
An “acquisition” is a transaction whereby a smaller entity will transfer all its assets and liabilities and employees to a larger entity by way of legal instruments and contracts. The smaller entity must be liquidated and deregistered by the CCM.
Where a merger involves two sole proprietorships, the new entity must be a private limited company and not a sole proprietorship. The sole proprietorships must cease operation.
An acquisition by one company of shares in another company will not qualify for stamp duty exemption under this initiative.
  1. Will an M&A qualify for this exemption if the combined new entity has a turnover or number of employees that exceeds the criteria for an SME?
Yes, the combined new entity will qualify for this exemption even if its turnover or manpower exceeds the criteria for an SME.
  1. What are the instruments that will be exempted from stamp duty?
The following instruments relating to an M&A will be exempted from stamp duty:
  • Contracts or agreements for the sale or lease of properties (including land, building and machinery);
  • Instruments of transfer and memorandum of understanding;
  • Loan or financing agreements; and
  • First tenancy agreement.2
  1. Which regulatory authority is in charge of processing applications for exemptions under this initiative?
This initiative is headed by the Ministry of EntrepreneurDevelopment and Cooperatives (‘MEDAC’).
A Joint Verification Committee (‘JVC’) has been established to consider and approve applications.
The JVC consists of five permanent members, namely a representative each from MEDAC (who is to be the chairman of the JVC), the Ministry of Finance, the Inland Revenue Board (‘IRB’), the CCM and SME Corporation.
The JVC will consult other relevant regulatory authorities/ bodies, such as Ministry of Tourism, Arts and Culture, Malaysian Medical Council and Ministry of Education, where necessary.
The JVC is supported by SME Corporation as the secretariat. All applications are to be submitted to SME Corporation who will verify whether the proper M&A process has taken place. Qualified and eligible applications will be tabled before the JVC for endorsement and approval.
Upon approval or rejection of an application by the JVC, MEDAC will inform the applicant in writing of the outcome of the application. A successful applicant may thereafter submit the chargeable and eligible instruments and a copy of MEDAC’s approval letter to the IRB for approval. Upon approval by the IRB, it will issue the relevant stamp certificate to the applicant.
  1. Can an unsuccessful applicant resubmit an application?
  1. How long will the application process take?
The verification and approval process will take approximately 10 working days from the date the secretariat receives a complete set of documents from the applicant.
The IRB will take approximately one working day from the submission by the applicant of the relevant chargeable and eligible instruments and a copy of the MEDAC’s approval letter to issue the relevant stamp certificate.
Further details relating to this initiative, including the application form, procedural flowchart and documentation checklist, are available from SME Corporation’s website which can be accessed here.
It is to be noted that the relevant exemption order under the Stamp Act 1949 has yet to be gazetted as at the date hereof.

1 It is to be noted that certain professional practices, such a law firms, are registered with their regulatory bodies and not with the CCM.
2 It is unclear what the expression “first tenancy agreement” refers to. It may, possibly, refer to the first tenancy agreement entered into by the combined entity.