LHDN logo is seen at its branch in Damansara Perdana - AZHAR MAHFOF/The Star
STAMP duty is a topic that many think of only when purchasing a property, renting, bank financing and purchasing a company’s shares.
In actuality, the list of instruments chargeable with stamp duty spans well over 20 pages.
The list is found in the first schedule of Stamp Act 1949 (as amended). The said list includes “Agreements” in broad terms.
On June 6, the Inland Revenue Board (LHDN) made an announcement that the government would remit stamp duty on employment contracts entered prior to Jan 1, and time is allowed until the end of the year for employment contracts entered during the year.
This is good news in providing certainty to businesses while the technicalities are being worked out as to whether the various employment-related documentations are required to be stamped.
Given that the ministerial exemption is limited to only employment contracts, businesses such conduct a risk or impact assessment in relation to all other agreements – including those entered into prior to Jan 1.
The risk or impact assessment such include the following:
> Intercompany agreements for services/financing within the same group of companies,
> Agreements with third party customers/vendors for services or lease of equipment,
> Tenancy agreements, and
> Any other agreements.
The list above is not exhaustive.
It is important to recognise that not all agreements are subject to a nominal stamp duty of RM10.
Some agreements attract an ad valorem duty, which means the duty is a percentage or is in proportion to the instrument/contract value.
Risk assessment is important to create a self-awareness on the organisation’s affairs and potential exposure, given that LHDN has been actively auditing businesses for stamp duty compliance since beginning of this year.
One should not confine the risk assessment exercise to physical documents bearing the title “Agreement”. Offer, acceptance and consideration are the key elements of a contract – in which case an “Agreement” may be perceived for stamping purposes.
Some may view that even a purchase order or quotation that is signed by both parties involved in a transaction constitutes an “Agreement”.
Likewise, there is also uncertainty about subscriptions or services signed over the Internet whereby there is no actual signature, but the customer simply checks the box to agree with the terms and conditions.
It is no secret that the 75-year-old legislation has not kept up with time.
Although there had been minor adaptations over the years, a holistic reform of this legislation is certainly overdue to reflect the evolution of business practices, digitalisation and perhaps policy goals.
For a start, the policy makers clearly divide instruments which are in-scope for fiscal revenue purposes as compared to a mere token duty for the government to have a record of the transaction.
The list of instruments included for the latter purpose should be revisited in light of the successful implementation of e-Invoicing and other existing mechanism.
There are many aspects of uncertainty in the stamp act.
This includes when stamping is mandatory, which instruments/agreements are in-scope for stamping and whether a given instrument/agreement is subject to nominal duty or ad valorem duty (being a percentage of contract value).
This is evident with recent judicial decisions. It is hoped that the necessary legal adaptations would be made to simplify and foster certainty to make compliance easy for diligent taxpayers.
Needless to say, guidelines and programmes to promote awareness among businesses on the scope of agreements for stamping are welcome.
Further guidelines
It is widely anticipated that the LHDN will issue further guidance on stamping of “agreements” in the coming months, especially given that legislative changes had already been made to implement self-assessment for stamp study effective from Jan 1, 2026.
In the meantime, businesses should be performing their own impact and risk assessment to identify any potential compliance gap and identify any grey areas in the Stamp Act 1949.
Findings of this voluntary exercise would empower the management of the business with the much-needed information to make informed choices in navigating the situation.
Inaction or a “wait and see” approach would not be a wise choice given that LHDN has been actively auditing businesses on stamp duty compliance matters.
Such audits cover the agreements entered in the years prior to 2025.
For clarity, an impact or risk assessment is certainly not the act of doing a stock-take of everything that appears to be possibly an “Agreement” and subjecting all of such agreements to stamping.
Addressing key questions
The process of performing the assessment must raise and address key questions as to whether each of the case involves an “instrument” for which stamping is mandatory, and whether any of the existing exemptions is applicable.
Where appropriate, businesses may also use the findings of the impact or risk assessment to proactively engage with the authorities.
Large and medium businesses should form a project team to assess the impact and risks.
Input from non-tax or non-financial functions are essential given that the organisations agreements may be “scattered” across the organisation (for example, between legal department, sales department, corporate affairs and human resources).
With only six months to go for the implementation of self-assessment for stamp duty (and widespread stamp duty audits being already undertaken now), businesses that value good governance and risk management practices should embark on the stamp duty impact and risk assessment project as soon as practicable.
Thenesh Kannaa is an executive director of TRATAX Sdn Bhd, an independent tax consulting firm. The views expressed here are the writer’s own.
