ORIGINATING from the British colonial era, stamp duty under the current Stamp Act 1949 (Stamp Act), which incorporates elements of the UK stamp duty regime, has traditionally functioned as a background component of Malaysia’s tax system.
However, with the self-assessment regime effective from Jan 1, and increased compliance audits being undertaken by tax authorities, it is timely for businesses to review and reassess their stamp duty positions to ensure readiness moving forward.
Unlike many taxes, stamp duty is imposed on instruments, a term broadly defined to include every written document, rather than on the underlying transactions.
Given the wide range of documents potentially subject to stamp duty, a common question for taxpayers is which documents and under what circumstances must be stamped.
Examples include sale and purchase agreements, leases, loan, service agreements and even employment contracts.
Many such documents may not have been consistently stamped in the past as taxpayers may have wrongly assumed stamping was only required if documents were to be used in court.
In fact, stamp duty applies regardless of how the agreement is used.
Hence, as taxpayers prepare for the upcoming self-assessment regime, they should familiarise themselves with the First Schedule of the Stamp Act, which lists chargeable instruments and prescribes the applicable duty rates, either fixed or ad valorem duty.
Importantly, the rate depends on the actual content of the document rather than its title. Simply labelling a document a certain way does not determine its treatment.
A careful review of each document’s substance is therefore necessary to ensure accurate declaration and compliance under the new framework.
Malaysia’s stamp duty system will transition from an official assessment regime – where the tax authorities determine the duty payable – to a self-assessment system comprising of three phases.
Under the self-assessment system, taxpayers must submit any instrument subject to stamp duty for stamping within the prescribed timeframe (within 30 days from the date of execution in Malaysia or within 30 days after the instrument has been first received in Malaysia if executed outside the country), along with a return to the Inland Revenue Board (IRB).
The duty is calculated and paid by the taxpayer.
If the duty paid is later found to be incorrect during an audit, the IRB may reassess it within five years from the date the duty was paid or should have been paid.
In cases of fraud, wilful default or negligence, the IRB has no time limit to reopen the case.
Conversely, if taxpayers spot a mistake or have overpaid, they may apply to the Stamp Office within 24 months of filing the return.
With this system, taxpayers have more control but also greater responsibility. Penalties for non-compliance include late stamping penalties (which can be up to 20% of the deficient duty) and penalties for failure to furnish a return (up to RM10,000 on conviction) or submission of incorrect returns (which can result in a penalty equal to the underpaid duty).
Taxpayers must also retain stamped instruments and relevant documents for seven years from the date of payment of duty.
Stamp duty proposals for consideration
As self-assessment draws nearer, the upcoming Budget 2026 presents a timely opportunity to introduce proposals aimed at improving the stamp duty framework.
With this in mind, we hope that various measures designed to ease compliance for taxpayers will be taken into account to provide much-needed support to those adapting to the new system.
The First Schedule is currently extensive, covering a wide range of dutiable instruments.
However, its outdated language and ambiguous provisions may confuse taxpayers, complicating compliance – especially under the self-assessment regime.
The Stamp Act imposes stamp duty on various agreements, including bonds, loans, service agreements, employment contracts and leases.
To reduce unnecessary compliance burdens, the legislation should be modernised by clarifying definitions and refining the list of chargeable instruments – excluding documents like service agreements and employment contracts or introducing a de minimis threshold (for example the current de minimis amount of RM300 for general agreements may no longer be relevant in today’s context).
This is important, as such documents may be so numerous and routine – especially in large organisations – making monitoring and compliance disproportionately complex and resource-intensive for both taxpayers and authorities.
Separate consideration should also be given to certain intercompany agreements. These types of agreements are very different from standard commercial deals and may be created for internal purposes such as governance or transfer pricing compliance, rather than for transferring property or creating enforceable rights between independent parties.
As such, imposing stamp duty on such internal arrangements adds unnecessary costs and compliance burdens, without bringing significant revenue benefit.
Given this, it may be time to rethink the approach, perhaps by granting exemptions for specific intercompany agreements, eg, for cross-border transactions or on routine low-value instruments, especially if Malaysia aims to promote compliance and ease the cost of doing business to attract investments into the country.
To help taxpayers adjust, the government could also introduce a grace period during the initial rollout. For example, extending the time allowed to file and pay stamp duty and waiving or reducing penalties for errors made in good faith. Such transitional relief would give businesses space to refine their systems, train staff and ensure compliance before full enforcement begins.
Perhaps phase one should only be confined to rental or lease. Let us see how it goes from there and learn from the experience.
Securities and other general stamping can follow suit once the system stabilises.
In summary, as the government considers measures for Budget 2026, streamlining the stamp duty framework should be a priority. Clearer definitions and guidelines, removal of outdated or overly broad provisions plus targeted exemptions would go a long way in reducing administrative burdens.
These changes would not only support taxpayers transitioning to the self-assessment system but also signal Malaysia’s commitment to a more efficient and business-friendly tax environment.
Thin Siew Chi is a business tax partner of Deloitte Malaysia. The views expressed here are the writer’s own.
