MALAYSIA’S merger and acquisition (M&A) landscape is evolving as organisations respond to changing business models, a new generation of business owners, the growing adoption of digital technologies and artificial intelligence.
The shift is prompting businesses to reassess how they grow and remain competitive in the market.
Against this backdrop, M&A can help businesses accelerate growth by expanding access to new markets, capabilities and customer bases, while strengthening competitiveness and regional expansion, as Malaysia deepens its capital market growth.
The Securities Commission’s (SC) Capital Market Masterplan 2026 to 2030, launched in March 2026, targets growth in Malaysia’s capital market from RM4.3 trillion in 2025 to between RM5.8 trillion and RM6.3 trillion by 2030, underpinned by four strategic themes: vibrancy, inclusivity, sustainability and regional opportunities.
Among other priorities, the plan aims to support the growth of Malaysian businesses and their expansion into regional markets, creating a more conducive environment for the M&A activity.
For business owners and investors, the value of a transaction extends beyond identifying an attractive target and agreeing on an appropriate valuation, which is no easy feat.
How a transaction is structured, funded and implemented can have a significant bearing on its overall value, which makes tax an important consideration from the get-go.
Tax considerations in an M&A exercise
There are several factors to consider when assessing an M&A deal, beyond the commercial terms agreed between the parties, and the processes can often be time-consuming.
Businesses also need to assess a range of commercial and financial considerations, including the target’s market position, stakeholder perception, due diligence findings, accounting treatment, legal and regulatory obligations, tax exposure and transaction costs.
These considerations can affect how a transaction is structured and funded, as well as the value ultimately realised.
Tax should, therefore, be considered as the critical component in transaction strategy to be considered from the beginning, rather than addressed only when the deal is close to completion.
For a typical M&A exercise involving the transfer of shares in a company or the transfer of a business between companies, key tax considerations may include corporate income tax, capital gains tax (CGT), real property gains tax (RPGT), stamp duty, indirect tax, and transfer pricing.
Existing tax attributes, such as business losses and capital allowances, should also be assessed as part of the overall tax planning perspective.
Malaysia’s CGT regime, which took effect from Jan 1, 2024, applies, among other things, to disposals of shares in unlisted Malaysian companies.
For shares acquired before Jan 1, 2024, taxpayers may choose to apply either 2% of gross disposal proceeds or 10% of chargeable gains, whichever is lower, whereas a 10% CGT rate applies to chargeable gains from shares acquired on or after Jan 1, 2024.
RPGT may also apply, with rates ranging from 10% to 30% depending on the holding period of the chargeable asset by a Malaysian company.
For the transfer of shares in an unlisted Malaysian company, stamp duty is generally imposed at 0.3% on the higher of the consideration or the value of the shares.
For a transfer of business assets, generally ad valorem stamp duty applies at rates ranging from 1% to 4%, depending on the nature of the instrument and property transferred.
The stamp duty is typically borne by the buyer unless agreed otherwise between the parties.
Indirect tax implications should also be considered where the transferor has previously benefited from certain exemptions.
When the parties involved are related entities, the tax treatment of the transaction should also be assessed from a transfer pricing perspective to ensure that the terms are consistent with the arm’s length principle.
Failure to apply arm’s length pricing may result in additional tax, surcharges or penalties being imposed by the Inland Revenue Board of Malaysia (IRB).
The choice between a share deal and an asset deal can also materially affect the tax profile of a transaction.
In a share deal, the buyer generally acquires the target company together with its historical tax exposures, including matters that may not be immediately apparent from the financial statements.
This places greater importance on comprehensive tax due diligence, as well as appropriate tax warranties and indemnities.
An asset deal, on the other hand, may provide greater flexibility in managing historical exposures but can result in higher transaction costs, including stamp duty and/or RPGT, depending on the assets involved.
The preferred structure should therefore be assessed from a commercial perspective, including the tax consequences for both the buyer and seller.
Tax exemptions or tax reliefs in an M&A exercise
In this context, available tax exemptions and reliefs can play an important role in supporting qualifying M&A and restructuring exercises.
Furthermore, for internal restructuring exercises under the Income Tax (Restructuring of Companies Scheme) (Exemption) Order 2024, qualifying transactions may benefit from an exemption from CGT, subject to the prescribed conditions.
These key requirements include the Malaysian residency of the acquirer, the objective of improving operational efficiency for the disposer, acquirer or both, and the submission of the exemption application within the prescribed timeframe, which is three years after the date of disposal.
As for disposals of unlisted shares as part of an initial public offering (IPO) restructuring exercise pursuant to the Income Tax (IPO) (Exemption) Order 2024, key conditions include that the disposals must be made within one year before the date of submission of the IPO application.
Approval of the IPO application must be obtained no later than Dec 31, 2028, and a written CGT exemption application must be submitted to the IRB within one year from the approved IPO date.
Under both CGT exemption mechanisms, the CGT return must first be submitted and the CGT paid within the stipulated deadline.
A subsequent exemption application is then submitted to the IRB for consideration and, once approved, the CGT paid will be refunded accordingly.
There are also several stamp duty reliefs under the Stamp Act 1949 that are available for internal M&A exercises, including Section 15 for reconstructions or amalgamations of companies and Section 15A for transfers of property between associated companies.
Common conditions for both reliefs include the transferee being a Malaysian company and the stamp duty being paid upfront, with the amount subsequently refunded upon approval of the relief application.
Driving the next phase of M&A growth
The current pay-first, refund-later approach for CGT exemptions and stamp duty reliefs may create cash flow challenges for businesses undertaking M&A transactions.
Companies may need to pay the CGT and stamp duty upfront while waiting for the relevant exemption or relief to be approved.
This may be particularly challenging for internal restructurings where the consideration is settled through the issuance of new shares rather than cash.
The resulting upfront funding requirement, despite there being no cash consideration received from a third-party buyer, could potentially discourage or delay M&A transactions and internal restructurings.
One possible measure to alleviate this cash flow pressure would be for the IRB to consider a stand-over or deferral mechanism for the CGT and stamp duty while the relevant exemption or relief applications are pending.
Another option could be to allow payment of the CGT and stamp duty in instalments or partial payment, for example, 50% upon filing the relevant returns, with the remaining amount payable only if the exemption or relief application is unsuccessful.
Ultimately, tax should not be treated as a downstream compliance consideration in an M&A exercise.
Bringing tax into the discussion from the outset can help businesses and investors assess transaction structures more effectively, identify potential exposures and preserve deal value.
As Malaysia enters the next phase of capital market development, ensuring that tax administration keeps pace with the needs of businesses could help reduce unnecessary friction in strategic transactions.
A more practical approach to tax exemptions and reliefs could ease upfront cash-flow pressures, allowing businesses to direct more capital towards integration, expansion and long-term value creation.
Benjamin Ang is the corporate tax director at KPMG Malaysia. The views expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG Tax Services Sdn Bhd.
