When acquiring shares of a private limited company (Sdn Bhd) in Malaysia, the stamp duty on share transfers is charged at a flat rate of 0.3% (RM3 for every RM1,000).
However, it is calculated based on statutory valuation rules set by LHDN which often exceed the purchase price stated in the Share Sale Agreement! For buyers and investors, our guide explains the different methods and when they apply.
Purchase price vs market value
Under Item 32(b) of the First Schedule to the Stamp Act 1949, stamp duty is charged on the higher of:
- sale consideration, or
- market value of the shares
If a company is acquired for a nominal sum but owns valuable assets, LHDN will ignore the purchase price and assess stamp duty based on market value.
Example
If a company owns a factory with a market value of RM5 million but is sold for RM2, stamp duty is based on RM5 million resulting in RM15,000 in stamp duty.
How LHDN determines market value
Based on its Guidelines on the Stamping of Share Transfer Instruments, LHDN applies three valuation methods:
- Sale consideration
- Net Tangible Assets (NTA)
- Price Earnings (PE) ratio
Stamp duty is charged on the highest value produced:
Method A: Net Tangible Assets (NTA)
This method is commonly applied to loss-making or asset-heavy companies and is calculated based on the following formula:
Example:
Purchase price: RM10,000
Total assets: RM1,000,000
Total liabilities: RM200,000
Shareholders’ Funds (NTA): RM800,000
Stamp duty is charged on RM800,000, resulting in RM2,400 payable, even though the purchase price is only RM10,000.
Method B: Price Earnings (PE) ratio
For profitable companies, LHDN values the shares based on earnings capacity rather than asset value based on the following formula:
- Property: 3.5
- Trading / Services / Transport: 4.0
- Contracting & Construction / Tourism (including hotels): 4.5
- Manufacturing / Construction / Agriculture: 5.0
- Gaming / Finance / Stockbroking: 6.0
- Plantations: 7.5
- Utilities: 8.0
- Banks: 8.5
Example:
Net profit after tax: RM300,000
Sector: Trading (PE ratio 4.0)
LHDN valuation: RM1.2 million
Stamp duty payable: RM3,600, though the agreed purchase price is RM500,000
Key takeaway for buyers
As stamp duty on share transfers is not purely transaction-based, buyers should review the company’s assets and earnings in advance and estimate stamp duty using LHDN’s valuation methods before completing the acquisition. If you need help reviewing a valuation or estimating stamp duty, get in touch with us!
