What are the common taxes in real estate?
This depends on who you are dealing with real estate. If you are a developer, a builder, or a property manager, you will deal with more taxes. If you are a residential unit owner, you probably just deal with a few taxes.
To make things simple, we just do residential property. If you are a owner of a residential property, you deal mainly with 4 taxes.
1. Real Property Gains Tax – when you sell
2. Cukai Pintu/Taksiran (assessment rates) – periodical payment to local government
3. Income tax – if you receive rental income
4. Cukai tanah or cukai petak for strata properties
There is another tax which is charged during a transaction if you engage the service of a Valuer, an Estate Agent or a Property Manager. Of course, in a sale and purchase of property, you also pay professional fee (legal fees) to the lawyer who handle your contract agreements – be it Sale and Purchase Agreement or Loan Facility Agreement with bank.
If you need to submit some drawings of layout plan to the local council for approval of plans, you might engage an architect or a town planner. Then, there is their professional fees as well. These are all subject to tax.
This is SST – Sales and Service Tax.
Now, some confusion arose because of this tax.
People used to ask me why do agencies charge SST/GST? You all agents are like auntie and uncle as brokers only, you have no office and nothing else you do! You just make some phone calls!
Well, Estate Agency Practice is regulated by law – Valuers, Appraisers, Estate Agents and Property Managers Act, 1981 (VAEP Act). Without an approved license from the Ministry of Finance which we called E-License, it is an offence punishable by S.30 VAEP Act. This offence can carry a fine of maximum RM300,000 or a jail term of not exceeding 3 years, or both. It is not pasar malam!
SST is a form of revenue to the government – like professional lawyers, architects and engineers. There is a professional fee for their services and thus, a 6% is levied onto the professional charges as SST. The threshold is if their annual collection is beyond RM500,000. This figure can be easily exceeded especially when an agency is dealing with sales of properties which cost millions.
For example, an agency which has 10 RENs. Each REN brings in sales of RM2mio in a year. 3% commission of this RM2mio is RM60,000. 10 of them is already RM600,000 which exceeded RM500,000 service tax threshold. Thus, it constitutes an offence if the agency fails to collect SST.
By this law, valuation fee, estate agency fee and property management fees are professional fees. They are also similar to other professional fees and thus levied a 6% SST.
Please see extract from Jabatan Kastam Diraja Malaysia @