Stamp duty in Malaysia: Navigating the shift from official assessment to self-assessment

Introduction to stamp duty in Malaysia

Stamp duty has been an important part of Malaysia’s tax system since the British colonial era. Originally enacted as the Stamp Ordinance 1949, the current Stamp Act 1949 (“the Stamp Act”) reflects aspects of the UK stamp duty regime, first introduced in England in 1694. Starting from 1 January 2026, the system will shift from an official assessment, where tax authorities determine the amount of duty payable, to self-assessment.

This transition places greater responsibility on taxpayers, with an emphasis on compliance. However, it comes with its own challenges. Given that the stamp duty regime has been in force for several decades, much of the language is archaic and may not be easily understood in today’s context.

Unlike taxes on income or profits, stamp duty in Malaysia is charged on instruments which is defined widely to include every written document, from traditional paper documents to electronic files and records. As such, documents may be subject to stamp duty under the Stamp Act, which has been updated to keep pace with digital advancements, whether the document is printed, handwritten, or digital.

Recently, there has also been increased attention regarding the applicability of stamp duty on employment contracts. While that’s true, it’s important to know that employment contracts are just one example of documents subject to stamp duty. In reality, many other documents used by businesses and companies can also attract stamp duty. These include service agreements, lease or tenancy agreements, sales and purchase agreements for property, share sale agreements, and loan agreements, among others.

Although stamp duty has always been a legal requirement, in practice, many documents may only be stamped when strictly necessary — such as during legal disputes, enforcement actions, or regulatory submissions. As a result, compliance may have been inconsistent across businesses.

Given the breadth of documents potentially falling within scope, a recurring question emerges for all taxpayers: Which documents must be stamped, and under what circumstances? The answer depends primarily on the First Schedule of the Stamp Act, which lists instruments that are chargeable with stamp duty and prescribes the applicable duty rates which could either be a fixed duty or ad-valorem duty based on the value transacted.

A key rule when it comes to determining the applicable stamp duty is that what matters is the actual content of the document and not its title. Simply labelling a document a certain name does not determine how it will be treated for stamp duty purposes. Therefore, it is crucial to draft the content of the documents clearly and accurately. Confusing or poorly-structured documents can potentially lead to misunderstandings, penalties, or disputes with the Inland Revenue Board Malaysia (“IRBM”).

The next key question is who pays the stamp duty? For some instruments, the law (under Third Schedule of the Stamp Act) clearly states the party liable for the duty. Where not specified, then the person who prepares or signs the document is usually the one who has to pay. However, in practice, the parties often agree within the contract on who will bear the stamp duty costs. As a result, these costs can be shared or assigned differently based on mutual agreement.

Timing is also important. If a document is signed in Malaysia, it must be sent for stamping within 30 days from the date it was signed. If the document is signed outside of Malaysia and later brought into the country, it must be stamped within 30 days from the date after it has first been received in Malaysia. This includes documents received electronically, such as by email. Any late stamping will be subject to the following penalty rates –

Phased transition from official assessment to self-assessment

At present, stamp duty in Malaysia is under an official assessment system. This means that the IRBM officers will manually review the documents uploaded by the taxpayer to the IRBM’s online stamping system called STAMPS before issuing an assessment on the applicable duty to be paid.

However, this process is about to change. Starting 1 January 2026, Malaysia will begin transitioning to a self-assessment system for stamp duty, similar to the system used for income tax and other taxes. This change is part of the government’s effort to modernise tax administration by placing more responsibility on taxpayers with the aim to speed up the collection of stamp duty, improve efficiency and streamline the process. The change will be implemented in three phases to allow taxpayers to adjust gradually.

Under the self-assessment system, whenever a document subject to stamp duty is signed or executed, the taxpayer must submit the document for stamping within the stipulated timeframe, along with a return to the IRBM. The stamp duty amount is calculated by the taxpayer themselves and needs to be paid upon the submission of the return. If it turns out that the duty was not assessed correctly, the IRBM has the right to audit and reassess the amount owed within five years starting from when the duty paid or should have been paid. If there is fraud, wilful default, or negligence, the IRBM can reopen the case at any time, even beyond five years. That said, if a taxpayer notices an error or an overpayment, they may submit a written application to the Stamp Office within 24 months of filing the return.

With this shift toward autonomy comes an increased burden of compliance. Penalties for non-compliance under the self-assessment model are outlined as follows:

Additionally, the person liable for stamp duty on an instrument shall retain the instrument and relevant documents for seven (7) years from the date of the payment of duty. 

This change gives taxpayers more control over the stamp duty process, but it also means they must be more informed and organised with a clear understanding of stamp duty rules to avoid costly errors or penalties.

Stamp Duty Audit Framework and Compliance Readiness

In line with the gradual shift to self-assessment, the Stamp Duty Audit Framework (SDAF), which takes effect from 1 January 2025, had also been introduced to promote transparency and clarify the rights and responsibilities of both taxpayers and audit officers. Based on the SDAF, audit cases are to be selected based on the following:

·       Risk assessment criteria (system-based selection)

·       Specific industries or sectors

·       Issues concerning specific taxpayer groups

·       Information received from third parties

The audit coverage period is limited to 3 calendar years. However, this time limit does not apply for audit cases involving fraud, wilful default or negligence. Nonetheless, taxpayers are allowed to come in good faith and voluntarily declare documents that are more than 3 months and a concessionary penalty rate shall apply in such cases which is 10% of deficient duty or RM50, whichever is higher. However, it is important to note that duty payers are not eligible to make a voluntary disclosure once an audit action has commenced.

In connection therewith, stamp duty audits are expected to increase as we move nearer to the timeline for implementation of the self-assessment system. Indeed, there has already been a noticeable uptick in stamp duty audit activity in recent months, reflecting the IRBM’s intensified focus on compliance. With that, it is essential for businesses to be well-prepared. 

Readiness for stamp duty self-assessment

To prepare for self-assessment and as companies handling many documents within short timeframes will face higher workloads, companies should establish clear procedures to ensure timely and accurate compliance. A dedicated team or officer should oversee filings and provide training for staff. Using document tracking systems and conducting regular internal checks will help manage deadlines and reduce mistakes. Effective monitoring and clear escalation procedures are important to prevent penalties and maintain smooth operations. Good governance is necessary to support compliance and risk management.

Clear guidelines from the IRBM will also be important to help everyone understand how to apply the self-assessment rules correctly. The IRBM has stated that it will engage with industry groups, provide awareness sessions, and issue guidelines before the self-assessment regime takes effect. Without such guidance, mistakes and penalties may arise.

In summary, as Malaysia moves to the self-assessment system for stamp duty, it’s important to prepare early and put in place the right systems to comply with the new rules. Staying up-to-date with any changes in the law will help everyone adapt smoothly to the transition.