Getting the Formation Right

Malaysian Tax Considerations in Business Restructuring

27/08/2026

Strategic corporate restructuring and tax planning concept for Malaysian business groups.

Introduction

Repositioning the Team for Future Success

Football managers regularly restructure their squads. A player may be talented, but if he is playing in the wrong position, the team will never perform at its best. Similarly, a club may have surplus players who are no longer part of its long-term strategy and need to be transferred elsewhere.

The same principle applies to corporate groups. As businesses evolve, assets, liabilities and financing arrangements may no longer align with commercial objectives. A restructuring exercise can help place assets in the appropriate entities, centralise investments, improve operational efficiency and reduce tax risks.

However, just as a football transfer may involve transfer fees, salary implications and regulatory approvals, a business restructuring may trigger income tax, real property gains tax (RPGT), capital gains tax (CGT) and stamp duty consequences.

Careful planning is therefore essential before any restructuring exercise is undertaken.

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Why Do Groups Undertake Restructuring?

Common situations include:

1. Restructuring Shareholding Structure Within the Group

Some companies may wish to restructure the group to sub-divide the holding structure based on industry, business or asset classifications for ease of management or future divestment. The group may wish to restructure the shareholding structure so that:

Holding structure is segregated by certain categories, i.e. industry, business, asset holdings, etc, for ease of reporting, management, accountability and future divestment;
Dividend flow is more structured and easier to be distributed all the way up to the ultimate shareholders; and
Enhance financial and tax efficiency.

2. Realigning Assets Within the Group

Some companies may hold surplus assets that are no longer required in their business operations. The group may wish to transfer these assets so that:

Assets are aligned with the operating activities of the relevant companies;
Surplus assets are consolidated under a central investment holding company; and
Non-core assets can subsequently be disposed of more efficiently.

3. Rationalising Interest-Free Intercompany Loans

Many groups have historically advanced interest-free loans to related companies.

While such arrangements may have been commercially convenient, the Inland Revenue Board (“IRB”) in recent times have scrutinized these transactions under Malaysia's transfer pricing provisions and potentially make adjustments where the terms do not reflect arm's length conditions.

4. Removing Non-Business Assets

Certain companies may carry non-business assets such as:

Interest-free loans to unrelated parties;
Investments unrelated to the company's principal business; or
Idle assets that generate little or no business income.
The presence of such assets may adversely affect the deductibility of financing costs and create tax inefficiencies.

Income Tax Considerations

Income Tax Implications on Disposal of Shares

A taxpayer that disposes of shares of another company may be subject to income tax pursuant to Section 4(a) of the Income Tax Act 1967 (“ITA”) at its prevailing income tax rate if the said share disposal is seen as a trading activity.

Whether a taxpayer is engaged in an activity that is in the nature of trade is a matter of fact. In the High Court case of NYF Realty Sdn Bhd v Comptroller of Inland Revenue [1974] 1 MLJ 182 and several other precedent court cases, the courts have set out the badges of trade as follows:

Motive or intention
Trading interests in the same or similar field
Nature of the asset
Period of ownership
Frequency of transactions
Circumstances responsible for the realisation
The way the sale was carried out
Improvement made on the asset
The method of financing

Depending on the circumstances of each case, a taxpayer may use the badges of trade to test the existence of a trade or an adventure in the nature of trade.

Transfer Pricing Risks on Interest-Free Loans

The transfer pricing rules under Section 140A of the ITA require transactions between related parties to be conducted on an arm's length basis.

Where a company provides substantial interest-free loans to related parties, the IRB may contend that an independent lender would ordinarily charge interest.

Consequently, the IRB may make a transfer pricing adjustment by imputing arm's length interest income to the lending company.

The consequences may include:

Additional taxable income for the lender;
Additional tax liabilities for the lender;
Potential penalties for transfer pricing adjustments; and
Increased compliance and documentation requirements for both borrower and lender.

A restructuring involving the formalisation of intercompany financing arrangements, debt restructuring to reduce the group’s overall intercompany loans, third party loans or advances, or the establishment of a treasury company may mitigate these risks.

Interest Restriction on Non-Business Assets

Companies that borrow funds and subsequently deploy those funds towards non-business assets may encounter restrictions on interest deductibility for income tax purposes.

Consequently, chargeable income of these lending companies and their corresponding tax liabilities will increase.

Examples include:

Interest-free advances to unrelated parties;
Non-income producing investments; or
Assets not used in generating business income.

Where financing costs cannot be sufficiently linked to a business source of income, the deductibility of interest expenses may be restricted pursuant to Section 33(2) of the ITA.

Accordingly, groups of companies often consider transferring non-business assets into separate holding vehicles to ringfence potential tax inefficiencies and better support future interest deductions.

Real Property Gains Tax (RPGT)

Transfers of Real Property or Real Property Company Shares

One of the most significant tax issues arises where land, buildings or shares in real property companies are transferred during a restructuring exercise.

Malaysia's RPGT regime taxes gains arising from the disposal of:

Real property situated in Malaysia; and
Shares in a Real Property Company (“RPC”).

An RPC refers to a controlled company whose defined value of real properties and / or RPC shares forms not less than 75% of the value of the said company’s total tangible assets.

However, a disposal of RPC shares by a company, limited liability partnership, co-operative society or trust would not be subject to RPGT as these categories of taxpayers will be subject to capital gains tax. Kindly refer to the capital gains tax section below.

RPGT is imposed at various rates depending on the period of holding and the type of taxpayer, and ranges from 0% to 30%.

Potential RPGT Exposure

Where a group transfers real property from one company to another, RPGT may arise if the disposal is not covered by any available relief.

The tax cost can become substantial, particularly where the property market value has appreciated significantly over the years.

For example:

Manufacturing Company A owns a factory acquired many years ago.
Following a group restructuring, the property is transferred to Property Holding Company B.
The transfer may constitute a disposal for RPGT purposes, potentially resulting in RPGT liabilities based on the current market value and acquisition cost.

Section 17 RPGT Exemption for Group Reorganisation

One of the most important RPGT relief provisions is the exemption available under Section 17 of the Real Property Gains Tax Act 1976 (“RPGTA”).

The exemption may apply where:

The transfer takes place within a group of companies;
Statutory ownership requirements are satisfied; and
The Director General is satisfied that the transaction is undertaken for genuine commercial reasons and not primarily for tax avoidance.

Where the exemption is granted:

No RPGT is payable on the transfer; and
The restructuring may proceed without crystallising gains that have accumulated over many years.

For groups holding significant property assets, Section 17 relief is often the cornerstone of a tax-efficient restructuring strategy.

Capital Gains Tax (CGT)

Disposal of Private Company Shares

Since the introduction of Malaysia's CGT regime, gains derived by companies, LLPs, trust bodies and cooperatives from the disposal of shares in unlisted Malaysian companies may fall within the CGT rules. CGT is imposed at the rate of 10% of the capital gains. For pre-2024 asset acquisitions, taxpayers can optionally choose a 2% rate on the gross disposal price.

Accordingly, restructuring exercises involving the transfer of private company shares now require careful evaluation.

Examples include:

Consolidation of subsidiaries under a new holding company;
Transfer of dormant subsidiaries;
Rationalisation of investment holding structures; and
Internal group share transfers.

CGT Exemptions

1. CGT Exemption for Group Restructuring

Recognising that corporate restructurings should not be unnecessarily discouraged, the Government introduced CGT exemptions for qualifying intra-group share transfers undertaken as part of restructuring exercises.

Subject to the prescribed conditions, qualifying transfers occurring between 1 March 2024 and 31 December 2028 may enjoy exemption from CGT.

The exemption is intended to facilitate:

Internal rationalisation of group structures;
Consolidation of subsidiaries;
Creation of new holding company structures; and
Corporate reorganisation exercises.

However, groups should carefully review:

Shareholding requirements;
Ultimate ownership tests;
Approval requirements; and
Possible clawback provisions.

2. CGT Exemption for Initial Public Offerings (“IPO”)

Another important exemption applies to disposals undertaken as part of qualifying IPO restructuring exercises.

The rationale is straightforward. Just as football clubs require access to capital markets to finance growth, businesses seeking public listing should not face undue tax obstacles when reorganising their ownership structures before listing.

Accordingly, exemptions may apply for qualifying disposals connected with an IPO approved by Bursa Malaysia and / or the Securities Commission.

This exemption is particularly relevant for:

Family-owned businesses preparing for listing;
Private equity exit strategies;
Corporate restructuring before listing; and
Group simplification exercises undertaken in anticipation of an IPO.

Stamp Duty Implications

While taxpayers frequently focus on income tax, RPGT and CGT, stamp duty is often the most immediate cash cost in a restructuring exercise.

Stamp duty generally applies on instruments which transferring:

Real property (stamp duty rate is 1% to 4% of the property value);
Shares (stamp duty rate is 0.3% of the share value); and / or
Certain other assets (stamp duty is at varying rates) and financing arrangements (stamp duty is at 0.5% / 1% of the loan value).

The duty is usually borne by the purchaser or transferee.

For high-value properties or transactions, the stamp duty cost can be significant and may exceed the RPGT or CGT exposure in certain transactions.

Stamp Duty Reliefs

1. Section 15 Stamp Duty Relief

Section 15 of the Stamp Act 1949 (“SA”) provides relief for transfers of property between associated companies.

Broadly, the relief is intended to facilitate corporate group reorganisations where there is no substantive change in ultimate ownership.

A qualifying transfer may obtain relief resulting in nominal duty only rather than full ad valorem duty.

The relief generally requires:

If the shareholding relationship is subsequently broken within the specified clawback period, i.e. three (3) years after the date of transfer, the relief may be withdrawn.

A minimum prescribed level of common ownership;
The companies to be associated companies;
Satisfaction of anti-avoidance provisions; and
Compliance with post-transfer conditions.

2. Section 15A Stamp Duty Relief

Section 15A of the SA provides a further relief mechanism for reconstruction or amalgamation exercises. The provision is particularly relevant where restructuring is undertaken as part of:

Corporate mergers;
Group reorganisations;
Internal rationalisation exercises; or
Share-for-share exchanges.

Where the statutory requirements are met, substantial stamp duty savings may be available.

The relief is especially valuable where large property portfolios or substantial shareholdings are involved.

For many corporate groups, obtaining Section 15A relief can mean the difference between a commercially viable reorganisation and one that is prohibitively expensive.

Bringing It All Together:

Building the Right Formation

A successful football manager does not simply move players around the pitch. Every change is analysed carefully to ensure the team performs better without breaching competition rules and to counter the opposition’s strategies. More often than not, it is unwise to be on the defensive and reactionary towards an offensive force for a prolonged period of time as England found out against Argentina in the semi-finals of World Cup 2026.

Likewise, a successful business restructuring should involve a holistic review of the potential taxes involved, utilise any reliefs or exemptions that are available and able to withstand any challenges from the tax authorities, if such a situation should arise.

The following are the potential tax exposures as we have covered above.

Tax	Potential Exposure
Income Tax	Transfer of shares, transfer pricing adjustments, interest deductibility issues, etc.
Stamp Duty	Ad valorem duty on transfer instruments
RPGT	Disposal of real property or RPC shares
CGT	Disposal of unlisted shares

A transfer that appears attractive from an operational standpoint may become prohibitively expensive if stamp duty relief, RPGT exemption or CGT exemption is unavailable.

Conversely, where Section 15 or 15A stamp duty relief, Section 17 RPGT exemption and the CGT restructuring exemptions are properly utilised, substantial tax costs may be eliminated. However, taxpayers should note that, in many cases, the relief or exemption is granted through a refund mechanism. This means that the applicable tax or stamp duty must first be paid, after which an application for the relevant relief or exemption may be submitted. Once the application is approved, the taxpayer may then claim a tax refund from the tax authorities.

To quote H. Stanely Judd:-

A good plan is like a road map: it shows the final destination and usually the best way to get there.

A poorly planned restructuring may inadvertently create significant tax liabilities. Conversely, a properly structured exercise can improve operational efficiency, reduce tax leakage and position the group for future growth.

Conclusion

Business restructuring is increasingly becoming a strategic necessity rather than a one-off exercise. As groups mature, assets may become misaligned, financing arrangements may no longer be commercially appropriate, and legacy investments may hinder future expansion.

Like a manager preparing a team for the next World Cup campaign, group management must periodically review whether the right assets are in the right entities and whether every company is playing its intended role within the broader organisation.

The key objective is not merely to complete the transfer, but to strengthen the entire team while carefully managing the tax consequences that accompany every move.