๐ฉโโ๏ธ Answered by Lawyer Yang: Recently, many clients have asked whether, starting from 1 January 2025, all employment contracts signed between employers and employees must be affixed with a RM10 stamp duty. Does this mean all contracts are subject to stamp duty? If one forgets to pay, will the contract become invalid? Today, we provide a clear explanation.
1๏ธโฃ What is Stamp Duty?
Stamp duty is a tax collected by the Inland Revenue Board of Malaysia (LHDN), mainly imposed on specific legal instruments. It is divided into two categories:
- ๐ต Fixed Duties
๐ A fixed RM10 fee for certain common commercial documents or copies. - ๐ Ad Valorem Duties
๐ Calculated based on transaction value, e.g., sale and purchase agreements, loan agreements.
2๏ธโฃ Which Documents Require Stamp Duty?
According to Section 4 of the Stamp Act 1949, all instruments listed in the First Schedule are subject to stamp duty.
๐ (๐ Suggested: insert link to LHDN official website or First Schedule)
3๏ธโฃ Common Contracts/Documents Subject to Stamp Duty ๐ก
| ๐ Contract Type | ๐ฐ Duty Rate/Method | โณ Stamping Deadline | โ ๏ธ Penalty Liability |
|---|---|---|---|
| ๐ Property Transfer Instruments | 1โ4% ad valorem | 30 days | RM50/100 or 10/20% |
| ๐ฆ Loan Agreements | Generally 0.5%, 0.1% in specific cases | 30 days | Same as above |
| ๐ Tenancy Agreements | RM1โ3 per RM250 | 30 days | Same as above |
| ๐ค Service Agreements | Generally 0.5%, often 0.1% in practice | 30 days | Same as above |
| ๐ Share/Securities Transactions | RM1โ3 per RM1,000 | 30 days | Same as above |
| ๐ Employment Contracts (from 2025) | Fixed RM10 per contract | 30 days | Same as above |
4๏ธโฃ What Happens if You Fail to Pay Stamp Duty?
๐ Does the contract become invalid?
- โ No, it will not become invalid.
- โ According to the Federal Court case Malayan Banking Bhd v Agencies Service Bureau Sdn Bhd & Ors [1982] 1 MLJ 198, stamp duty only concerns taxation and admissibility of evidence, and does not affect the validity of a contract.
๐ The real risks are:
- An unstamped instrument cannot be admitted as evidence in court.
- Parties must pay the outstanding stamp duty plus penalty before the document can be used in court.
โ๏ธ Section 52(1)(a) of the Stamp Act expressly states:
โAny instrument chargeable with duty which is not duly stamped shall not be admitted in evidence by any courtโฆ but nothing herein shall affect the validity of any such instrument.โ
5๏ธโฃ Penalty Mechanism (Stamping Penalty) ๐
If stamping is delayed beyond 30 days:
- Within 3 months: RM25 or 5% (whichever is higher)
- Between 3โ6 months: RM50 or 10% (whichever is higher)
- After 6 months: RM100 or 20% (whichever is higher)
6๏ธโฃ Summary ๐
- โ๏ธ Not all contracts are subject to stamp duty; reference must be made to the First Schedule of the Stamp Act.
- โ๏ธ Common instruments such as sale and purchase agreements, loan agreements, tenancy agreements, service contracts, and employment contracts are within scope.
- โ๏ธ Failure to pay stamp duty does not render a contract invalid, but the document cannot be used in court as evidence until the duty and penalty are paid.
- โ๏ธ To avoid litigation delays and unnecessary costs, it is strongly recommended to complete stamping within the 30-day deadline.
๐ If you wish to know whether your contract requires stamp duty, the applicable rate, or the process of late stamping, please contact our law firm for professional advice.
๐ ANN & AIN, Advocates & Solicitors
๐ฒ (6014) 337 9338
