Should You Buy A Property Under My Personal Name or Sdn Bhd?

Buying property under a personal name or Sdn Bhd has its own advantages or disadvantages, depending on the management decision.

There are a few factors to be considered before a decision is made: -

1) Tax

a) Rental Income

Effective from 18/05/2022, LHDN has made clarification on the Investment Holding Company (IHC). IHC is not considered as Small and Medium Enterprise (SME) due to there is not gross income generated, even though the company received rental income, interest income, and etc.

This means the company is a non-SME and the rental income will be directly taxed at 24%, not eligible to enjoy the preferential tax rate under paragraph 2A, Schedule 1 of ITA 1967.

b) Real Property Gain Tax (RPGT)

There is no RPGT imposed from the sixth year onwards for individuals who are Malaysian citizens and permanent residents, effective from 01 January 2022.

On the other hand, when the company disposes of the property, the RPGT will be taxed at between 10% to 30%, depending on the period for the disposal of the chargeable asset.

c) Tax Audit

A high-risk-profile individual or company will be selected by LHDN for a tax audit. This is due to LHDN's wondering where the deposit came from when you paid the deposit for the property you purchased. Has it reported tax?

d) Investment Building Allowance (IBA)

The building owner is eligible to claim the IBA under paragraph 63(c) Schedule 3 of the ITA 1967 when the property purchased and used it as industrial building by the tenant.

This means the owner of the building is eligible to claim the IBA, thereby reducing the tax payable.

2) Loan

The loan can be obtained by the financial institution up to 90% for the first and second residential properties purchased under the personal name. However, if the company purchases the residential properties under Sdn Bhd, the loan obtained will only be 60% for the company.

Therefore, there is an advantage for the person who buys the residential property under their own name.

Furthermore, you must obtain a 10% to 20% upfront deposit to the financial institution, regardless of whether it is under your personal name or under Sdn Bhd.

3) Administrative Expenses

Basically, the administration costs incurred for IHC and a Sdn Bhd are almost the same. The cost of setting up a Sdn Bhd runs into the thousands of dollars.

Otherwise, there is no extra cost incurred for buying property under your personal name.

In conclusion, there is no absolute answer. You should think twice before you make the decision by considering the factors above mentioned. Before you invest in property under your personal name or Sdn Bhd, you should be aware of your own motivation for purchasing the property, period of ownership, frequency of transaction, and etc.

Authored by Teo Mei Qi, a semi-senior associate with the Firm KTP & Company PLT

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