The more I made research, the more I confuse whether profit gained from trading in stock market need to declare tax or not.
It is already discussed in several thread before, but still no firmed answer: -
https://forum.lowyat.net/topic/4436982/all
https://forum.lowyat.net/topic/2767717/all

This is what I found:-

1) Capital gain & trading gain are 2 different thing

If according to both articles below: -
http://www.sinchew.com.my/node/347397 (from a Consulting Director, under company named Great Vision Tax & Financial Consulting, 2012)
https://www.malaysiastock.biz/Blog/BlogArti....aspx?tid=17508 (from an 14 years experienced investment expert, 2018)
(it is in Chinese, sorry for bro and sis who is not Chinese )

Both they said in common,
Capital gain = Hold a stock for a long time, then only sell it. Non taxable, and no need declare, but keep document for 7 years)
Trading = Repetitively trade stock in short term to gain profit. Taxable, and that Consulting Director even said it is under business profit. (Which I think it is totally wrong, refer to No.3 below. May be what he mean is only for broker, remisier or full time trader, but article reporter misunderstood it.)

2) Badges of Trade

In that SinChew article, the Consulting Director give out a term named Badges of Trade.
Whether the gain from stock market is taxable or not, it is depend whether the action is under Badges of Trade.
He said, the shorter time u hold a stock, the more repetitive u trade, then possibility it is under Badges of Trade is higher.
Means possibility you need to pay tax also higher.

Another blogspot also mentioned Badges of Trade.
And even give a law case as reference, BUT with a totally opposite statement.

http://msiataxjunior.blogspot.com/2011/11/...s-of-trade.html (from a professional accountant, 2011)



Means as long as you are private individual, (not a broker, not a remisier), then no matter how many times u trade, or how repeatedly u trade.
It is not under badges of trade. Which mean no need to pay income tax.
Only need to pay Capital Gains Tax, but Capital Gains Tax is not exist in Malaysia, means no need to pay tax at all.

Which is really confusing, one say it is under Badges of Trade, another say it is not.
And then I found below.

3) Say of LHDN (IRB)

https://www.thestar.com.my/news/nation/2012...e-to-be-taxing/ (from LHDN staff, 2012)



My conclusion,
1) If your purpose of buying stock is to hold for long time and gain dividend, when eventually sold it. Non-taxable, no need declare. But keep document for 7 years.
2) If the method you gain profit from stock market is by flipping stock (short term trading) FREQUENTLY, then it MIGHT BE taxable, under other gain or profit in your Form BE.
3) All info above is not applicable for broker and full time trader i think, as they are in more complicated situation.
4) All info above might not be applicable for profit gain from foreign stock market. LHDN didn't mentioned that. The SinChew article mentioned trading profit from foreign country need to pay tax, but since there is so much wrong info provided in that article, I am reluctant to believe it 100%.
5) Anything, directly contact LHDN, don't believe those Consulting firm, LHDN will have the final say anyway.

Disclaimer
I also do not sure my research is correct or not.
If you think I am incorrect in certain things, feel free to correct me with proof.
I will edit my post, as I also dun want to give wrong information to all bro and sis.

Thanks and credited to @klthor, several links were provided by him in previous related threads.

This post has been edited by KennRicky: Mar 2 2019, 03:53 AM

I understand your pain, because I were super confused about this before too.

I did some research like u, and can only concluded that, this thing is quite ambiguous.

Because like u have mentioned, the definition is very unclear, what mean by



Even stock market specialist don't have a very clear definition on how long is short term trading? how long is long term investing?

I came across reading before, which LHDN defines long holding investment = more than 5-7 years and is not taxable, but WTF how many people in stock market are holding for such long? come on!

And LHDN HAS NEVER (as I aware) give a very clear definition on this thing too.

So what i found out is, stock market player just keep diam diam, as hardly heard any case of LHDN picking trouble on stock market player, as someone mentioned, LHDN has no time to fish us as there are more big sharks who running tax.

But who know? I once read a news about a stock market player, who earned a lot during bull market in the past, but lost a lot too during market crisis, and suddenly LHDN appears and claim tax from him, hence he went bankruptcy, and being homeless on the street.



This post has been edited by tadashi987: Mar 2 2019, 09:52 AM

Don't worry so much lah.....

Most "traders" are small fish. Meaning they can't make good money from stock trading. Those "good and lucky" ones maybe can make a few thousand a month consistently. Even that is quite an achievement already.

If a trader can make a large sum of money consistently, like above 10k per month, then they would be worried about not filing income tax. Otherwise, their money cannot be spent on cars, houses etc. LHDN will be knocking on their doors, so it is in these people's interest to file income tax to be able to use the profits.

Until you can be a pro in stock trading, I would say 99.9% of people can't really make a large enough amount to warrant the attention of the LHDN. So, the issue is not applicable to most people.

Actually, if LHDN tax you on your trading profit, it could back fire on them also. In the future, if you make losses from trading, you can offset the losses against your employment income and LHDN gets less tax from you.

So, until you are a pro, the small capital gain from stock trading does not bother LHDN. When you can make large amount of money until you can buy cars houses overseas trip etc, then you yourself will have no choice but to declare your capital gain

On a side note, can we be 100% certain that dividends are still tax free under the current regime?

It is not tax free, it is just that before the company giving you those dividend, it is already tax deducted.
So u need to do nothing, no need to declare in tax form.

Malaysia Income Tax.

Charge of income tax
3. Subject to and in accordance with this Act, a tax to be known as
income tax shall be charged for each year of assessment upon the
income of any person accruing in or derived from Malaysia or received
in Malaysia from outside Malaysia.

Classes of income on which tax is chargeable

4. Subject to this Act, the income upon which tax is chargeable under
this Act is income in respect of—
(a) gains or profits from a business, for whatever period of
time carried on;
(b) gains or profits from an employment;
© dividends, interest or discounts;
(d) rents, royalties or premiums;
(e) pensions, annuities or other periodical payments not
falling under any of the foregoing paragraphs;
(f) gains or profits not falling under any of the foregoing
paragraphs.


“person” includes a company, a body of persons, a limited liability
partnership and a corporation sole;

[COLOR=red]Does the person include INDIVIDUAL?

but no matter how, Income Tax will tax you even is GREY area.

Individual can also tax under:
Pendapatan berkanun faedah, diskaun, royalti, premium, pencen,
anuiti, bayaran berkala lain dan apa-apa perolehan atau keuntungan lain (from BE form)

hmm

Not 100% but reasonably certain because otherwise nobody wants to invest in Malaysian stocks. Government have already tried to attract locals by restricting capital outflows i.e. make it difficult for Malaysians to invest in US/overseas stock.

This is incorrect. You still have to pay taxes on dividends. This means you actually have to declare in your tax forms. However, tax on dividends are currently exempt. Exempt is not the same as tax free.

This post has been edited by Yggdrasil: Nov 6 2019, 02:29 AM

Very interesting... the way LHDN rules are way too gray indeed.

The part on
(f) gains or profits not falling under any of the foregoing
paragraphs.


could mean everything under the sun as long it isn't defined. There's a need for a clear definition of what is
long term vs short term holdings. What is considered taxable capital gains vs. non-taxable capital gains.

A big question is... HOW DO THEY KNOW? Does the broker issued all trade transactions to LHDN and to you at the end of the tax year?
What is this "large enough amount" from trading income means? 1K/month? 5K/month? 10K/month?

Or is this a honor system, or don't ask don't tell?

I'm curious to know too.

This post has been edited by danmooncake: Nov 6 2019, 04:51 AM

assuming you are right and we need to declare in tax form assuming to be BE form...
then this dividend received amount would be declared in B3
"B3 Statutory income from interest, discounts, royalties, premiums, pensions, annuities, other periodical payments and other gains or profits" ?

if YES, then this amount would increase the total aggregate income as in B4 AGGREGATE INCOME
in which section or clause do we "exempt" / take out this dividend amount from the tax form?

BE form
http://lampiran1.hasil.gov.my/pdf/pdfboran...rm_BE2018_2.pdf

on this...
Dividend income
Malaysia is under the single-tier tax system. Dividends are exempt in the hands of shareholders. Companies are not required to deduct tax from dividends paid to shareholders, and no tax credits will be available for offset against the recipient’s tax liability. Corporate shareholders receiving exempt single-tier dividends can, in turn, distribute such dividends to their own shareholders, who are also exempt on such receipts.

http://taxsummaries.pwc.com/ID/Malaysia-Co...e-determination

Single tier dividend is tax exempted, and in BE form there is no place to declare tax exempted income, only taxable income in the form.

thanks for the info,
then should be no need to declare the amount of dividend we gets in the tax form, just like the interest we get from the bank FD too?

if YES then the "Yggdrasil" post about must declare in the tax form is not correct liao?

This post has been edited by yklooi: Nov 6 2019, 07:57 AM

Bank interest also is tax exempted as same as single tier dividend.
The tax rate table uses the term taxable income or chargeable income.

I'm not a tax agent but I think it does not meet the definition taxable dividend right now so just leave 0.
What I'm just saying that dividends are taxable but currently exempt. Means it can potentially be taxable.

Similarly, interest you received from fixed deposit is actually taxable but are exempt depending on the source of interest.
As the ordinary Malaysian only obtains interest from banks in Malaysia, this interest is exempted and most just leave it out.

Malaysia tax law favor the rich...

Looks like the rich can earn 5~6 figures income per year from dividends/interests
no need to pay any tax but the salary working person who earns the same 5-6 figures amount
per year have to pay income tax.

yes sir.. so we just need to get to that level then

Also, depends on which level too and lifestyle that one chooses.

Malaysia current household income divided into 3 levels:

T20 ~ RM 12500/month
M40 ~ RM 6250/month
B40 ~ RM 3000/month


Let say if one can get an investment dividends+interests yields avg 10% or more, matching those one of those income level,
over long term (tax free but not risk free: stocks, unit trusts, funds). Initial savings and investment target needed would be:

T20 ~ RM 1.5 mil
M40 ~ RM 750K
B40 ~ RM 360K


For safer and virtually risk free, generate very conservative average:5% (eg. EPF, CDs, ASNs, Sukuks, Bonds)
over long term, initial investment and savings target needed:
T20 ~ RM 3 mil
M40 ~ RM 1.5 mil
B40 ~ RM 720K

Of course, it doesn't factor inflation and so forth in the coming years as those numbers will change over time but
hey... tax free passive income is pretty good.

Well, also let's hope the tax laws does not change or raise any red flags otherwise LHDN also want their share.

This post has been edited by danmooncake: Nov 8 2019, 12:32 AM

yeah man.. if capital gain tax comes in.. gg

PH thought of capital gains tax but later didn't proceed with it because they need the rich to support Malaysia. Introducing capital gains tax suddenly will anger them and they might pull out their investments. Plus, this tax will make people less interested to invest in Malaysian market.

PAS wants to introduce capital tax in their manifesto.. I'm not talking about gains here.. I'm talking tax on holdings.

Lucky PAS can never rule Fed.. Or could they ?

You mrbigggyyy dupe?

yeah exactly.. our market is not mature enough to introduce that

A lot of PH legislatures also quite rich, in the T20 groups and have side income from investments.
They talk only but won't support more taxes because of self-preservation.

In Malaysia the rich, don't have to work, can get tax-free money from investments.
The poor - have to work but also not earn enough to pay taxes.

The groups suffer the most is the M40.. have to work and have to pay taxes to support the entire country.

May I ask if capital gains from selling shares in foreign market taxable ?

So can i say, either someone is working or not working, the are still not taxable unless it is huge amounts monthly? Even this is a grey area.

If i engage an offshore investment broker, and trade US stock , do i need to pay tax?

If I rmb correctly, income derived from overseas is not taxable under Malaysia law unless you conduct business in Malaysia.

However, as we have no CGT here, you likely won't have any tax to pay if your gains are in capital gains.

Dividends might be a separate issue, but unless your dividends is from REITs, they should be tax exempt as well. The only tax you need to pay is the 30% withholding tax imposed by the US

it's so loosely defined here... so mean if lhdn didn't come find you then no problem

but somehow if you in trouble and lhdn come find you, sure kena fine a lot...

Question:
For local and oversea stocks, do we need to declare the capital gain to LHDN?

Don’t need for local , no sure about oversea stocks.
Do you have answer to share?