Stamping — legal requirement vs. practical approach

Stamp duty has long been perceived as an antiquated duty from the colonial era and a compliance afterthought of little legal consequence. In practice, many companies have treated stamp duty as a secondary compliance matter, typically associating it with instruments involving asset transfers or those that may need to be produced in court proceedings, often overlooking its broader application under the Stamp Act 1949 ("Stamp Act").

From a legal perspective, however, the Stamp Act's ambit is far-reaching. It requires that every instrument listed in the First Schedule be duly stamped. Under the Stamp Act, an unstamped instrument is inadmissible as evidence in court proceedings. The lack of compliance monitoring by the IRB has resulted in companies adopting a practical, risk-based approach — choosing not to stamp certain documents they deem unlikely to be litigated. Intercompany agreements are a common example, given the perceived low risk of litigation between related entities. Similarly, employment contracts are also frequently left unstamped, largely due to the historical absence of enforcement actions by the IRB. However, this position is no longer tenable.

Increased scrutiny and differing interpretations

The IRB has now signaled a clear shift in its enforcement approach. Under the Stamp Duty Audit Framework, effective 1 January 2025, the IRB will conduct stamp duty audits, with audit case selection driven by a computerized risk analysis system and intelligence from various sources. Unlike income tax audits, which often follow industry-specific trends or targeted issues, stamp duty audits appear to be broader in scope and more unpredictable — cutting across industries and company sizes.

Apart from the increased enforcement environment, we have also been observing changes in interpretations by the Stamp Office when stamping particular documents. Many documents that traditionally attracted a nominal stamp duty of RM 10 may result in ad valorem stamp duty of significant value, which the company did not budget for or anticipate. This has also resulted in increased stamp duty disputes and appeals, as differing interpretations by the Stamp Office and taxpayers lead to an increasingly contentious environment.

Increased penalties

The government has further signaled stricter enforcement through the increase in penalties for late stamping. The updated penalty structure is as follows:

• If stamped within three months from the prescribed period: RM 50 or 10% of the stamp duty payable, whichever is higher
• If stamped after three months from the prescribed period: RM 100 or 20% of the stamp duty payable, whichever is higher

In addition, failing to stamp an instrument without a lawful excuse may attract a separate fine of up to RM 1,500. Notably, this penalty appears to apply on a per-document basis, meaning each unstamped instrument may be subject to its own fine.

Once the self-assessment regime comes into effect on 1 January 2026, taxpayers will also be subject to a new set of obligations, along with corresponding penalties for noncompliance. These include the duty to keep a record of the instruments and the requirement to file stamp duty returns. Failure to comply with these obligations constitutes an offense under the Stamp Act and may attract a fine of up to RM 10,000 on conviction.

This evolving landscape necessitates a fundamental change in how companies approach stamp duty compliance. It can no longer be treated as an afterthought. Instead, it must be embedded as a core compliance obligation — requiring proactive attention, internal controls and strategic planning.

Next steps

In the light of the increased audit activities, companies are strongly encouraged to undertake internal reviews or "health" checks to assess their current level of stamp duty compliance. This is particularly timely given the availability of a voluntary disclosure mechanism under the Stamp Duty Audit Framework. Where there is no ongoing audit, taxpayers may voluntarily disclose documents that have exceeded the permissible stamping period by more than three months. Such disclosures may benefit from a reduced late stamping penalty of 10% or RM 50, whichever is higher.

In large organizations where multiple departments and personnel handle a wide range of instruments, a coordinated approach is essential. Companies should consider implementing clear protocols and awareness initiatives to ensure that all relevant documents are identified, assessed and stamped appropriately. With the self-assessment regime on the horizon, now is the time to review and reinforce governance around document execution and stamping obligations.

Conclusion

The shifting stamp duty landscape in Malaysia demands a more deliberate and structured approach to compliance. With the IRB intensifying its audit activities and the self-assessment regime set to take effect, businesses must ensure they are well prepared to meet these evolving expectations.

Timely legal support can help ease this transition. Our team can assist with the following:

• Supporting companies through ongoing or anticipated stamp duty audits
• Delivering tailored training to equip teams with practical knowledge on managing instruments from a stamp duty perspective
• Developing internal stamp duty handbooks or guidance materials
• Conducting compliance reviews to identify gaps and mitigate potential exposure

By embedding these practices into their broader compliance strategy, companies will be better positioned to manage risk and respond confidently to scrutiny.

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Anlynn Ng, Senior Associate, contributed to this update.

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