HOW TO CALCULATE STAMP DUTY CHARGEABLE ON TRANSFER OF SHARE IN PRIVATE COMPANY (SDN BHD)

Understanding the importance of stamp duty shares transfer

If you are transferring company share ownership between any parties, then you need to pay a stamp duty. A stamp duty is chargeable on the instruments of that transaction. Generally, stamp duty is imposed on legal, commercial and financial instruments, including instruments of transfer of shares, share purchase agreements and share option agreements. 

If you are buying shares in a private company, you might want to know how much this will cost you as the stamp duty will be imposed on the instrument governing that share transfer transaction.

Another part that is equally critical that you have to note is that your name will not be registered in the Register of Members even after you have paid the seller of the company shares. You will only get your name registered as a member/shareholder of the company until the instrument of transfer is duly stamped in accordance to the requirement of Section 105 of the Companies Act 2016.

On another aspect, you need to further note that an instrument that is not duly stamped will not be admissible in court as evidence.

In this article, we will help you understand how stamp duty is calculated for the transfer of shares.

STAMP DUTY CHARGEABLE RATE

The stamp duty rate for the transfer of shares is calculated based on the price or value of the shares on the date of transfer. The chargeable rate is RM3.00 for every RM1,000.00 or fractional part of RM1,000.00 as specified under item 32(B) of the First Schedule, Stamp Act 1949.

But what does the price or value of share mean here?

The Inland Revenue Board (LHDN) has issued a guideline named Guidelines on the Stamping of Share Transfer Instruments for Shares That Are Not Quoted on the Kuala Lumpur Stock Exchange, which provides further detail on the computation of stamp duty on share transfer instruments.

STATUS AND CONDITION OF THE COMPANY AND APPLICATION OF FORMULA

 

Based on the guidelines referred to above, there are several conditions that you need to take note of and consider for the company before you can even start calculating the stamp duty.

These are the conditions of the company that you need to affirm first in order to determine in what manner and which calculation method will be used in calculating the stamp duty. 

In this scenario the letter of approval with the price/value approved by the Security Commission shall be used as the basis of the price or value of the shares. 

• 
  

If the company is at a loss and does not require approval by the Security Commission, the price/value of the shares must be calculated first based on the methods below; 

1. the Par Value of the total shares; 

1. the Net Tangible Asset value of the total shares; and 

1. the Sale Consideration. 

Between these methods, the method that outputs the highest price/value of the issued shares will be used as the basis of the calculation of the stamp duty.  

We will discuss the meaning of the terms Par Value, Net Tangible Asset and Sale Consideration later in this post to give further clarification. 

• 
  

If the company’s sale of shares does not require approval from the Security Commission and is earning a profit, then the comparison of the price/value of shares between a few methods must be done first. These methods that would derive the price/value of the shares are;

1. the Net Tangible Asset; 

1. the Price Multiple Earning/Price Earning Ratio (PER); and  

1. the Sale Consideration price (whichever is higher) shall be used.

Between these methods, the method that outputs the highest price or value of the issued shares will be used for the calculation of the stamp duty.  

We will discuss the terms Net Tangible Asset, the Price Multiple Earning/Price Earning Ratio (PER) and Sale Consideration price later in this post to give further clarification.

UNDERSTANDING PAR VALUE, NET TANGIBLE ASSET, PRICE MULTIPLE EARNING/PRICE EARNING RATIO (PER) & SALE CONSIDERATION

Based on those company conditions, there are several terms that are used to calculate issued share price or value. They are Par Value, Net Tangible Asset, Price Multiple Earning/Price Earning Ratio (PER) and Sale Consideration. 

Let’s break it down so that you have a clearer picture about how to calculate the price or value of the total issued shares as well as the value of one single unit issued share based on these methods. Once we know these, we can then calculate the stamp duty chargeable on your instrument of transfer. 

1. 
   

A single unit share Par Value means the original face value of 1 single unit of share when the shares were issued or the value of a share certificate, i.e. RM1.00 per unit share.  

Example 

For example, if the total number of shares issued by a company is 100,000 units at a value of RM1.00 for each share issued, the total Par Value for all total issued shares would then be RM1.00 × 100,000 units of issued shares, which would be RM100,000. 

Net Tangible Asset means the total physical assets of a company minus all intangible assets and liabilities.  

In the guideline, however, the Net Tangible Asset equates itself to the Shareholder’s Fund for the purpose of stamp duty calculation. 

Formula 

STEP 1 

Net Tangible Asset	=	Shareholders’ Fund
*Shareholders’ Funds	=	Total Assets – Total liabilities

STEP 2

Value per share = Shareholders’ Fund / Total Issued Shares value 

Example

Step 1 – Determine Net Tangible Asset 

Net loss for the year	(RM20,000)
Issued share capital	RM200,000
Shareholders’ Funds	RM180,000

So, in this scenario, the total asset here is issued share capital worth RM200,000. Since there is a loss for the year amounting to RM20,000, the remaining asset value is RM180,000. That RM180,000 is the Shareholder’s Fund. Since the guideline equates the Shareholder’s Fund as the Net Tangible Asset, then the Net Tangible Asset is also RM180,000. 

Step 2 – Determine 1 Unit Issue Share value 

So now let's calculate the value per share now.  

Value per share	=	Shareholders’ Fund / Total Issued Shares value
Value per share	=	RM180,000 / RM200,000
	=	RM0.90

Therefore, the value per share under the Net Tangible Asset method is RM0.90. 

1. 
   

The Price-Earnings Ratio (PER) is a formula used to calculate the value of the shares of a company in consideration of its industry multiplier (this is called as PE Ratio or PER), the net profit of the company and the total issued shares. 

This calculation would allow you to be able to determine the total value of the issued shares of a company.   

What makes this approach noteworthy is its adaptation to different sectors. In the guideline, LHDN has also stipulated the specific PER values for specific industries that you will need to use as a basis for the calculation, which we will elaborate on below.  

For instance, banks might have a PER value of 8.5, while property services might be valued at a PER of 3.5. It's important to check for the latest PER value for the specific industry. 

Now, let's calculate the per unit issued share value under this method. 

Formula 

The formula to calculate the value of issued shares using PER is as follows; 

Value per share	=	Profits after tax	×	PER multiples
		Issued Share Capital

The PER multiples will be determined by the government for the purpose of stamp duty calculation. 

Example 

Determine Per Unit Issued Share Value 

Issued share capital	RM1,000,000
Company Profit After Tax	RM10,000,000
Share transferred	120,000 units
PER for Banks	8.5

Value per share	=	Profits after tax	×	PER multiple
		Issued Share Capital
Value per share	=	RM10,000,000.0	×	8.5
		RM1,000,000.00
	=	RM85 per issued share

1. 
   

For share transfer transactions, price consideration means the amount of money you give in exchange for the issued shares that will be transferred to you. The easiest way to find out the value of shares in a private company that you intend to buy is by comparing it with a company of relatively the same size and similar business operations. You may apply the price earning ratio (PER) to get the value of such shares.  

Please note that the price consideration carried the same meaning as the sale consideration referred to in the guideline. 

Formula 

Total number of issued shares to be transferred

×

Value per share

Example 

Please refer to item (iii) above to understand how value per share can be obtained using the PER multiples. 

Determine Price Consideration  

Issued share capital	RM1,000,000
Value per share	RM85

Price consideration	=	Total number of issued shares to be transferred	×	Value per share
Price consideration	=	RM1,000,000	×	RM85
	=	RM85,000,000

1. 
   

Now that we have explored how each of the methods operates, we can now calculate and compute the stamp duty according to the condition of the business.  

• 
  

If the transfer of shares is subject to the approval of Securities Commission, any price or value per share which has been approved by Securities Commission is acceptable. 

Formula 

Total number of issued shares to be transferred

×

Price per unit share

×

Stamp duty rate

Example 

In this scenario, assuming that the price per unit share is RM3 (approved by Securities Commission) and the total number of issued shares to be transferred is 10,000. 

Calculate stamp duty rate 

You will now need to use the stamp duty rate against the 1 unit issued share value and the total number of issued shares to be transferred. 

Formula 

Stamp Duty	=	Total number of issued shares to be transferred	×	Price per unit share	×	Stamp duty rate
Stamp Duty	=	10,000 unit of shares	×	RM3	×	(RM3 for every RM1,000 value)
	=	RM90

 

• 
  

For the scenario where the Company’s shares are not subject to Security Commission Approval and where the company is at a loss, we will now determine which of these methods produces the highest per unit issued share value; 

1. the Par Value of the total shares; 

1. the Net Tangible Asset value of the total shares; and 

1. the Sale Consideration. 

Example  

Stage 1 – Determine the highest 1 unit per issued share value;

1. the Par Value of the total shares – RM3 per issued share 

1. the Net Tangible Asset value of the total shares – RM0.80 per issued share 

1. the Sale Consideration – RM2 per issued share 

In this scenario, since the Par Value yields the highest value for 1 unit issued share value, so this value will be used as the basis of calculation. 

Stage 2 – Calculate stamp duty rate 

You will now need to use the stamp duty rate against the 1 unit issued share value and a total number of issued shares to be transferred. 

Formula 

Stamp Duty	=	Total number of issued shares to be transferred	×	Price per unit share	×	Stamp duty rate
Stamp Duty	=	10,000 unit of shares	×	RM3	×	(RM3 for every RM1,000 value)
	=	RM90

• 
  

For the scenario where the Company’s shares are subject to Security Commission Approval, we will now determine which of these methods produces the highest per unit issued share value; 

1. the Net Tangible Asset value of total shares; 

1. the Price Multiple Earning/Price Earning Ratio; and  

1. the Sale Consideration price. 

Example  

Stage 1 – Determine the highest 1 unit per issued share value 

1. the Net Tangible Asset value of the total shares – RM0.80 per issued share 

1. the Price Multiple Earning/Price Earning Ratio – RM3.50 per issued share  

1. the Sale Consideration – RM2 per issued share 

In this scenario, since the Price Multiple Earning/Price Earning yields the highest value for 1 unit issued share value, so this value will be used as the basis of calculation. 

Stage 2 – Calculate stamp duty rate 

You will now need to use the stamp duty rate against the 1 unit issued share value and the total number of issued shares to be transferred. 

Formula 

Stamp Duty	=	Total number of issued shares to be transferred	×	Price per unit share	×	Stamp duty rate
Stamp Duty	=	10,000 unit of shares	×	RM3.50	×	(RM3 for every RM1,000 value)
	=	RM105

CONCLUSION 

In wrapping up, we've covered the essentials of stamp duty in share transfers, from why it’s important to how it's calculated.  

If you’re looking at a business acquisition and need clarity or help with these legal intricacies, feel free to reach out. Our team is ready to offer professional guidance to ensure your transaction is smooth and compliant. Contact us for expert assistance in navigating these crucial aspects of your business journey.