Government Projects: Which Stamp Duty Rate Applies to Your Agreement?

Service agreements linked to a project awarded by the Government, a State or a local authority can enjoy reduced stamp duty under the Stamp Duty (Remission) Order 2021. The Order is deemed to have come into operation on 28 December 2018, so it covers qualifying agreements executed on or after that date. The rate that applies depends on where a business sits in the chain of contracts.

At the top of the chain, an agreement made by the main service provider with a person other than the authority that awarded the undertaking, or an agreement between a sub-provider of service and the main service provider, is subject to stamp duty at an effective rate of 0.1% of the relevant sum. Any duty above 0.1% is remitted.

Further down, when the main service provider or qualifying sub-provider enters into another service agreement with a further sub-provider, and so on down the chain, the stamp duty on each of those subsequent agreements is capped at RM50. Any amount above RM50 is remitted.

The RM50 cap comes with a condition. Each of these subsequent agreements must state three things: the names of the parties and the execution date of the relevant agreement above it, the subject matter of the agreement, and a statement that the relevant agreement above it was duly stamped at the 0.1% rate.

For a business in the chain, three practical steps follow. First, confirm its position in the chain, because the position determines the applicable stamp duty treatment. Second, a main service provider or a sub-provider dealing directly with it should make sure that the relevant agreement above is properly stamped at the 0.1% rate, because the subsequent agreement needs to refer to that stamping. Third, when preparing a further subcontract, make sure the required details about the relevant earlier agreement are included in the agreement.

If you wish to focus on running and growing your business, our CFO advisory team can take care of your accounting, payroll, tax planning, e-stamping, corporate secretarial and compliance matters for you. Feel free to WhatsApp us at 010-246 2151.