Basic Intro To Stamp Duty

In Malaysia, stamp duty is a tax on legal documents (called “instruments”), not on the business itself. It’s governed by the Stamp Act 1949 (Act 378), which lists in its First Schedule all the types of documents that are chargeable with duty – things like employment contracts, service agreements, loans, tenancy agreements, share transfers and so on.

“Stamping” is the process of:

1. Submitting the signed document to LHDN (usually via the STAMPS online system),
2. Paying the correct stamp duty, and
3. Getting an official e-stamp certificate confirming the document is “duly stamped”.

The Importance

Under section 52 of the Stamp Act, an instrument that is chargeable with duty cannot be admitted in evidence in court or acted on by public authorities unless it has been properly stamped. The contract is usually still valid between the parties, but practically useless if you need to enforce it in court until you regularise stamping.

So for business owners, stamping is becoming a ‘must have’ for each document to avoid compliance and litigation risk issues.

What the Amendments Actually Changed?

Between 2024 and 2025, several significant changes altered the way stamp duty operates in Malaysia, particularly for employment and business agreements.

Minimum of RM10 for All Instruments

Recent amendments to the Stamp Act introduced a minimum stamp duty of RM10 on all instruments, except cheques and contract notes, which keep their special rules.

Now, even small-value documents that would previously have attracted just a few ringgit of duty, like RM 1-2 or sometimes none, are now required to pay RM10 at least.

Self-Assessment System [*]

Malaysia is moving stamp duty into a self-assessment system, similar to the income tax system. Now, instead of the LHDN assessing the amount for you, you have to get it right yourself. The LHDN later comes in to audit it if something looks off.

To not cause total chaos, it is being rolled out in 3 phases:

Phase 1 – starts from 1 January 2026, it covers rentals/leases, general stamping and securities

Phase 2 – starts from 1 January 2027, and covers the transfer of property ownership

Phase 3 – starts from 1 January 2028, covering all remaining instruments not covered in Phases 1 or 2

Under this system, for each document, you must:

1. Pick the correct category
2. Calculate the duty
3. File it via STAMPS & pay

The effects of doing it wrong, like under-declaring the value or choosing the wrong category, the LHDN can result in additional duty + penalties.

Employment Contracts [*]

Now, employment contracts are subject to RM10 stamp duty per original copy under Item 4, First Schedule

This covers:

• full-time and part-time employees
• fixed-term and contract staff
• interns/trainees where there’s a proper employer–employee relationship
• standalone offer letters that are the contract
• addenda signed by both employer & employee that form part of the main agreement

LHDN also applies a ‘substance over title’ approach, meaning that no matter the title of the contract, they will treat it as an employment contract if it behaves like an employment contract

Salary Threshold [*]

Previously, the employment contracts were exempted from stamp duty if the monthly wage was less than RM300. In Budget 2026, the Government announced an update from 1 Jan 2026, the exemption threshold increases from RM300 to RM3000 per month, meaning that an employment contract that earns less than RM3000 a month is exempted from stamping.

When Does It Happen & Who Pays?

Officially, contracts before January 2025 are exempt from stamping and do not need to pay for any penalties. For contracts, from 1 January 2025 to 31 December 2025, these contracts must be stamped. However, they would not receive late penalties unless done so after 31 December 2025. Lastly, from 1 January 2026 onwards, all contracts must be stamped

The Third Schedule of the Stamp Act sets out, as a matter of law, who is liable to pay duty for each type of instrument.

In practice:

• Employment contracts – it is typically the party that signs first, which is usually the employer, so employers almost always bear the RM10.
• Loan agreements – typically borne by the borrower
• Tenancy/lease agreements – typically, the tenant bears the duty, but this is often negotiated
• Share transfers – usually borne by the transferee/buyer

General Table Comparison

What Happens If You Don’t Stamp It?

(A) Court problem – Section 52

Under Section 52 of the Stamp Act 1949:

A document that is chargeable with duty cannot be admitted in evidence in court, or acted upon, registered or authenticated by any public officer, unless it is duly stamped

To simplify, an unstamped agreement usually still exists as a contract, but it holds no legal validity.

(B) Penalties for late stamping [*]

If you miss the 30 day window, LHDN can impose a penalty on top of the duty. Current guidance shows for many contracts:

• Stamped within 3 months after the deadline:
  – Penalty RM50 or 10% of the duty, whichever is higher.
• Stamped later than 3 months:
  –  Penalty RM100 or 20% of the duty, whichever is higher.

Plus, with the new Stamp Duty Audit Framework and LHDN focus, employers and companies can face additional compliance penalties if they repeatedly ignore stamping duties.

Worried your “simple” agreements might now be on LHDN’s radar? Get in touch with us at Quality Oracle to talk through your stamp duty exposure and next steps.