In brief
As part of the 2027 Budget announced by the Madani Government ("Budget"), a significant proposal has been introduced to review the stamp duty treatment on foreign currency loan or financing agreements ("Proposed Change"). This alert sets out the historical position and the current position, the proposed changes, key considerations and practical implications for transaction parties engaged in foreign currency financing transactions in Malaysia.
Historical background and current position
It is important to appreciate the evolution of the stamp duty treatment on foreign currency loan agreements to understand the significance of the Proposed Change.
| Period | Rate | Cap | Remarks |
| Pre-2020 |
Ad valorem |
MYR 500 (maximum) |
A nominal cap applied regardless of loan quantum or residency status of the lenders, making foreign currency financing cost-effective even for large facilities. This cap was a well-known and commercially important feature of foreign currency financing landscape in Malaysia, as it effectively limited stamp duty cost to a nominal sum even for very large facilities. |
| From 2020 to Pre-2024 |
Ad valorem |
MYR 2,000 (maximum) |
|
| From 2024 to Current |
Ad valorem of 0.5% of the facility amount |
No cap |
The cap was subsequently abolished, marking a significant change to foreign currency financing landscape in Malaysia. For large-ticket transactions, this represented a material increase in transaction costs, as stamp duty is now calculated on the full facility amount without any maximum limit — meaning the larger the facility, the higher the stamp duty payable. |
The proposed change
According to the Budget, to enhance access to domestic financing, it is proposed that the stamp duty imposed on loan or financing agreements in foreign currency from banks in Malaysia be determined based on a tiered structure as follows:
- Loan/Financing Amount of up to MYR 100 million equivalent in foreign currency: Proposed Maximum Stamp Duty of MYR 2,000
- Loan/Financing Amount exceeding MYR 100 million equivalent in foreign currency: Proposed Maximum Stamp Duty of MYR 5,000
These changes are proposed to take effect for loan or financing agreements executed from 1 January 2027.
A welcomed development
The reintroduction of a cap with a tiered structure is a significant and welcomed development. The abolition of the MYR 2,000 cap in 2024 was a major shift that imposed significant additional costs on foreign currency financing transactions in Malaysia. To appreciate the magnitude of the relief on stamp duty, consider the following examples based on the current 0.5% uncapped position compared to the proposed tiered structure:
| Loan Amount | Stamp Duty at 0.5% (Current Position) |
The Proposed Change |
Saving |
| MYR 50 million (up to RM100 million tier) |
MYR 250,000 |
MYR 2,000 |
MYR 248,000 |
| MYR 200 million (exceeding RM100 million tier) |
MYR 1,000,000 |
MYR 5,000 |
MYR 995,000 |
For large-scale infrastructure projects, acquisition financings or syndicated facilities denominated in foreign currency, the potential savings are substantial, running into millions per transaction. This will undoubtedly incentivise borrowers to seek foreign currency financing from banks in Malaysia and is expected to meaningfully boost domestic lending activity.
Key considerations and limitations of the proposed change
The Proposed Change expressly limits the benefit of the tiered structure to loan or financing agreements in foreign currency from banks in Malaysia. This is a critical qualifier with significant practical implications.
Whilst the Proposed Change does not expressly define "banks in Malaysia," it is likely that the benefit of the tiered structure would only be available in respect of foreign currency financing granted by Licensed Onshore Bank within the meaning prescribed under the BNM Foreign Exchange Policy. Foreign currency financing granted by foreign lenders, including offshore banks and financial institutions incorporated and operating outside Malaysia would in all likelihood continue to be subject to the current uncapped 0.5% ad valorem regime. This distinction will be an important factor in deal structuring decisions, particularly for cross-border transactions involving both onshore and offshore lenders in a syndicated or club facility.
For greater certainty, these questions will only be resolved upon the release of the Finance Bill, and parties are advised to monitor developments closely.
Source: Appendix 19 of Tax Measures (tax-measures.pdf)
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Elaine Foo, Partner, and Eng Hong Keoy, Associate, have contributed to this legal update.
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