Validity and Enforceability of Unstamped Agreements

By Chang Huey Min

Stamp Duty: A Brief Overview

Stamp duty is imposed on legal documents to make them legally effective and enforceable in court. Section 52 of the Stamp Act 1949 requires all agreements to be duly stamped to ensure its enforceability in court. Time is of the essence when it comes to stamp duty in Malaysia. Section 47 of the Stamp Act 1949 mandates that agreements requiring stamp duty must be stamped within 30 days of execution. This time-bound requirement emphasizes the need for prompt compliance with stamp duty obligations to avoid any legal repercussions or complications in the future.

A wide range of legal documents fall under the purview of stamp duty in Malaysia, including but not limited to:-

Sale and Purchase Agreement: Agreement for the sale of property and land.
Transfer Document (i.e. Memorandum of Transfer): Document for the transfer of ownership of property.
Loan Agreement: Documents between bank and borrower where the terms and condition are clearly specified.
Tenancy Agreement and Lease: Agreement for leasing and renting out of property to individual or business use.
Share Transfer Document: Agreement for transfer of shares in company
Partnership Agreement: Agreement entered between two partners of the company where the terms are outlined.
Power of Attorney: Legal authorisation that authorises one to act on behalf of the other.
Insurance Policies: Contract between the insurance company and individual or business being insured

By stamping these documents, parties involved in legal transactions demonstrate compliance with the law and contribute to government revenue.

Types of Stamp Duty

Generally there are two types of stamp duty, namely:

Ad Valorem Duty: This is a type of stamp duty where the rate varies based on the value of the transaction or the market value of property and the nature of the instrument.
Fixed Duty: Fixed duty is a form of stamp duty where the amount is fixed regardless of the value of the transaction.

Property Transactions

Stamp Duty on Instrument of Transfer

The stamp duty varies based on the property value and type of transaction, and it is essential to factor this cost into the overall transaction expenses.

Property Price	Stamp Duty (% of Property Price)
First RM 100,000	1%
RM 100,001 – RM 500,000	2%
RM 500,001 – RM 1 million	3%
Above RM 1 million	4%

Stamp Duty on Instrument of Transfer for First Home Buyer

Generally first home buyer entitles to stamp duty exemption on instrument of transfer and loan. However, there are few requirements to look into to be entitled for this exemption:

First home buyer: One shall not have any property registered under his or her name whether the property is received by way of transfer from others or by sale and purchase.
Residential Property: Property holds residential title, and not commercial title.
Value of Property: Property value must less than or equal to RM 500,000.

Stamp Duty on Instrument of Transfer between Family Members

Following the Stamp Duty (Exemption) ( No. 3) Order 2023 [P.U.(A) 178/2023] which is deemed to have come into effect on 1 April 2023, it extends the categories of transfers for full stamp duty exemption by adding the transfer between grandparents and grandson. The first RM1,000,000 of the market value of the property will also be entitled to full stamp duty exemption, provided the recipient falls into any of the categories as below:

	Stamp duty will be exempted fully for the first RM 1,000,000 of the market value of the property for the categories below:
Donor	Recipient
Grandfather/Grandmother	Grandson
Grandson	Grandfather/Grandmother
Father/Mother	Child
Child	Father/Mother

However, this exemption is only limited to:

1. The instrument of transfer of immoveable property is executed on or after 1 April 2023; and

2. Recipient is a Malaysian citizen.

Legal Validity and Enforceability

The question arises is whether the agreement is still legally valid and enforceable if it is not stamped in accordance with the provisions of the Stamp Act 1949?

One common misconception surrounding stamp duty is that the absence of proper stamping renders a document invalid or unenforceable. However, this notion is misguided. As per legal provisions, even if an agreement lacks proper stamping in accordance with the Stamp Act 1949, it does not render the document invalidated as the lack of stamping will affect the admissibility of document as evidence in court. The parties are still bound by the contractual obligation set out in the agreement. To rectify it, the affected party is required to pay penalty for the late stamping to LHDN in order to stamp the document at a later date.

In the case of Tang Vee Luen @ Philip v Titan Energy Sdn Bhd [2021] MLRHU 493, High Court held that even if the document was not stamped, it remained legally valid, binding, and enforceable between parties and the contents of the agreement shall not be invalidated. The proper recourse was to make penalty payment to LHDN to stamp the document.

Importance of Stamp Duty

Stamp duty serves multiple purposes in Malaysia. Firstly, it acts as a source of revenue for the government, helping fund public services and infrastructure development. Additionally, stamping documents provides legal certainty and authenticity to transactions, safeguarding the interests of parties involved in legal agreements.

In conclusion, stamp duty is a fundamental aspect of legal transactions in Malaysia, serving both regulatory and revenue-generating purposes. Understanding the impact of stamp duty on legal documents is essential for ensuring compliance, protecting the validity of agreements, and avoiding potential legal pitfalls. By adhering to stamp duty regulations and seeking professional advice when needed, individuals and businesses can navigate legal transactions with confidence and certainty.

Disclaimer: This article is intended to be for general information purposes only. It does not constitute legal advise nor an expression of legal opinion. Readers should not act purely based on information containing in this article without seeking advise from legal professional.