CORPORATE, PROPERTY, TAXATION

Doing Airbnb: short-stay side hustle or tourist accommodation business?

Malaysia has recently come out with guidelines to regulate the renting of Short-Term Residential Accommodations (STRA) on digital platforms.

Among those platforms the most popular and successful is Airbnb, a company founded in 2008 by two unemployed designers, Brian Chesky and Joe Gebbia who rented out air bed in their flat in San Francisco to supplement their incomes. Up to today 500 million stays have been booked through Airbnb and now each night in more than 100,000 cities around the world 2m people sleep in an airbnb.

Hotels in Malaysia, once known for selling some of the cheapest five-star rooms in Asia, have complained that STRA are steadily stealing their guests and causing prices and profits to fall. At the same time, management of condos argue that allowing owners to turn apartments into a hotel creates nuisance to residents and spoils the spirit of community and neighbourliness.

The truth is most STRA in Malaysia are not places where guests get to stay with locals in their spare room, enjoy a cooked breakfast and in the evening watch netflix with the hosts’ children before snuggling up in bed surrounded by homey appurtenances. Most if not all are actually properties bought and furnished by their owners for investment or with the view of turning them into short-term rented accommodations to pay for the mortgage.

If you are a STRA owner, here are some things you should think about before the new law comes into effect:


Set up a legal entity

Set up a legal entity such as a private company (Sdn Bhd) or limited liability partnership (PLT) for the STRA business. Both Sdn Bhd and PLT enjoy lower corporate tax than you as a human person. Besides all your business related expenses like advertising, cleaning, petrol, meals and monthly data plan can be deducted from tax. 

PLT is cheaper and easier to form and maintain compared to Sdn Bhd as there are no secretarial or audit fees to pay. The only thing is that you need at least two local partners to form a PLT. 

Unless the profits from the business touch RM500,000 a year or as a foreigner you are not allowed to form a PLT, it is better to use PLT than Sdn Bhd as your entity.

If the law later prevents you as a non-Malaysian from running STRA then forming a Sdn Bhd with 51% local shareholding may be the way to go.

From there on the entity will run the STRA business while you as the owner of the property be the landlord.

Create a Tenancy

After the legal entity is formed you must as the owner and landlord of the property prepare a tenancy agreement to rent it out to that legal entity to operate the STRA business on the premises. The rent under such tenancy can be fixed at a modest sum to only cover bank interest and building service charges so that the bulk of profits is shifted over to the STRA entity to pay a lower corporate tax.

Read the Building Bye-Laws

Talk to the Building Management and check the house rules (now called Bye-Laws) to make sure you are allowed to turn your property into STRA. Even if you can, you need to comply with the rest of the bye-laws especially regarding access cards, parking, noise and keeping of pets.

Tourism Tax

Check if you need to pay Tourism Tax. The government has made three changes this year to its decision on how much and who should pay this tax. The official website has not been updated but it seems that only foreign tourists need to pay RM10 per room for each night they stay in a STRA that has more than 4 rooms.


ARTICLES, PROPERTY, TAXATION

Malaysia’s RPGT 2019: More Pain, Less Gain

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From 1 January 2019 onwards RPGT will have to be paid regardless of how long you have owned your property. Real Property Gains Tax (RPGT) is the share of money you must pay to the government from the profit you make in selling your house.

Previously under Najib Razak RPGT in 2014 was hiked up to the highest rates in its history. This time Malaysia’s first-time populist coalition government has outdone its maligned predecessor. The new government has announced that not only will those high rates increase but RPGT will also now be perpetually payable.

Until 31 December this year if you are the owner of your property for more than five years then you pay zero % RPGT if you are Malaysian and 5% RPGT if you are a company or a foreigner.

Effective  1 January 2019 the rates of RPGT for property sold after five years is 5% for Malaysians and 10% for foreigners.

RPGT rates for property sold within three years and on its fourth and fifth years remain fixed at 30%, 20% and 15% respectively.

There are people who see tax as a great equalizer, that RPGT is a necessary evil to curb greedy speculators who drive up house prices. They feel that RPGT imposed on property sellers and landowners is fair since these wealthy people enjoy more of society’s resources and comfort.  Indeed some form of rich tax is needed to reduce Malaysia’s income gap which is the widest in Asia and one of the worst wealth distributions in the world.

To do this the new government will do well to also look into the following:

  • Exempt all houses that are principal place of residence from RPGT. At present sellers are only given a once in a lifetime exemption. Any owner who can prove that his house has been used as a home should not have to pay RPGT.
  • Make owners of multiple houses and commercial units fork out more for RPGT but be lenient on the small house owner who may be selling his house at a better price to upgrade his family or maybe just to survive inflation.
  • Abolish or reduce the present requirement to retain and send to the government  within 60 days of the sale 3%  (Malaysian) or 7% (foreigner) from the property price as security for RPGT. The deposit in Malaysia is normally 10% of the price so such large retention for RPGT will leave a house seller with no cash after he pays his agent and lawyer. He has to wait 6 months or more to get his money from the sale and up to a year for his RPGT refund from the government. It is discouraging to note that Malaysia holds a world record for using the longest average time to transact a property deal.
  • Allow interest paid for bank loans to be deducted for RPGT. Since RPGT is going to be perpetual and applicable many years after you first bought your property most gain on property will not be real but inflationary.