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.