What happens if a contract is not stamped in Malaysia? Can it still be enforceable? It is a common misconception that a contract becomes invalid if it is not stamped. Conversely, some individuals believe that they can avoid paying stamp duty to save money. To shed some light on the matter, it is essential to consider the what, who, when, why, and how of stamping a contract or any other document or instrument.
Understanding Stamp Duties
Stamp duties are levied on instruments, typically documents that transfer ownership or interest in assets and properties. These instruments play a crucial role as evidence of specific transactions in business relationships. In Malaysia, stamp duties are governed by the Stamp Duty Act 1949 (“the Act”).
The rate of stamp duty varies depending on the nature of the document and, if applicable, the transaction value. There are two types of stamp duty: ad valorem and fixed duty.
a) Ad Valorem: Stamp duty is variable, based on the transaction value or the market value of the property, whichever is higher. Examples include Share Transfer Forms, Deeds of Assignment, Tenancy or Lease Agreements, and more.
b) Fixed Duty: Stamp duty is a fixed amount, regardless of the transaction value or amount stated in the instrument. Examples include Memorandum of Articles, Insurance Policies, Collateral Instruments, and others.
For a comprehensive list of instruments subject to stamp duty, please refer to the First Schedule of the Act.
Stamping can be done at Lembaga Hasil Dalam Negeri (“LHDN”) or via online through the LHDN's STAMPS website. After successful application and payment of the stamp duty, an official stamp certificate is issued electronically, which should be printed and attached to the instrument or document as proof of payment.
When Should a Document be Stamped?
According to the Act, any unstamped instrument drawn or made within Malaysia can be stamped after execution by paying the unpaid duty. The instrument must be presented for stamping:
a) Within 30 days of execution if executed within Malaysia.
b) Within 30 days after the document's first receipt in Malaysia if executed outside Malaysia.
Is an Unstamped Contract Valid?
The answer to that long-burning question is YES. A signed contract in Malaysia remains valid even if it is unstamped, unless the contract itself is fraudulent or lacks authenticity. The legal stance on unstamped instruments states that the absence of stamping only affects the admissibility of the document as evidence but does not invalidate the document itself.
Is Stamping Still Necessary for an Unstamped Contract?
Under the Act, an instrument subject to duty cannot be admitted as evidence unless it is duly stamped. In simpler terms, only a stamped document can be presented as evidence in court.
Stamping a contract provides an additional layer of protection for the parties involved, as a stamped document is admissible in court in case of disputes. Therefore, if a contract falls under Malaysian laws and may require enforcement in Malaysia, the party relying on the contract as evidence should ensure proper stamping according to the Act to avoid delays and penalties when submitting the document as evidence in the future.
What to Do If a Document is Not Stamped within the Given Period?
If a document is unstamped and later needed for submission to court in a legal suit, the concerned party can take action to have it stamped, albeit with a penalty for late stamping.
It is important to note that the court will not dismiss a case solely because the document is not stamped. The court judge may direct the party relying on the document as evidence to attend to the stamping, pay the assessed stamp duty, along with the penalty to LHDN, and subsequently continue with the case in court. This article has been produced for general information purposes and further advice should be sought from a professional advisor.