Does Malaysia Have an Estate Tax? What Heirs and US Stock Investors Must Know

Every time the national budget season comes around, one question resurfaces on social media: will the government introduce an estate tax in Malaysia? Some worry that the assets they leave behind for their children will be "cut" by the government. Others who invest in shares wonder whether their portfolio will be taxed after they pass away.

This article answers those questions directly, based on current tax law - including one major risk that many Malaysian investors are unaware of: the United States estate tax of up to 40% on the US stocks you hold.

The Short Answer: Malaysia Has No Estate Tax

No, Malaysia currently has NO estate tax (or inheritance tax). Estate duty was fully abolished on 1 November 1991. According to the PwC Malaysia tax summaries, there are no inheritance, estate or gift taxes in Malaysia. Assets inherited by your heirs are not treated as taxable income.

However, this does NOT mean your heirs are completely free of costs. And if you invest in US stocks, there is one foreign tax that can take up to 40% of your portfolio after death. We break it all down below.

What Is an Estate Tax?

An estate tax is a tax imposed on the assets left behind by a deceased person before those assets are distributed to the heirs. A few closely related terms are often used interchangeably:

• Estate tax / estate duty - a tax on the total value of the deceased's estate, paid by the estate before distribution
• Inheritance tax - a tax on the share received by each heir, paid by the recipient
• Duti harta pusaka - the official term once used in Malaysia before 1991

The concept is simple: when someone dies, the government takes a certain percentage of the value of the assets left behind - houses, land, shares, cash savings and other assets - before the balance reaches the heirs. In countries that still impose it, rates can reach 40% to 55% for large estates.

The History of Estate Duty in Malaysia: 1941 to 1991

Many people do not realise that Malaysia actually HAD an estate tax for 50 years. Estate duty was introduced through the colonial-era Estate Duty Enactment 1941, and was only abolished on 1 November 1991.

Based on a research paper presented at an IMF seminar, the structure of Malaysia's estate duty before abolition was as follows:

• Estates valued below RM2 million: 0% (exempt)
• Estates between RM2 million and RM4 million: 5%
• Estates above RM4 million: 10%
• In its early years, there were up to 28 tax brackets with a top rate of 40%

Why was it abolished? The main reason was that collections were too small relative to administrative costs. Throughout 1941 to 1991, estate duty collections were only between RM24 million and RM40 million a year - less than 0.5% of total national tax revenue. The tax was also seen as punishing middle-class families who were "asset rich" on paper (for example, in land) but had no cash to pay the tax.

Why Does the Estate Tax Issue Keep Coming Back?

Almost every year in the lead-up to the budget, proposals to reintroduce an estate tax appear in public discussion. Supporters argue it could narrow the wealth gap and boost government revenue. The Star has covered the rational debate over inheritance tax in the lead-up to Budget 2025.

So far, however, the government has never reintroduced it. The counter-arguments are strong:

• The 1941-1991 experience showed collections were too small relative to the costs
• The risk of capital flight - the wealthy can move assets overseas
• Singapore itself abolished estate duty in 2008 to stay competitive
• The burden on families inheriting illiquid assets such as land and houses

So for now, the position is clear: there is no estate tax in Malaysia, and no sign of it returning in the near future.

No Estate Tax, But Heirs Still Face Other Costs

Even though Malaysia has no estate tax, your heirs are NOT entirely free of tax matters and costs. Here is the reality many people overlook:

1. The deceased's outstanding income tax

The Inland Revenue Board (LHDN) is entitled to claim any outstanding income tax from the deceased's estate. The executor or estate administrator is responsible for settling all tax arrears with LHDN before the assets can be distributed to heirs. If you are an investor, understand how Malaysian stock investors are taxed so this process is easier for your family later.

2. Real Property Gains Tax (RPGT)

Heirs are not taxed when RECEIVING inherited assets. But when heirs SELL an inherited property, Real Property Gains Tax (RPGT) may apply to the gains from that sale, depending on the holding period.

3. Probate and estate administration costs

Letters of administration, grants of probate, legal fees, Amanah Raya fees and transfer stamp duties - these are all real costs that must be settled before assets reach the heirs.

4. Outdated nominations

Assets such as EPF, Tabung Haji, ASB and insurance or takaful policies pass through the nomination system, not through probate. If a nominee was never appointed or has passed away earlier, these assets must go through the much slower estate administration process. Review your nominations whenever there is a major change in your family - marriage, divorce, or the birth of a child.

5. Frozen estates: a bigger problem than any tax

Here is the biggest irony. Many people worry about an estate tax that does not exist, yet do no estate planning at all. As a result, Utusan Malaysia reported that roughly RM90 billion of estate assets in Malaysia are frozen and unclaimed - covering land, savings, shares and houses, with tens of thousands of faraid cases still unresolved. Money that should be helping families remains trapped for years because there is no will, no hibah and incomplete documents.

The Real Risk for Malaysian Investors: America's 40% Estate Tax

This is the most important part for anyone investing in US stocks such as Apple, Nvidia, Tesla or US-listed ETFs. Malaysia may have no estate tax, but the United States DOES - and it applies to you even if you are not a US citizen and have never set foot there.

According to the IRS (Internal Revenue Service), non-resident aliens who own US-situs assets worth more than USD60,000 at the date of death are subject to US estate tax. The details:

• The exemption is only USD60,000 (around RM280,000) - far lower than the exemption for US citizens, which runs into the tens of millions of dollars
• Tax rates run from 18% to 40% on value above USD60,000
• Shares of US companies count as US-situs assets - even if you bought them through a broker in Malaysia or Singapore
• The estate must file Form 706-NA with the IRS within 9 months of death
• Malaysia has no estate tax treaty with the US, so there is no additional relief

A simple example: say you hold a US stock portfolio worth USD500,000 (around RM2.3 million) and pass away. Only the first USD60,000 is exempt. The remaining USD440,000 can be subject to US estate tax at progressive rates of up to 40%. Your heirs may have to hand over more than USD150,000 to the American government before they can claim the remaining shares. Brokers will typically freeze the account until these tax matters are settled.

How does this play out in practice?

Many people ask: "Surely the IRS won't know I have passed away?" The answer is that it is not the IRS chasing your heirs - it is the broker that enforces it. When heirs notify the broker of a death to claim the assets, compliant international brokers will typically require US estate tax documentation (including a transfer certificate or clearance from the IRS) before allowing US shares to be transferred. Without those documents, the account stays frozen. Obtaining IRS clearance can take more than a year and usually requires a US tax accountant - yet another cost for your family.

To be clear: the W-8BEN form you filled in when opening your brokerage account only deals with withholding tax on dividends. It does NOT protect you from estate tax. These are two different things that are often confused.

If you are just planning to invest in the American market, first read the 7 things Malaysian investors must know before investing in US stocks - estate tax risk is one of them.

How Malaysian Investors Can Reduce US Estate Tax Risk

The good news is that this risk can be managed with proper planning:

1. Use Ireland-domiciled (UCITS) ETFs

This is the most popular strategy among international investors. According to the Bogleheads wiki, Ireland-domiciled ETFs (for example, those listed on the London Stock Exchange) are NOT treated as US-situs assets. That means:

• No exposure to the 40% US estate tax, even though the ETF holds shares of American companies
• Dividend withholding tax of only 15% at the fund level, compared with 30% if you hold a US-domiciled ETF directly

For Muslim investors, there are also Shariah-compliant Ireland-domiciled ETF options. We covered this topic in depth in our article on how to choose a Shariah-compliant ETF and the estate tax risk.

2. Keep direct exposure below USD60,000

Some investors choose to keep their individual US stock holdings below the USD60,000 exemption threshold, and place the rest of their US exposure through instruments that are not US-situs assets.

3. Plan your estate as early as possible

No tax strategy is complete without basic estate planning: a valid will, hibah for specific assets, and up-to-date nominations. For Muslims, understand the interaction between hibah and faraid in Islamic inheritance, and make sure you know how to write and register a will (wasiat) properly. This planning costs far less than years of frozen assets.

Comparison: Countries That Still Impose Estate Tax

For perspective, here is where estate or inheritance tax stands in several major countries:

• United States: up to 40% (with an exemption of only USD60,000 for non-residents)
• United Kingdom: 40% on estates above £325,000
• Japan: top rate of 55%, among the highest in the world
• South Korea: top rate of around 50%
• Singapore: abolished in February 2008
• Malaysia: abolished in November 1991
• Hong Kong: abolished in 2006

The pattern is clear: most Asian financial hubs have abolished the tax to attract capital, while Western and East Asian economies retain it at high rates. That is exactly why Malaysian investors buying assets in those countries need to understand the local estate tax rules.

Frequently Asked Questions (FAQ)

Do heirs pay tax when receiving inherited assets in Malaysia?

No. Inherited assets are not treated as taxable income in Malaysia. There is no inheritance tax, estate tax or gift tax.

When was Malaysia's estate tax abolished?

Estate duty under the Estate Duty Enactment 1941 was abolished on 1 November 1991, after being in force for 50 years.

Will the government reintroduce an estate tax?

The proposal is frequently discussed in the lead-up to each budget, but so far the government has never reintroduced it. The low collections of 1941-1991 and the risk of capital flight remain the strongest counter-arguments.

Is EPF money taxed when inherited?

No. EPF savings passed to a nominee or heir are not taxed. Make sure your EPF nomination is always up to date so distribution is fast.

Are Bursa Malaysia shares subject to estate tax?

No. Inherited local shares are not subject to any estate tax. Heirs only need to go through the transfer process via probate or letters of administration, and may bear the related administrative costs.

I hold RM100,000 of US stocks. Are my heirs exposed to US estate tax?

Probably not, because RM100,000 (around USD21,000) is still below the USD60,000 exemption. But once your portfolio grows past that level, the exposure begins. Monitor your portfolio value and consider Ireland-domiciled ETFs for larger exposure.

Do Shariah-compliant Ireland-domiciled ETFs escape US estate tax?

Yes. Ireland-domiciled ETFs are not US-situs assets, so they sit outside the American estate tax net, even when the fund holds US company shares.

What happens to my brokerage account if I die without a will?

Your assets will be distributed according to faraid (for Muslims) or the Distribution Act 1958 (for non-Muslims), after a letters-of-administration process that can take months to years. Without planning, your assets risk joining the existing RM90 billion of frozen estates.

Conclusion

Malaysia has had no estate tax since 1991, and your heirs will not be taxed for receiving an inheritance. But the real costs come from other directions: the deceased's outstanding taxes, probate costs, frozen assets due to a lack of planning, and for US stock investors, America's estate tax of up to 40% on assets above USD60,000. Estate planning and choosing the right investment instruments are the best protection for your family.

The first step towards building an organised portfolio is having your own investment account, followed by proper estate planning.

Open a CDS account with Mahersaham to start investing in Bursa Malaysia as well as foreign stocks such as the US and Hong Kong.

Download our Stock Market Basics Ebook for free to understand your first steps in the world of stock investing.

Further Reading

• Cukai Pelabur Saham Malaysia: LHDN, Dividen Tax & Capital Gains Explained
• Wasiat untuk Muslim: Cara Tulis & Daftar Sebelum Terlambat
• Hibah dan Faraid: Apa Yang Orang Islam Perlu Tahu Tentang Pewarisan Harta Pusaka
• ETF Patuh Syariah: Cara Pilih, Senarai Terkini & Risiko Estate Tax
• Sebelum Melabur Saham Amerika: 7 Perkara Pelabur Malaysia Wajib Tahu