Can the Government Tax my Settlement Agreement?

In Malaysia, where any party signs a settlement agreement, parties should get the settlement agreement stamped within 30 days of the signing[1] else they may be liable for penalties. Therefore, our laws place a positive obligation on parties to get the document stamped. When stamping a document, there is a duty payable (stamp duty) which is a form of tax. So is there a tax for settlement Agreements?

Is there a cost?

Yes, there is. Each type of document incurs a stamping cost. The two main type of stamp duty is a fixed duty (fixed price) or ad valorem duty (variable price which will depend on the value of the transaction in the document. This duty or tax is payable on the main document or principal document. Each “copy” of the main document after that is only charged RM 10.00[2].

Therefore the nominal fee for stamping a document is RM 10.00.

How much for a Settlement Agreement?

A preliminary reading of the act would indicate that the charge for a Settlement Agreement should be RM 10.00. This involves some inferring as the Schedule of the Stamp Act 1949 does not outright state RM 10.00. Instead, if you read several sections[3] together, one will find that the only mention by the Act is for the sum of RM 10.00. This is important as no other fee can be charged by any governmental body.

However, as at time of writing, reports from legal firms indicate that the charge placed on the Agreement can differ from branch to branch. As such, one cannot say for certain. While this may seem unfair, the Collector actually has the power to assess and charge the stamp duty[4] accordingly. Once the Collector has made an assessment, parties have 14 days to comply and make payment[5]. Hence, the possible confusion on the cost of the stamp duty payable.

Should Variable Tax be applied?

This author does not agree. Litigation can be costly, both in terms of time and cost. It is inevitable that the larger the sum involved, the more contested and more time-consuming litigation can become. This means Court’s are spending more time on one case and parties are paying more in legal fees. To save such resources, Alternate Dispute Resolution methods, such as mediation or arbitration is encouraged to help parties come to a settlement. As such, when parties do reach a settlement, they should not be penalized by having to pay a higher tax for a higher settlement amount. As such from a policy perspective, to encourage settlement, the Settlement Agreement should not be taxed.

Moreover, often times, the party paying the settlement would be liable for legal costs and stamping fees. If a variable duty is taxed, this is an additional cost borne by the paying party which they would have to take into account.

Furthermore, the work done by the collecting body may not justify the variable fees. In most settlement agreement, as terms are already agreed upon, it is quite literally a rubber-stamping exercise. As such, the fixed fee of RM 10.00 should be maintained.


In these tough economic times, with courts having a large backlog of cases due to the MCO, Settlements are becoming more and more attractive to parties. Therefore, in light of the provision of the Stamp Act and for the reasons above, the stamp duty payable should be RM 10.00. Unfortunately, it can vary from branch to branch. Nevertheless, whether it is RM 10.00 or a much higher fee, the Government can tax your settlement Agreement. It is up to you or your legal representative to put forward the case that the taxable sum should only be RM 10.00.

[1] Section 47 Stamp Act 1949

[2] Section 4(3) Stamp Act 1949

[3] Section 32(g), 37 and 69 of the First Schedule Stamp Act 1949

[4] Section 36 Stamp Act 1949

[5] Section 40 Stamp Act 1949