Malaysia currently adopts a single-tier tax system whereby income tax is imposed at a single level on dividends distributed by companies. What it means is that companies is already tax based on its profits and dividends distributed from these profits to shareholders are exempted from tax.
In the Budget 2025 announcement, a new Dividend Tax is introduced to apply a 2% tax on individual shareholders with annual taxable dividend income exceeding RM100,000. The intention is aimed at taxing the highest income group of taxpayers (T20) to broaden the current tax base.
Who will be subject to Dividend Tax
The new Dividend Tax applies to the following categories of individual shareholders:
- Resident individuals in Malaysia
- Non-resident individuals
- Individuals who holds shares through nominees
What is the scope of Dividend Tax
Dividend tax applies to dividend income received by individual shareholders for dividend paid, credited or distributed from company profits. The threshold applies when annual dividend income exceeds RM100,000.
How to determine taxable dividend income
The determination of chargeable dividend income is after taking into account allowances and deductions.
If an individual taxpayer’s income source is only from dividend, a 2% tax rate is applicable on chargeable dividend income.
If an individual has income sources other than dividend e.g. employment, rental etc, chargeable dividend income is based on the following formula
A/B x C = D
A – Dividend statutory income
B – Aggregate income
C – Chargeable income
D – Chargeable dividend income
Who will be exempted from Dividend Tax
The following categories are exempted from Dividend Tax
- dividend income from abroad;
- dividend income distributed from the profits of companies that received pioneer status and reinvestment allowances;
- dividend income paid, credited or distributed from the profits of shipping companies that is exempted from tax;
- dividend income distributed by cooperatives;
- dividend income declared by closed-end funds;
- dividend income received by residents from Labuan entities; and
- any exemption given on dividend income at shareholder level.
Further, Dividend Tax is also not applicable to profits distributions made to contributors and depositors by:
- Kumpulan Wang Simpanan Pekerja (KWSP)
- Lembaga Tabung Angkatan Tentera (LTAT)
- Amanah Saham Nasional Bumiputera (ASNB) or
- Any unit trust.
What next
There are various points that require further deliberation and clarification including the method of imposing tax on non-resident individuals, applicability on Labuan companies that have elected to be taxed under the Income Tax Act 1967 etc.
Reach out to us if you require further clarification on the new Dividend Tax and potential tax planning strategies.
