Starting 1 January 2025, a 2% tax will be imposed on dividend income received by individuals from Malaysian resident companies. This marks a significant change in Malaysia’s dividend tax landscape, especially for high-value investors.
History of Dividend Tax in Malaysia
- Before 2008 – Dividends were taxable in the hands of shareholders, but individuals could claim a credit for tax already paid by the company.
- 2008 onwards – Malaysia implemented the Single-Tier Tax System, which removed tax on dividends altogether. Dividends were fully exempt in the hands of shareholders.
- From 1 January 2025 – A 2% dividend tax will apply to individuals receiving more than RM100,000 in dividend income annually from Malaysian resident companies.
Key Features of the New Dividend Tax
- Scope
- Applies to all dividends paid, credited, or distributed by Malaysian resident companies to individual shareholders (direct or via nominee).
- Applies whether dividends are in cash or other forms.
- Threshold
- The first RM100,000 of dividend income per year is exempt.
- The 2% tax only applies to the portion exceeding RM100,000.
- Who is Affected
- Residents, non-residents, and nominees receiving dividends above RM100,000.
- Corporate shareholders are excluded.
- Administration
- Companies are not required to deduct tax at source.
- No tax credits will be available to offset against the recipient’s personal income tax.
Exemptions from the Dividend Tax
Certain dividend incomes remain exempt or excluded from the 2% tax, including:
- Dividends from foreign sources.
- Dividends distributed from profits of companies with pioneer status or reinvestment allowances.
- Dividends from tax-exempt shipping companies.
- Dividends declared by co-operative societies or closed-end funds.
- Dividends from Labuan entities.
- Profit distributions from EPF, Armed Forces Fund Board, ASNB, or unit trusts.
- Any other exemptions specifically approved by the Finance Minister.
Formula to Determine Chargeable Dividend Income
The Inland Revenue Board (LHDN) has provided the following formula:
A / B × C = D
Where:
- A = Statutory dividend income
- B = Aggregate income
- C = Chargeable income
- D = Chargeable dividend income
This ensures only the taxable portion of dividend income above the RM100,000 threshold is subject to the 2% tax.
Kindly be reminded that tax regulations are subject to change. It is important to confirm the latest requirements with the relevant authority or seek advice from a qualified tax professional to ensure your tax filings comply with current rules.
For any further assistance, you may contact us at agremtaxcare@gmail.com or get in touch with the manager responsible for your organisation’s tax affairs.
