What’s Changing
Starting in the Year of Assessment (YA) 2025, Malaysia is introducing a 2% tax on individual shareholders’ dividend income in excess of RM100,000 per year.
This applies to dividends paid, credited, or otherwise distributed from the profits of resident companies.
It covers individuals including residents, non‑residents, and those holding shares via nominees.
How It’s Computed
The first RM100,000 of dividend income in a year is exempt from this new tax. Only the portion above that threshold is taxed at 2%.
If you have other sources of income (salary, business, etc.), the taxable portion of your dividend income is determined via a statutory formula. This is because the law needs to apportion how much of your “chargeable income” (total income subject to tax) comes from dividends.
Companies are required to provide a certificate to shareholders when paying/dividends are credited/distributed, giving the gross amount and other relevant valuation if dividend is non‑cash (e.g. property).
What Dividends Are Exempt
Not all dividends will be subject to the new 2% tax, even if they exceed RM100,000. The following are among the exemptions:
Type of Dividend | Exemption Status |
Dividends from foreign sources | Exempt |
From companies with pioneer status or those receiving reinvestment allowances | Exempt |
Shipping companies that are tax‑exempt | Exempt |
Cooperatives | Exempt |
Closed‑end funds | Exempt |
Dividends from or via Labuan entities (for resident shareholders) | Exempt |
Distributions by EPF (Employees Provident Fund), LTAT (Armed Forces Fund), Amanah Saham Nasional Bumiputera (ASNB), and unit trusts | Exempt |
Why the Change
Malaysia has been operating under a single-tier dividend system where companies pay corporate tax, and dividends distributed (from after‑tax profits) are generally not taxed again in the hands of shareholders. This new tax introduces a mild form of taxation on high dividend receivers, presumably to broaden the tax base and distribute fiscal responsibility more evenly.
The idea is to capture additional revenue, particularly from “capital owners” (those whose income comes from dividends) rather than focusing only on salary or business income.
Who Is Likely to Be Affected
- Individuals with large dividend income, especially from listed or unlisted companies in Malaysia, who often receive more than RM100,000 annually in dividends.
- Shareholders who do not fall under the exempt categories listed above.
- Those who have multiple income streams, since the formula to apportion “chargeable income” will come into play.
What You Should Know (Rules & Formalities)
- The law implementing these rules is the Finance Act 2025, amending the Income Tax Act 1967. A new Part XXII of Schedule 1 (ITA) addresses this.
- The gazetted “Rules on Income Tax on Dividend Income Exceeding RM100,000 for Individuals” ( gazetted 7 May 2025 ) give details on how to apply the formula, when the tax is triggered, and what documentation is required.
- Dividend income must be clearly documented; companies must issue certificates to shareholders. If a dividend is non‑cash (e.g. property or shares), the market value must be declared and supported.
Implications & Considerations
- Double taxation concerns: Even though Malaysia uses the single‑tier system (corporate level + zero at shareholder level), this new 2% is essentially a shareholder‐level tax, so will increase the overall tax burden for high dividend earners.
- Investment strategies may shift: Some may prefer receiving dividends via exempt channels (if possible), or reduce dividend payouts to stay under the RM100K threshold, or consider reinvesting in growth rather than income.
- Financial planning: those nearing or expected to exceed RM100,000 in dividend income should plan ahead (e.g., timing of dividends, diversifying where dividends come from).
- Record‑keeping is more important now: make sure certificates, valuation documents (if non‑cash dividends), and documentation of income sources are kept in order.
What Investors Can Do
- Forecast your dividend income: Keep track of expected dividends so you know if you will exceed RM100,000 in a year.
- Use exempted sources where possible: If you’re receiving dividends from exempt categories (e.g., EPF, Amanah funds, cooperatives), then those will help cushion the impact.
- Timing of dividends: If the company has discretion, receiving part of dividend before the start of YA2025 (if feasible) might avoid some of this new tax, though this depends on whether revenue/tax rules allow.
- Consult with tax professionals especially if you have multiple income sources or non‑cash dividends.