Malaysia introduced a 2% dividend tax under Budget 2025, marking a significant shift from the long-standing tax-free treatment of dividends under the Single-Tier Tax System. The measure was announced on 18 October 2024 and took effect from the Year of Assessment (YA) 2025, applying to dividends received from 1 January 2025 onwards.
The 2% dividend tax applies to individuals receiving substantial dividend income, with the first RM100,000 of qualifying dividend income remaining exempt. The measure was introduced as part of the Government's efforts to broaden the tax base and create a more progressive tax system.
How It Works
The tax applies at 2% on Malaysian-sourced dividend income exceeding RM100,000 per year received by an individual.
Worked example
Dividend income of RM250,000:
- First RM100,000 — Exempt.
- Excess RM150,000 — Taxable.
- Dividend tax payable: RM3,000 (2% × RM150,000).
Who Is Affected?
- Resident individual shareholders.
- Non-resident individual shareholders.
- Primarily high-net-worth individuals, business owners and investors with annual dividend income exceeding RM100,000.
Key Exemptions
- Foreign-sourced dividends.
- Dividends from companies enjoying Pioneer Status or Reinvestment Allowances.
- Dividends from tax-exempt shipping companies.
- Co-operative dividends.
- Closed-end fund distributions.
- Dividends from Labuan entities.
- Other statutorily exempt dividends.
- Returns from EPF, LTAT, ASNB funds and most unit trusts.
Potential Impact
Many owner-managed companies distribute profits through dividends after corporate taxes have already been paid. Under the new regime, shareholders receiving substantial dividends may now face an additional layer of taxation. Although the rate is modest, it introduces shareholder-level taxation that did not previously exist under the Single-Tier Tax System.
Many Malaysian family-owned businesses accumulate profits within companies and periodically distribute dividends to family shareholders. Where annual distributions exceed RM100,000 per individual shareholder, the new tax may increase the overall cost of extracting profits. Companies may therefore revisit dividend policies and shareholder structures as part of tax planning.
Administrative Compliance
Individual shareholders will need to monitor and maintain records of all dividend income received from non-exempt sources throughout the year to determine whether the RM100,000 exemption threshold has been exceeded. Taxpayers with multiple investments may face additional compliance and record-keeping obligations when preparing their personal income tax returns.
Conclusion
The 2% dividend tax is aimed at individuals receiving significant dividend income, with the first RM100,000 remaining exempt. While the rate is modest, company owners, family businesses and investors should review their dividend strategies and planning arrangements to understand its impact.
