2% Tax on Dividend in Malaysia -Impact of the Dividend Tax on personal Income Tax

A 2% tax imposed on dividends received by an individual from Malaysian resident companies starting from 1 January 2025.

History of Tax on Dividend in Malaysia

• Prior to 2008, dividends were subject to tax in the hands of shareholders, who could then claim a credit for the tax already paid by the company.
  

• In 2008, the Single-Tier tax system was implemented, which removed tax on dividends altogether, making them tax-exempt.
  

• Starting from 1 January 2025, a 2% tax on dividend income has been introduced. This tax applies to individuals receiving dividends from Malaysian resident companies exceeding RM100,000.

Key features of the New Dividend Tax

• The new dividend tax applies to dividends paid, credited, or distributed by a Malaysian resident company to any individual shareholder (whether directly or via a nominee), regardless of whether the dividend is in monetary form or otherwise.

• This tax is specifically levied on the portion exceeding RM100,000 annually, at a rate of 2% on the chargeable dividend income.

• Individual shareholders with dividend income of not exceeding RM100,000 annually will not be affected by this new dividend tax.

• This new dividend tax primarily targets high-value individual shareholders, encompassing residents, non-residents, and those holding shares through nominees.

• Corporate shareholders are explicitly excluded from this new dividend tax.

• Companies are not required to deduct tax from dividends paid to shareholders, and no tax credits will be available for offset against the recipient’s tax liability.
  

Certain dividends are exempt or excluded from this New Dividend Tax as follows:

• Dividend income from sources outside Malaysia

• Dividends distributed from profits of companies that received pioneer status and reinvestment allowances

• Dividends distributed from profits of shipping companies that are exempted from tax

• Dividends distributed by co-operative societies

• Dividends declared by closed-end funds

• Dividends received by residents from Labuan entities

• Profit distributions by Employees Provident Fund (EPF), Armed Forces Fund Board, Amanah Saham Nasional Bumiputera (ASNB), or any unit trusts

• Any exemption granted on dividend income in the hands of individual shareholders as determined by the Finance Minister
  

The formula to determine the chargeable dividend income is as follows:

A/B×C=D

• A: Statutory dividend income

• B: Aggregate income

• C: Chargeable income

• D: Chargeable dividend income

Consider the following example to demonstrate how this formula is applied, how chargeable dividend income is calculated, and its ultimate tax effect on an individual shareholder:

Personal tax calculation for Mr. Ahmad for the year of assessment (YA) 2025:

Note: A calendar year (CY) refers to the period from January to December. Calculation of statutory dividend income (the portion of the dividend income that is taxable) for the YA 2025:

Mr A’s personal tax computation for the YA 2025:

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Please note that tax laws can change, and it's essential to verify the latest updates with the authority or consult a tax professional to ensure that you're submitting your tax returns based on the most recent regulations.

For further clarification, please feel free to reach out to us at gunalan@gskassociates.net or contact the manager with whom you typically engage or who oversees your organisation's tax matters.