Understanding Dividend Tax in Malaysia (with 2025 Budget Update)

Dividend tax in Malaysia applies to income from dividends received by shareholders of Malaysian companies. 

Before 2008, Malaysia used an Imputation System, where companies paid taxes on profits, and shareholders could claim tax credits on dividends. In 2008, this was replaced by the Single-Tier System, exempting dividends from further tax. As per the budget 2025, starting in 2025, a new 2% dividend tax applies to individuals on dividend income exceeding RM100,000.

This blog provides an overview of Malaysia's dividend tax system, highlights the 2025 budget updates, and covers the tax rates, implications, exemptions, and calculation methods.

Dividend Tax Update: Malaysia Budget 2025

Starting in the tax assessment year 2025, Malaysia will introduce a new dividend tax of 2% on taxable dividend income exceeding RM100,000 annually. It has the following highlights:

• This tax primarily targets high-income earners, particularly the T20 group (top 20% income earners) and some from the upper M40 group (middle-income group) with substantial investments. 
• This measure won’t impact foreign investors much, but it could affect local high-net-worth individuals who previously enjoyed untaxed dividends. 
• However, many dividends, such as those from EPF savings, unit trusts, cooperatives, and foreign sources, will remain exempt. 
• Though the 2% tax rate is minimal, some worry that it could discourage investment if it is increased in the future. Still, the Malaysian government is confident it’s a straightforward tax to implement, as it will be reported on annual tax returns.

Dividend Tax for Individuals

Since 2008, Malaysia has adopted a single-tier dividend tax system, meaning that companies pay corporate income tax on profits, and any dividends distributed to shareholders are tax-exempt at the shareholder level. This eliminated the need of double taxation, as dividends are considered "franked," having already been subject to corporate tax. However, with the 2025 tax update, things are going to change, and the details will be cleared only with time.

As of now, the highlights for company dividend tax Malaysia are: 

1. 2% Additional Tax on Dividends Above MYR 100,000: Individuals with Malaysian-sourced dividend income exceeding MYR 100,000 will incur a 2% tax on the excess. This new levy is on top of the standard dividend tax rate, affecting high-income shareholders.
2. Exemptions for Specific Dividends: Dividends from foreign sources, pioneer status companies, cooperatives, and closed-ended funds remain exempt, focusing the tax solely on domestic dividends.
3. Progressive Taxation Aim: These changes support a more progressive tax system and help broaden Malaysia’s tax base.
4. 15% Withholding Tax: A 15% withholding tax will apply to dividends paid to non-resident shareholders.

Company Dividend Tax Malaysia

Corporates still follow a single-tier structure, and the highlights of dividend tax are:

1. Malaysian resident companies pay a corporate tax rate of 24%, while small and medium enterprises (SMEs) with a certain income threshold pay a lower rate. This corporate tax is effectively the only tax paid on dividends, as the single-tier system exempts shareholders from further taxes on these earnings.
2. Dividends from companies with specific incentives or statuses, such as pioneer status or income from certain cooperatives, may be exempt from corporate tax.
3. The Malaysian government’s 2025 budget introduces additional taxation for individuals on dividend income. The budget does not introduce changes to the corporate dividend tax for companies. Companies will continue to pay tax on profits under the single-tier system, and dividends paid to shareholders remain exempt from further tax.

Dividend Tax Rates

Dividend Tax Rate for Residents

Dividend Tax Rate for Non-Residents

Dividend Tax Rate for Companies

How to Calculate Dividend Income Tax Malaysia?

For an Individual Resident

Suppose an individual receives MYR 120,000 in dividends.

If the total dividend exceeds MYR 100,000, the 2% tax applies to the excess:

Excess amount = MYR 120,000 - MYR 100,000 = MYR 20,000

Tax on excess = 2% of MYR 20,000 = MYR 400

Total tax payable = MYR 400

For Non-Residents

Suppose a non-resident receives MYR 50,000 in dividends.

Withholding tax = 15% of MYR 50,000 = MYR 7,500

Exemptions from Dividend Tax

Certain dividends in Malaysia are exempt from tax under specific conditions. They are:

• Pioneer Status: Dividends from companies with pioneer status are exempt.
• Cooperatives & Certain Funds: Dividends from cooperatives, closed-ended funds, and specific government-approved entities may also be tax-exempt.
• Foreign Dividends: These are typically not subject to Malaysian dividend tax unless they are brought into the country.

Conclusion

Starting in tax assessment year 2025, Malaysia will introduce a new dividend tax of 2% on taxable dividend income exceeding RM100,000 annually. Dividend tax introduction is new and can be questionable to many.

This tax primarily targets high-income earners, particularly the T20 group (top 20% income earners) and some from the upper M40 group (middle-income group) with substantial investments. Though the 2% tax rate is minimal, some worry it could discourage investment if increased in the future. 

By staying informed about exemptions—such as those for pioneer-status companies and specific funds—you can ensure compliance while potentially reducing taxes.