Dividend tax in Malaysia is a key factor influencing how individuals and businesses structure their investment strategies. Before 2008, Malaysia used an imputation system in which companies paid tax on profits and shareholders could claim tax credits on dividends. This was replaced by the single-tier system, which exempts dividends from further taxation at the shareholder level, eliminating double taxation and simplifying compliance.
However, under Malaysia’s 2025 Budget, a new 2% dividend tax will apply to individuals receiving more than RM100,000 in annual dividend income. This marks a significant shift in Malaysia’s tax landscape, particularly for high-net-worth investors.
In this article, we’ll break down Malaysia’s dividend tax framework, explain the 2025 updates, and walk you through tax rates, exemptions, and calculation methods to help you plan more strategically.
Key Takeaways
New 2025 Tax
Individuals earning over MYR 100,000 in dividends pay 2%. Targets high-net-worth earners.
Single-Tier System
Companies pay corporate tax (24% standard, lower for SMEs). Dividends to shareholders remain mostly tax-free.
Exempt Dividends
Pioneer companies, cooperatives, certain funds, and foreign dividends are tax-exempt.
Non-Residents
Pay 15% withholding tax on Malaysian dividends. The 2025 update does not affect them.
Investor Tips
Spread dividend income, invest in exempt entities, and seek tax advice to reduce taxes.
Malaysia Dividend Tax: Historical Overview
Before 2008, Malaysia operated under an imputation system, where companies paid corporate income tax on their profits, and shareholders could claim tax credits on the dividends they received. This approach ensured that dividend income was partially taxed at the corporate level but allowed individual shareholders to offset their personal tax liability, effectively avoiding double taxation.
In 2008, Malaysia replaced the imputation system with a single-tier dividend system. Under this system, companies continue to pay corporate income tax on their profits, but dividends distributed to shareholders are fully tax-exempt at the individual level. This change simplified the taxation process for investors, eliminated the need for claiming tax credits, and made dividend income more predictable and straightforward for shareholders.
As a result, under the current single-tier system, individual shareholders enjoy tax-free dividends, allowing them to receive full payouts without further tax obligations until the upcoming 2025 update, which introduces a new 2% dividend tax on high-income earners.
Read: Taxation in Malaysia: Types of Tax in Malaysia
Dividend Tax Update: Malaysia Budget 2025
Starting in the 2025 tax assessment year, Malaysia will introduce a 2% dividend tax on individuals whose Malaysian-sourced dividend income exceeds MYR 100,000 annually. This new levy specifically targets high-income earners, including those in the T20 group (top 20% income earners) and some from the upper M40 group (middle-income earners) who hold substantial investments.
While the tax primarily affects local high-net-worth individuals, many types of dividends remain exempt, ensuring that ordinary investors and retirement savings are largely unaffected. Exempt dividends include those from EPF savings, unit trusts, cooperatives, closed-ended funds, and foreign sources, focusing the tax solely on domestic dividend income for high earners.
Despite its minimal 2% rate, some investors have expressed concerns that the introduction of dividend tax may slightly discourage investment if rates rise in the future. Nevertheless, the Malaysian government views this measure as a straightforward and efficient way to broaden the tax base and support a more progressive taxation system, with the levy being reported through annual tax returns.
Dividend Tax for Individuals
Since 2008, Malaysia has implemented a single-tier dividend system, under which companies pay corporate income tax on their profits, and any dividends distributed to shareholders are tax-exempt at the individual level. This system eliminated the need for double taxation, as dividends are considered “franked,” having already been subject to corporate tax at the company level. For individual shareholders, this meant receiving dividend payouts without any additional tax obligations—simplifying investment planning and enhancing returns.
With the 2025 budget update, a 2% additional tax will apply to individuals whose Malaysian-sourced dividend income exceeds MYR 100,000 annually. This new levy specifically affects high-income shareholders, adding a small tax on the excess dividend amount while maintaining the tax-exempt status for the first MYR 100,000.
Certain dividends remain exempt from this additional tax, including dividends from foreign sources, pioneer status companies, cooperatives, and closed-ended funds, ensuring that ordinary investors and specific institutional investments are not impacted.
For non-resident shareholders, a 15% withholding tax continues to apply on dividends received from Malaysian companies, unless a reduced rate is specified under a tax treaty.
The introduction of this additional dividend tax supports the government’s aim of progressive taxation, broadening Malaysia’s tax base while targeting high-income earners without significantly affecting average investors. By understanding these rules, individual shareholders can plan their investments more effectively and remain compliant with the new 2025 regulations.
Dividend Tax for Companies
For Malaysian resident companies, dividends are governed under the single-tier system, where corporate profits are taxed at the standard corporate tax rate of 24%, while SMEs benefit from a lower rate depending on their income threshold. Under this system, the tax paid at the corporate level is generally considered the only tax on profits, and any dividends distributed to shareholders remain exempt from further taxation.
Certain companies enjoy additional exemptions, including those with pioneer status or income derived from specific cooperatives. These exemptions encourage investment in priority sectors and cooperative initiatives, supporting Malaysia’s broader economic objectives.
It is important to note that the 2025 Budget updates do not alter corporate dividend taxation. Companies will continue to pay corporate tax on profits under the existing framework, and dividend distributions to shareholders will remain largely tax-free. This ensures stability and predictability for corporate financial planning while maintaining the single-tier system’s simplicity for investors.
Dividend Tax Rates in Malaysia
Dividend tax rates in Malaysia vary depending on whether the recipient is a resident individual, non-resident, or company. The following table summarises the key rates and exemptions:
| Category | Tax Rate | Notes |
| Residents – Dividends ≤ MYR 100,000 | Standard income tax rate (varies by income bracket) | Applies to Malaysian-sourced dividends received by individual taxpayers. |
| Residents – Dividends > MYR 100,000 | Additional 2% on the excess | Applies only to the portion exceeding MYR 100,000 for individuals under the 2025 Budget update. |
| Non-Residents – Dividends Paid | 15% Withholding Tax | Flat rate unless a reduced rate is provided under a tax treaty. |
| Non-Residents – Exempt Dividends | 0% | Includes foreign-source dividends or those from pioneer status companies and approved funds. |
| Malaysian Resident Companies | 24% Standard corporate tax | Applies to corporate profits, as the single-tier system exempts shareholders from further tax on dividends. |
| SMEs (Resident Companies) | Lower rate | Reduced rate based on income threshold. |
| Exempt Dividends | 0% | Dividends from pioneer status companies, cooperatives, closed-ended funds, and foreign sources. |
This table provides a clear overview of Malaysia’s dividend tax landscape, highlighting the recent 2% additional tax for high-income residents, the 15% withholding tax for non-residents, and exemptions for specific dividends. Understanding these rates helps investors and companies plan their tax obligations effectively while ensuring compliance.
How to Calculate Dividend Tax in Malaysia
Calculating dividend tax in Malaysia depends on whether the recipient is a resident individual or a non-resident. Below is a step-by-step guide with simple examples for clarity.
1. For Individual Residents
Under the single-tier system, dividends are generally tax-exempt for resident shareholders. However, starting in 2025, a 2% tax applies to dividend income exceeding MYR 100,000.
Step-by-step example:
- Total dividend received: MYR 120,000
- Tax-free threshold: MYR 100,000
- Excess amount:
Excess=120,000−100,000=20,000
- Tax on excess:
Tax Payable=2%×20,000=400
Total tax payable: MYR 400
Formula for residents:
Dividend Tax = (Total Dividends − 100,000) × 2% (if Total Dividends > 100,000)
2. For Non-Residents
Non-resident shareholders are subject to a 15% withholding tax on Malaysian-sourced dividends, unless exemptions or reduced rates apply under a tax treaty.
Example:
- Dividend received: MYR 50,000
- Withholding tax:
15%×50,000=7,500 - Total tax payable: MYR 7,500
Formula for non-residents:
Withholding Tax = Dividend Amount × 15%
These straightforward calculations allow both residents and non-residents to estimate their dividend tax liabilities in Malaysia accurately. By understanding these formulas and exemptions, investors can plan effectively and ensure compliance under the 2025 budget updates.
Exemptions from Dividend Tax
Certain dividends in Malaysia are exempt from tax, allowing investors to minimise their taxable exposure. Understanding these exemptions is crucial for both resident and non-resident shareholders.
1. Pioneer Status Companies
Dividends distributed by companies granted pioneer status are fully exempt from dividend tax. Pioneer status is typically awarded to companies engaged in promoted industries or sectors, incentivizing growth and investment in priority areas.
2. Cooperatives & Certain Funds
Dividends from cooperatives, closed-ended funds, and specific government-approved investment funds are also exempt. These exemptions are designed to support cooperative initiatives and encourage participation in targeted investment vehicles.
3. Foreign Dividends
Dividends received from foreign sources are generally not subject to Malaysian dividend tax, unless repatriated under certain conditions. This exemption benefits investors with diversified portfolios and international holdings.
Tips for Investors to Reduce Taxable Dividend Exposure
- Plan dividend income: Spread dividends across tax years to stay within the MYR 100,000 threshold for individual residents.
- Invest in exempt entities: Focus on pioneer status companies, cooperatives, and eligible funds for tax-free dividends.
- Utilize foreign investments: Foreign dividends typically remain untaxed, providing potential tax-efficient income.
- Consult a tax professional: Professional guidance ensures compliance with exemptions while optimising after-tax returns.
By leveraging these exemptions strategically, investors can minimise dividend tax liability while aligning with Malaysia’s 2025 budget regulations.
Implications of the 2025 Dividend Tax
The introduction of a 2% dividend tax on individual dividend income above MYR 100,000 in Malaysia carries several implications for investors, particularly high-net-worth individuals and foreign stakeholders.
1. High-Net-Worth Individuals
The new tax primarily targets the T20 group and some upper M40 individuals with substantial dividend income. For those receiving significant dividends from Malaysian-sourced companies, even a 2% levy can influence cash flow planning. High-net-worth investors may need to reassess portfolio allocations, explore tax-exempt dividend sources, or plan dividend receipts strategically across tax years to optimize after-tax income.
2. Domestic vs. Foreign Investors
- Domestic investors are directly impacted by the 2% tax on excess dividends. Awareness of exemptions—such as pioneer status companies, cooperatives, and certain funds—becomes critical to reducing tax liability.
- Foreign investors continue to face the 15% withholding tax on dividends paid by Malaysian companies, which remains unchanged under the 2025 budget. The introduction of the 2% tax does not affect them, but understanding cross-border taxation remains essential for international investment planning.
3. Potential Impact on Investment Behaviour and Planning
While the tax rate is modest, it may encourage investors to:
- Diversify into tax-exempt instruments or foreign dividends.
- Strategically manage dividend timing to minimise taxable exposure.
- Consult with tax advisors to optimize investment structures for long-term gains.
Overall, the 2025 dividend tax update aims to broaden Malaysia’s tax base without significantly discouraging investment. For informed investors, careful planning can help maintain portfolio returns while ensuring compliance.
Conclusion
The 2025 dividend tax in Malaysia introduces a 2% levy on individual dividend income exceeding MYR 100,000, primarily affecting high-net-worth earners in the T20 and upper M40 groups. While many dividends remain exempt, such as those from pioneer status companies, cooperatives, and foreign sources, proactive planning is essential to stay compliant and optimize after-tax returns. Understanding these exemptions and carefully managing dividend income can help investors minimise taxable exposure and maintain effective investment strategies under the new regulations.
How FastLane Group Can Help
Navigating Malaysia’s evolving dividend tax landscape can be complex. FastLane Group offers expert tax advisory services to help individuals and businesses understand their obligations, identify exemptions, and plan tax-efficient strategies. Whether you are a high-net-worth individual or a corporate investor, our team ensures you remain compliant while optimising your dividend income. Contact us today for a free consultation!
FAQs
1. Who is subject to dividend tax in Malaysia?
Only individual shareholders receiving Malaysian-sourced dividend income are subject to dividend tax. Both residents and non-residents may be liable, though rates differ based on residency status.
2. What are the dividend tax rates for residents and non-residents?
- Residents: Standard income tax applies to dividends ≤ MYR 100,000; a 2% tax applies on the excess above MYR 100,000.
- Non-residents: Subject to a 15% withholding tax on dividends received from Malaysian companies.
3. Are there exemptions or deductions for dividend tax?
Yes. Dividends from pioneer status companies, cooperatives, closed-ended funds, and foreign sources are exempt from the 2% individual dividend tax
4. How does dividend tax affect foreign investors?
Foreign investors continue to face a 15% withholding tax on dividends from Malaysian companies. The 2025 tax update does not affect their liability, but understanding cross-border taxation is important for effective investment planning.
