Malaysia’s new Finance Act introduces tax on dividends

26 February 2025

On 31 December 2024, the Finance Act 2025 (“Act”) came into force, amending several legislation including the Income Tax Act 1967 (“ITA”), the Real Property Gains Tax Act 1976, and the Stamp Act 1949. 

This article focuses on the Act’s introduction of dividend tax through amendments to the ITA. 

Scope

The Act introduces dividend tax effective from the year of assessment 2025. Dividend tax is applicable to individuals who are shareholders of companies either through direct shareholding or via a nominee that receives dividend income whether in monetary form or otherwise (“Shareholder”). In other words, the Shareholder will be subject to dividend tax for any dividend paid, credited, or distributed by listed and/or unlisted companies. 

The chargeable income of the Shareholder in respect of dividend income exceeding RM100,000 will be taxed at a rate of 2%, pursuant to a prescribed formula. This formula was mentioned when Budget 2025 was tabled on 18 October 2024. The tax exemption provision in relation to dividend income under Paragraph 12B of Schedule 6 to the ITA was amended in a similar vein. 

When the Budget 2025 was tabled, the Minister of Finance announced several exemptions from the dividend tax, including dividend income: 

  • from abroad;
  • distributed from the profits of companies that received pioneer status and reinvestment allowances;
  • paid, credited, or distributed from the profits of shipping companies that are exempted from tax;
  • distributed by cooperatives;
  • declared by closed-end funds;
  • received by residents from Labuan entities; and
  • exempted at the individual shareholder level, as determined by the Minister of Finance.

The Act requires a company to provide a certificate to the Shareholder when paying, crediting, or distributing the dividend (“Certificate”) setting out: 

  • the gross amount of the dividend, and
  • the amount paid or credited or, where the dividend consists of property other than money, the market value of that property at the time of the dividend distribution.

In addition, the company is required to prepare and maintain contemporaneous documentation (e.g. a valuation report) to support the market value applied and set out in the Certificate to ensure accuracy in the amount of tax paid. This also enables the Shareholder to ensure the correct amount is declared for taxation purposes.