Dividend and Investment Tax in Malaysia

How does Malaysia's single-tier dividend system work?

Malaysia moved from an imputation regime to the single-tier dividend system for the year of assessment 2008. Under the single-tier framework, the corporate income tax paid by a Malaysian-resident company is treated as a final tax on the underlying profits. Dividends distributed from those already-taxed profits are therefore exempt in the hands of the shareholder, whether the shareholder is a resident individual, a non-resident individual, a resident company, or a non-resident company. No withholding tax is deducted from the distribution, no tax credit attaches to the dividend, and the shareholder has nothing further to declare under the general income tax framework. The mechanism is codified in the Income Tax Act 1967 (Act 53) and has been the operative framework for nearly two decades.

The practical result is that a Malaysian investor receiving dividends from a Bursa Malaysia-listed company or a private Sdn Bhd historically paid no income tax at the shareholder level. That picture changed materially for high-income individuals from 1 January 2025, when Finance Act 2024 introduced a new Dividend Tax targeting individuals with large dividend portfolios.

Who is subject to the new 2% Dividend Tax from YA 2025?

From the year of assessment 2025 onwards, a flat 2% Dividend Tax applies to the chargeable dividend income of an individual that exceeds RM 100,000 in a year of assessment. The rules apply to resident individuals, non-resident individuals, and individuals holding shares through nominees. The statutory basis is Part XXII of Schedule 1 to the Income Tax Act 1967 as amended by Finance Act 2024. The implementing rules -- the Income Tax (Determination of Chargeable Income of an Individual in Respect of Dividend) Rules 2025 -- were gazetted on 7 May 2025 under P.U.(A) 148/2025 and take effect from YA 2025.

The RM 100,000 threshold applies to each individual per year of assessment, aggregated across all qualifying dividend sources. Only the amount in excess of RM 100,000 is chargeable at 2%. The tax operates on a self-assessment basis: dividend-paying companies are required to furnish individual shareholders with a dividend certificate showing the gross dividend for each payment, and shareholders must reconcile those certificates against their aggregate annual dividend income when filing Form B or Form BE. The Dividend Tax is separate from the regular income tax schedule; where a taxpayer also has employment or business income, a statutory formula in the rules determines what portion of total chargeable income is attributable to dividends.

The following categories of dividend income are excluded from the 2% Dividend Tax and remain exempt:

• Dividends from companies with pioneer status or enjoying reinvestment allowances
• Dividends from cooperatives
• Distributions from closed-end funds
• Distributions from Labuan entities received by resident individuals
• Dividends from the Employees Provident Fund (EPF/KWSP)
• Distributions from Amanah Saham Bumiputera (ASB), Amanah Saham Nasional (ASN), and other unit trusts managed by Permodalan Nasional Berhad (PNB)
• Foreign-source dividends (governed separately by the FSI framework below)

Consult a qualified tax professional to determine which of your specific holdings fall inside or outside the chargeable category, particularly where dividend sources include holding companies, nominee arrangements, or reinvestment-allowance-eligible businesses.

Is bank interest income taxable for Malaysian individuals?

For individual taxpayers, interest income from deposits placed with banks and financial institutions licensed under the Financial Services Act 2013 or the Islamic Financial Services Act 2013 is exempt from income tax under paragraph 33 of Schedule 6 to the Income Tax Act 1967. This exemption covers conventional fixed deposits, savings accounts, and money-market deposits, as well as the profit-sharing equivalent payments from Islamic bank deposit accounts. There is no monetary cap -- whether interest is RM 500 or RM 500,000 a year, the exemption applies provided the institution holds a licence from Bank Negara Malaysia.

Interest from Malaysian government securities (MGS), Government Investment Issues (GII), and Sukuk issued by Cagamas is similarly exempt for individuals under Schedule 6. Interest from bonds issued by non-government Malaysian corporate issuers is generally subject to withholding tax at rates specified under the Act, though certain approved retail bonds and Sukuk may attract exemptions. Corporate and business taxpayers (companies, partnerships) do not benefit from the Schedule 6 individual interest exemption and must include bank deposit interest in their chargeable income.

What are the rules on foreign-sourced investment income (FSI)?

Malaysia operates on a territorial-plus-remittance basis for most income. Before 1 January 2022, foreign-sourced income received in Malaysia by residents was broadly exempt without conditions. Finance Act 2021 removed that blanket exemption effective 1 January 2022, making remitted FSI chargeable at normal rates. However, concurrent exemption orders P.U.(A) 234 and P.U.(A) 235, gazetted on 19 July 2022, reinstated a conditional exemption for resident individuals. Budget 2025 extended the exemption period from 31 December 2026 to 31 December 2036.

Under the current framework, a resident individual who remits to Malaysia foreign-source dividend income, foreign interest income, or foreign investment fund distributions is exempt from Malaysian income tax on those amounts, provided the income was subjected to tax of a character similar to income tax in the country of origin. "Remittance" means funds physically transferred into a Malaysian bank account or used to settle Malaysian obligations; foreign funds held offshore do not trigger Malaysian tax exposure. Individuals carrying on a partnership business in Malaysia are excluded from the individual FSI exemption and must treat remitted FSI as chargeable income.

For practical purposes this means a Malaysian tax resident receiving dividends from a Singapore-listed REIT or an interest payment from a UK bond does not pay Malaysian income tax on those amounts when remitted, as long as the UK or Singapore source imposed some tax at origin. Distributions from zero-tax jurisdictions warrant professional review before reliance on the exemption.

How are Malaysian REIT distributions taxed?

Real Estate Investment Trusts (REITs) listed on Bursa Malaysia that distribute at least 90% of their total income in a year of assessment qualify for a trust-level tax exemption under section 61A of the Income Tax Act 1967. The tax obligation passes through to unitholders at the point of distribution. The withholding tax (WHT) framework governing those distributions changed significantly at the end of 2025.

The preferential 10% concession for non-corporate unitholders was legislated in Schedule 1 to the Income Tax Act 1967 only through YA 2025. It was not renewed. From YA 2026 LHDN Practice Note No. 2/2026 (dated 18 March 2026) governs the new treatment. Resident individual investors who previously received a simple 10% deduction at source must now include REIT distributions in their total annual income and pay tax at their marginal personal rate. Non-resident investors face a significant increase from 10% to 30% deducted at source. Double-tax agreement (DTA) relief may reduce the 30% for non-residents depending on their country of tax residence; consult a qualified tax professional for treaty analysis.

Are capital gains from share disposals taxable for individuals?

Malaysia does not impose a general capital gains tax on individuals. Gains realised by individual investors from disposing of listed Bursa Malaysia shares, unit trust redemptions, ASB/ASN unit redemptions, government securities disposals, and REIT unit sales are treated as capital receipts outside the income tax framework.

A Capital Gains Tax (CGT) on the disposal of shares in Malaysian-incorporated unlisted companies was introduced effective 1 March 2024 under the Finance (No. 2) Act 2023. The CGT rate is 10% on net gains, with a transitional option of 2% on gross disposal proceeds for shares acquired before 1 January 2024. However, the chargeable persons are companies, limited liability partnerships (LLPs), trust bodies, and co-operative societies -- not individuals. Individual shareholders are explicitly excluded from the unlisted-share CGT framework. Listed shares remain CGT-free for all categories of investor.

For the Malaysia country overview covering personal income tax rates and residency rules, or for guidance on business-income taxation, see Malaysia small business tax. Identifying a qualified tax professional familiar with Malaysia's investment-income rules is the recommended next step for anything beyond straightforward dividend receipts. Use TaxPros Rated to find practitioners credentialed in Malaysian tax who can review your specific portfolio structure.