Exemptions from Dividend Tax

📘 Understanding Malaysia’s Dividend Tax: What You Need to Know for 2025
As Malaysia modernizes its tax framework, a new rule has been introduced that will impact investors and shareholders across the board. Starting from the Year of Assessment (YA) 2025, a 2% tax will be imposed on chargeable dividend income that exceeds RM100,000 per individual annually.
While this change represents a shift in tax policy, it’s important to note that not all dividend income will be taxed. In fact, the Inland Revenue Board of Malaysia (IRBM) has outlined a range of exemptions that could significantly reduce — or even eliminate — your liability.
In this article, we break down the new rules, the exemptions, and what you should do to prepare.
📊 Overview: The New Dividend Tax
Effective from YA 2025, individuals (residents and non-residents alike) will be taxed at 2% on dividend income above RM100,000 annually, after deductions and allowances.
This tax is part of Malaysia’s efforts to broaden its revenue base while still encouraging investment through targeted exemptions.
✅ Exemptions from Dividend Tax
The IRBM has made it clear that the following types of dividend income are not subject to the 2% tax:
1. Foreign-Sourced Dividends
Dividends received from foreign sources are exempt, as long as:

• The income has been taxed in the foreign jurisdiction; or
• The receiving entity in Malaysia meets certain economic substance requirements.

This aligns with the latest IRBM guideline titled “Tax Treatment in Relation to Income Received from Abroad” (Amendment, Dec 2022).
2. Pioneer Status or Reinvestment Allowance Companies
Dividends paid out from companies that enjoy pioneer status or are granted reinvestment allowances under the Investment Incentives Act are tax-exempt.
This encourages ongoing investment and industrial development in key sectors.
3. Tax-Exempt Shipping Companies
Dividends from profits of shipping companies that are exempted from income tax will not attract the 2% dividend tax.
4. Cooperative Societies
Dividends distributed by registered cooperatives are fully exempt, consistent with Malaysia’s policy to support cooperative movements.
5. Closed-End Funds
Income declared in the form of dividends by closed-end funds falls outside the scope of the dividend tax.
6. Labuan Entities
Dividends received by Malaysian residents from Labuan entities — governed under the Labuan Business Activity Tax Act — are not taxed.
7. Exemptions at Shareholder Level
Where any specific exemption is granted to a shareholder by the IRBM, that exemption will prevail.
🏦 Institutions Not Subject to Dividend Tax
In addition to the above, dividend tax does not apply to distributions made to contributors and depositors of:

• Kumpulan Wang Simpanan Pekerja (KWSP) – Employees Provident Fund
• Lembaga Tabung Angkatan Tentera (LTAT) – Armed Forces Fund
• Amanah Saham Nasional Bumiputera (ASNB)
• Any approved Unit Trust Fund

This ensures that retirement and savings-focused institutions continue to enjoy tax efficiency.
🕒 When Does This Take Effect?
These changes are effective from the Year of Assessment 2025. If you're an investor or managing dividends, it’s vital to review your investment portfolio and tax planning strategy ahead of time.
📌 What Should You Do Next?
Tax rules are becoming more nuanced — and the difference between being taxed and being exempt could lie in how your income is structured or where it originates from.
Here’s how you can prepare:

• ✅ Identify which dividend sources fall under the exempt categories.
• ✅ Review your investments in shipping, cooperatives, and Labuan-based entities.
• ✅ If you receive foreign dividends, ensure proper documentation and compliance with economic substance rules.

🔍 Conclusion
As the 2025 assessment year approaches, it is crucial for individuals and investors to proactively assess the impact of the new dividend tax. While the 2% levy may seem modest, the cumulative effect could be significant for high-income dividend earners — especially those unaware of potential exemptions.
The good news? With proper planning and a clear understanding of the available exemptions, you can minimize your tax exposure and ensure compliance with confidence.
Whether you're receiving dividends locally or from abroad, taking action now can help preserve your returns and avoid unexpected liabilities.

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