Rules on Income Tax on Dividend Income Exceeding RM100,000 for Individuals Gazetted
08 May 2025
Further to the announcement in the Malaysian Budget 2025, the Ministry of Finance has gazetted the
Income Tax (Determination of Chargeable Income of an Individual in Respect of Dividend) Rules 2025 (“
Rules”)
1 on 7 May 2025. The Rules take effect from the year of assessment 2025.
The Rules were made to support the implementation of the 2% tax on dividend income exceeding RM100,000, which was introduced under a new Part XXII
2 of Schedule 1 of the Income Tax Act 1967
3 (“
ITA”), to deal with cases where a taxpayer has both dividend income and income from other sources.
Under these Rules, where dividend income exceeds RM100,000 and the taxpayer also has another source of income, the portion of the chargeable income attributable to dividends is determined using the statutory formula below:
| 1. |
For Malaysian Residents: |
The chargeable income from dividends is calculated using the following formula:
Chargeable Dividend Income =
Where:
- A is the statutory income in respect of dividend in the basis period for that year of assessment;
- B is the aggregate income in the basis period for that year of assessment; and
- C is the chargeable income in the basis period for that year of assessment which is subject to tax as specified in paragraph 14 of Part I and Part XXII of Schedule 1 to the ITA.
The chargeable income from dividends is calculated using the following formula:
Chargeable Dividend Income =
Where:
- A is the statutory income in respect of dividend in the basis period for that year of assessment;
- B is the aggregate income in the basis period for that year of assessment; and
- C is the chargeable income in the basis period for that year of assessment which is subject to tax as specified in paragraph 1A5 of Part I and Part XXII of Schedule 1 to the ITA.
In the case of a combined assessment under subsection 45(2) of the ITA
6 (which applies to resident individuals who elect for joint assessment with a spouse, and to non-residents only if they are Malaysian citizens), the aggregate income includes the income of the spouse, and the formula applies to the combined figure.
Any portion of chargeable income attributed to dividends under this method is subject to the applicable tax rate based on residency status.
For the purposes of the Rules:
- "dividend" means a dividend paid, credited or distributed by a company, whether in monetary form or otherwise.
- "individual" means a shareholder of a company, either through a direct shareholding or a nominee.
The rules expressly apply only to dividends deemed to be derived from Malaysia under section 14 of the ITA.
7 As a result, dividends from foreign sources are not subject to the 2% tax under Part XXII of Schedule 1.
Comments
The formulae under the Rules for determining chargeable income in respect of dividends apply only where the residents and non-residents also have income from another source in the same year of assessment. Where an individual has only dividend income and no other Malaysian-source income, the formula does not apply. In such cases, paragraph 1 of Part XXII of Schedule 1 to the ITA applies directly - the entire dividend income exceeding RM100,000, if deemed derived from Malaysia under section 14, is subject to tax at the flat rate of 2%.
Further, as outlined in the Malaysian Budget 2025, several categories of dividend income will be excluded from this new tax. These include dividends from companies with pioneer status or reinvestment allowances, shipping companies, cooperatives, closed-end funds, Labuan entities, and distributions by Kumpulan Wang Simpanan Pekerja (KWSP), Lembaga Tabung Angkatan Tentera (LTAT), Amanah Saham Nasional Bumiputera (ASNB), or any unit trust. These exclusions are expected to be formalised via exemption orders issued by the Minister of Finance.
Alert by Victoria Low (Associate) of the Tax Practice of Skrine.
2 Part XXII of Schedule 1 imposes a flat 2% tax on chargeable income derived from dividends exceeding RM100,000.
3 The amendments to the ITA were effected pursuant to the Finance Act 2024.
4 Paragraph 1 of Part I of Schedule 1 sets out the progressive tax rates applicable to resident individuals, beginning at 0% and rising to 30% for higher income brackets.
5 Paragraph 1A of Part I of Schedule 1 imposes a flat income tax rate of 30% on the chargeable income of non-resident individuals.
6 Subsection 45(2) of the ITA provides that where a husband and wife are living together in the basis year, one may elect to aggregate their income for assessment in one name, provided the electing spouse is resident or a citizen. This applies only to residents and enables joint assessment for that year.
7 Section 14 of the ITA deems dividends to be derived from Malaysia only when they are paid, credited, or distributed by a company resident in Malaysia. Dividends from foreign sources are not treated as Malaysian income and fall outside the scope of the Rules.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.