What is the 2% Dividend Tax?

Starting from January 1, 2025, the Malaysian government has introduced a new tax measure where individuals receiving annual dividend income exceeding RM 100,000 will be subject to a 2% tax on the excess amount. This means that if your total dividend income for the year is more than RM 100,000, you will need to pay an additional 2% tax on the amount that exceeds RM 100,000.

Why was this tax introduced?

The 2% dividend tax was introduced as part of the 2025 Budget to:

1. Increase Revenue: Generate additional revenue for the government to fund public services and infrastructure projects.

2. Promote Fairness: Ensure that high-income earners contribute a fair share of taxes, promoting a more progressive tax system.

3. Broaden the Tax Base: Encourage a wider range of taxpayers to contribute to the national revenue.

How does it work?

Here's a simple breakdown:

If your annual dividend income is RM 100,000 or less, you won't be affected by this tax.

If your annual dividend income exceeds RM 100,000, you will pay a 2% tax on the amount above RM 100,000.

Examples

Example 1: If you receive RM 120,000 in dividend income for the year, the first RM 100,000 is exempt from the 2% tax. The remaining RM 20,000 will be taxed at 2%, resulting in a tax of RM 400.

Example 2: If you receive RM 150,000 in dividend income for the year, the first RM 100,000 is exempt. The remaining RM 50,000 will be taxed at 2%, resulting in a tax of RM 1,000.

Exemptions

Certain types of dividends are exempt from this tax, including:

  • Dividends from foreign sources.
  • Dividends from companies with pioneer status or reinvestment allowances.
  • Dividends from tax-exempt shipping companies.
  • Dividends from cooperatives.
  • Dividends from closed-end funds.
  • Dividends from Labuan entities.
  • Dividends that already have specific exemptions for shareholders.

Importance of Declaring Dividend Income

Declaring your dividend income accurately is important for several reasons:

1. Tax Compliance: Ensures you comply with tax regulations and avoid penalties.

2. Accurate Financial Records: Helps maintain accurate financial records for personal and business purposes.

3. Transparency: Builds trust with stakeholders, including regulatory authorities and investors.