Malaysia Dividend Tax 2026 Guide: 2% Tax on Chargeable Dividend Income, Exemptions, and How It Affects Shareholders
Complete guide to Malaysia's 2% dividend tax introduced in Budget 2025, effective YA 2025. Learn which dividends are taxed, the RM100,000 exemption threshold, how dividend tax interacts with personal income tax, and tax planning strategies for shareholders and business owners.
A Malaysian shareholder who has spent ten years building a portfolio of dividend stocks receives RM120,000 in dividend income for the year. Under the old rules, all of it was tax-free in their hands. Starting from YA 2025, RM20,000 of that amount — the portion exceeding RM100,000 — is subject to a new 2% tax. The RM400 bill is modest, but the principle represents a shift: dividend income is no longer entirely exempt for individual shareholders.
Malaysia's 2% dividend tax, introduced in Budget 2025 under Section 12B of the Income Tax Act 1967, applies to chargeable dividend income exceeding RM100,000 per year of assessment. It is a separate and distinct tax from the progressive income tax scale — it does not push you into a higher bracket, and it applies at a flat 2% only on the excess above the threshold.
This guide covers which dividends are caught, how the RM100,000 exemption works, how to report dividend income, and how shareholders and Sdn Bhd directors can plan around it.
If you are assessing your overall tax position, use the DuitTools PCB calculator to estimate your monthly deductions and the salary calculator for a complete net pay picture.
What Is the 2% Dividend Tax?
Effective from the Year of Assessment 2025, a 2% tax applies to an individual tax resident's chargeable dividend income that exceeds RM100,000 in a calendar year. The tax was enacted via the Finance Act 2024 and is administered under a standalone charge — it is not part of the progressive income tax scale.
Key features
- Flat rate: 2% on the excess above RM100,000 only. If your chargeable dividend income is RM100,000 or less, you pay nothing.
- Separate from income tax: The 2% dividend tax does not affect your marginal tax rate on employment, business, or rental income. It is reported and assessed separately.
- Applies to individuals only: This tax applies to individual tax residents. Dividends received by companies, LLPs, and unit trusts are governed by different rules.
- Chargeable dividend income: Not every ringgit of dividend received counts. Certain dividends are exempt by statute or by LHDN concession.
Why it was introduced
The government estimated that the top 1% of individual shareholders in Malaysia receive disproportionately high dividend income that was previously entirely tax-free under the single-tier dividend system. The 2% tax targets dividends above a high threshold — RM100,000 — so it affects only shareholders with substantial passive income from equities.
Which Dividends Are Subject to the 2% Tax?
Chargeable dividend income
The 2% tax applies to dividends received from:
- Malaysian-listed companies (Bursa Malaysia)
- Unlisted Malaysian companies
- Co-operative societies
- Real estate investment trusts (REITs)
All of these are within scope. The source of the dividend — listed or unlisted — does not matter.
Dividends exempt from the 2% tax
Not every dividend counts toward the RM100,000 threshold. The following are explicitly excluded:
- Dividends from foreign-sourced income that has already been subject to tax in the foreign jurisdiction and is remitted to Malaysia, provided the foreign-sourced income exemption applies.
- Dividends from tax-exempt accounts: Distributions from EPF are not dividends and are not caught. PRS withdrawals and SSPN withdrawals are similarly outside scope.
- Dividends received by approved charities and religious institutions continue to be exempt.
- Dividends paid out of exempt income of the paying company, where specifically exempted by a statutory order or incentive.
REIT distributions
Malaysian REIT distributions are technically income distributions, not traditional dividends, but they are treated similarly for the 2% dividend tax. A REIT investor receiving RM150,000 in total annual distributions will trigger the tax on RM50,000 at 2%, producing RM1,000 in dividend tax.
How the RM100,000 Exemption Threshold Works
The RM100,000 threshold is an annual exemption, not a per-company or per-distribution limit. It runs per year of assessment (calendar year for individuals) and aggregates all chargeable dividend income received in that year.
Example calculations
Scenario A: Dividend income of RM90,000 Total chargeable dividend income is below the RM100,000 threshold. No 2% tax applies. RM0 payable.
Scenario B: Dividend income of RM160,000 Excess above threshold: RM160,000 − RM100,000 = RM60,000 Dividend tax at 2%: RM60,000 × 2% = RM1,200
Scenario C: Dividend income of RM750,000 Excess: RM650,000 Dividend tax at 2%: RM650,000 × 2% = RM13,000
Joint shareholders and nominees
If shares are held jointly, the dividend is apportioned to each joint holder according to their beneficial ownership. A nominee company receiving dividends on behalf of a beneficiary must report the dividend as received by the beneficial owner, not the nominee.
How Dividend Tax Interacts with Progressive Income Tax
The 2% dividend tax operates outside the progressive income tax scale. It does not:
- Increase your chargeable employment income
- Push your employment income into a higher tax bracket
- Affect PCB calculations for salaried employees
- Grant additional tax reliefs or deductions
Your employment income is taxed at the progressive rates (0% to 30%). Your chargeable dividend income above RM100,000 is taxed separately at 2%. The two systems do not interact.
Comparison: dividend income vs employment income
| Income Type | Tax Method | Rate Range |
|---|---|---|
| Employment/salary | Progressive income tax (PCB) | 0% – 30% |
| Dividend income (first RM100k) | Exempt | 0% |
| Dividend income (above RM100k) | Flat 2% levy | 2% |
| Rental income | Progressive income tax | 0% – 30% |
| Business income (sole prop) | Progressive income tax | 0% – 30% |
This separate treatment is the reason the 2% dividend tax remains favourable even for high-net-worth shareholders — a 2% flat rate is well below the top marginal income tax rate of 30%.
How to Report Dividend Income to LHDN
For YA 2025 onwards, individuals must report chargeable dividend income in their annual tax return (Form BE for salaried individuals, Form B for business owners).
Reporting steps
- Aggregate all dividends received during the calendar year from all Malaysian sources.
- Exclude exempt dividends: Back out EPF/PRS/SSPN distributions and any dividends from exempt sources.
- Calculate the excess over RM100,000.
- Report the chargeable portion in the designated section of Form BE or Form B (introduced for YA 2025).
- The 2% tax is computed automatically by the e-Filing system based on the reported amount.
The dividend tax is payable as part of your annual tax settlement — it is not deducted at source. If your total tax payable (income tax plus dividend tax) exceeds your total PCB instalments, you pay the balance. If it is less, you receive a refund.
Tax Planning Strategies for Dividend Recipients
1. Spread shareholdings across family members
A husband and wife each holding separate share portfolios can each claim the RM100,000 exemption, doubling the family's exempt dividend income to RM200,000. This requires genuine separate ownership — LHDN has the power to disregard artificial arrangements.
2. Hold dividend-paying assets through an Sdn Bhd
A private limited company receiving dividends from Malaysian-listed shares is taxed under the corporate tax system, not the individual 2% levy. However, when the company subsequently pays a dividend to its individual shareholders, that dividend counts toward the individual's RM100,000 threshold. The structure may still produce a net saving when the corporate tax rate (15% for first RM150,000, or progressively) is compared against the top individual marginal rate of 30%.
3. Time large dividend payments across assessment years
A closely held company that declares dividends at the directors' discretion can time a large distribution to straddle two calendar years, keeping each year's dividend income under RM100,000. A RM180,000 dividend paid as two RM90,000 distributions — one in December and one in January — attracts zero dividend tax. The same RM180,000 paid in a single December distribution costs RM1,600 (2% on the RM80,000 excess).
4. Reinvest via dividend reinvestment plans (DRP)
Several Bursa-listed companies offer dividend reinvestment plans. Electing to receive new shares instead of cash dividend may alter the tax treatment — consult your tax advisor, as the treatment of scrip dividends under the 2% regime is still being clarified.
FAQ
Does the 2% dividend tax apply to EPF dividends?
No. EPF dividends are distributions from the Employees Provident Fund and are not dividends from shares. They do not count toward the RM100,000 threshold and are not subject to the 2% tax. The same applies to withdrawals from PRS and SSPN accounts.
If I receive RM50,000 in dividends from Bursa shares and RM60,000 from an unlisted company, do I pay the tax?
Your total chargeable dividend income is RM110,000, which exceeds the RM100,000 threshold by RM10,000. You pay 2% on RM10,000, which is RM200. The source of the dividends — listed or unlisted — is irrelevant for aggregation purposes.
Are dividends from foreign-listed shares (e.g., US stocks, Singapore REITs) included?
Dividends from foreign companies are not chargeable under Section 12B. However, foreign-sourced income remitted to Malaysia may be taxable under the general foreign-sourced income provisions. The 2% dividend tax applies only to Malaysian-sourced dividends.
Do I need to tell my employer about my dividend income?
No. Dividend income does not affect your PCB deduction. Your employer's payroll system has no mechanism to incorporate dividend income, and you are not required to disclose it to HR. The dividend tax is settled directly with LHDN at tax filing.
What happens if I forget to report dividend income on my tax return?
Underreporting income — including dividend income — is subject to the standard penalties under Section 113(2) of the ITA 1967. The penalty can range from 45% to 100% of the tax undercharged, depending on whether it is deemed negligence or wilful evasion. With dividend data increasingly accessible through brokers and share registrar records, LHDN's ability to cross-check is improving.
Is there a way to legally avoid the 2% dividend tax?
Genuine tax planning — timing distributions across years, spreading ownership across family members, and using exempt vehicles like EPF — is legal. Artificial or sham arrangements designed solely to avoid tax, such as temporary transfers of shares to relatives below the threshold, may be challenged by LHDN under the general anti-avoidance provisions.
Malaysia's 2% dividend tax is modest by design — it spares most small and mid-sized shareholders entirely, and its impact even on large portfolios is a flat 2% on amounts exceeding RM100,000. For most Malaysian investors, the answer is simply good record-keeping and accurate reporting.
For shareholders who also draw employment income, use the DuitTools PCB calculator to see your monthly tax position and the salary calculator for your full net pay breakdown after EPF, SOCSO, EIS, and PCB.