Malaysia's 2% Dividend Tax: the RM100,000 Threshold, the Formula & What Is Exempt

What changed, and what did not

Malaysia has run a single-tier dividend system since 2008. A company pays corporate tax on its profits, and the dividend it then distributes is exempt in the shareholder's hands — no imputation credit, no further tax, nothing to declare. That basic architecture is unchanged.

What Budget 2025 added, through the Finance Act and a new Part of Schedule 1 to the Income Tax Act 1967, is a separate 2% charge sitting on top of it. It applies to dividend income received on or after 1 January 2025, so YA 2025 was the first affected year and it first appeared on returns filed in 2026.

Two features make it unlike the rest of your tax bill. It is a flat 2% rather than a progressive rate, and it bites only on the portion above RM100,000 — the first RM100,000 of chargeable dividend income remains free. It is also not withheld by anyone: no company deducts it from your dividend cheque, so it is entirely on you to declare and pay it through self-assessment.

Who it applies to

The charge reaches individual shareholders of Malaysian resident companies, and only individuals:

• Resident individuals receiving dividends from Malaysian resident companies.
• Non-resident individuals receiving such dividends.
• Individuals who hold their shares through a nominee — you cannot sidestep it by having the shares registered in a nominee name.
• It does NOT apply to corporate shareholders. A holding company receiving dividends from a subsidiary is outside this charge.
• In practice the group most affected is owner-managers of private companies who pay themselves in dividends rather than salary — a structure that was efficient precisely because dividends carried no shareholder-level tax. The second group is individuals with large listed portfolios: at a 5% dividend yield you need roughly RM2 million invested before RM100,000 of annual dividends comes into view.

The threshold is on chargeable dividend income, not gross dividends

This is the single most misunderstood point, and getting it wrong overstates the tax. The RM100,000 is measured against your chargeable dividend income — the share of your chargeable income (that is, income after your personal reliefs) that is attributable to dividends. It is not measured against the gross dividends credited to your bank account.

Because most people have dividends alongside a salary or a business, the law needed a rule for splitting one pool of reliefs across two kinds of income. The Income Tax (Determination of Chargeable Income of an Individual in Respect of Dividend) Rules 2025, gazetted on 7 May 2025 and effective from YA 2025, supply it. Where you have dividend income and at least one other source, chargeable dividend income is:

Three things the formula implies

• The multiplier C is your chargeable income after reliefs — so every relief you legitimately claim (lifestyle, medical, EPF, education) also shrinks your dividend tax base. Reliefs are not wasted on this charge.
• The threshold is per individual, per year of assessment, aggregated across every company that paid you. It is not RM100,000 per counter or per company.
• Where dividends are your only source of income, no apportionment is needed — A ÷ B is 1, so chargeable dividend income is simply your chargeable income.

A worked example with mixed income

Take a taxpayer with a salary and a share portfolio in the same year:

Why the arithmetic matters

Notice what would have happened with the naive calculation. Gross dividends of RM150,000 less RM100,000, taxed at 2%, gives RM1,000 — double the correct figure. The apportionment of reliefs cut the base from RM150,000 to RM125,000, and every ringgit of that reduction is worth two sen of tax.

The reverse case is also worth understanding. A director whose only income is RM400,000 of dividends from their own company, claiming RM20,000 of reliefs, has chargeable income of RM380,000. With no other source the formula collapses, so chargeable dividend income is the full RM380,000, the excess over RM100,000 is RM280,000, and the tax is RM5,600. That is the profile the measure was really aimed at.

In both cases the 2% is an additional charge. It does not replace the ordinary progressive tax on your employment or business income — that is computed as normal, and this sits beside it.

Dividends that fall outside the charge

A substantial list of dividend streams is excluded, and excluded income does not count toward the RM100,000 threshold at all. LHDN had to say so publicly about EPF in particular, because the confusion was widespread. The main exclusions are:

• EPF/KWSP dividends — both conventional and Simpanan Shariah. Your EPF dividend is not touched by this tax and does not push you toward the threshold.
• Distributions from ASNB / PNB unit trusts and from unit trust funds generally.
• LTAT (Armed Forces Fund Board) distributions.
• Foreign-sourced dividends — these fall under the separate foreign-source income exemption for individuals, not under this charge.
• Dividends paid out of exempt accounts — for example profits shielded by pioneer status, reinvestment allowance or exempt shipping income.
• Dividends from co-operatives, from closed-end funds, and from Labuan entities taxed under the Labuan Business Activity Tax Act.

How you actually declare and pay it

• It is self-assessed on your ordinary annual return — Form BE if you have no business income, Form B if you do — filed on the MyTax portal. There is a dedicated field for it; there is no separate dividend tax return.
• Nothing is withheld at source. If you are used to dividends arriving net of nothing and needing no entry on your return, that habit is now the risk.
• Keep your dividend vouchers and tax certificates. Under self-assessment they are the evidence for the figure you put in box A, and LHDN can raise an assessment years later.
• If you cross the threshold every year, expect the amount to feed into your instalment position — see the CP500 guide if you have business or rental income and receive an instalment notice.
• Timing has real effect. Dividend income is assessed in the year it is received, so a controlling shareholder who can choose the declaration date has some ability to spread distributions across two years of assessment and use two RM100,000 thresholds. Do this with proper advice — the commercial substance of the declaration has to be genuine, and companies law rules on distributable profits still apply.

Important caveats

The figures and mechanics above reflect the charge as introduced for YA 2025 and the determination Rules gazetted on 7 May 2025. Thresholds, rates and the exclusion list are set by statute and can be changed at any Budget, and LHDN continues to issue clarifications — including on areas such as deemed dividends and dividends in specie, where practice is still settling.

This site's income tax calculator computes the ordinary progressive tax on chargeable income; it does not compute the 2% dividend charge, which depends on the apportionment above. Treat this guide as an explanation of how the charge works, not as a computation of your liability. If dividends are a meaningful part of your income, confirm the current position at hasil.gov.my and take advice from a licensed tax agent before relying on any number here.