REIT tax in Malaysia: the 10% withholding ended in YA 2026
For the better part of a decade, holding a Malaysian REIT was the simplest tax position a retail investor could have: the REIT withheld 10% of your distribution, that was the end of it, and nothing went on your tax return. That arrangement ended on 31 December 2025. From Year of Assessment 2026 the concessionary rate has lapsed, no tax is withheld from resident unit holders at all, and the distribution is taxed at your own scaled rates through your annual return. For some investors this is a tax cut. For others it is the single largest increase in their 2026 tax bill. Here is exactly how it now works.
What actually changed on 1 January 2026
The 10% rate was never permanent. It sat in subparagraphs 1(a) and (c) of Part X, Schedule 1 of the Income Tax Act 1967, and it was granted in six-year blocks — the last of which ran from YA 2020 to YA 2025. Parliament did not renew it, so the provision simply ceased to have effect from YA 2026.
LHDN set out the consequences in Practice Note No. 2/2026, issued in March 2026. The headline is not merely that the rate went up. It is that for resident unit holders the collection mechanism disappeared entirely: withholding under Section 109D no longer applies to them, so the REIT now pays the distribution gross and the unit holder must report it and pay the tax themselves.
Two categories are untouched. Resident companies were never inside the withholding regime and continue to be taxed at the corporate rate. Non-resident companies still suffer a final 24% withholding and still have nothing to report.
Why the REIT itself pays no tax
None of this changes the structure that makes REITs attractive in the first place. Under Section 61A of the Act, a REIT or property trust fund that distributes 90% or more of its total income to unit holders in the basis period is fully exempt on that total income. That is why Malaysian REITs distribute so aggressively — the 90% figure is a tax condition, not a dividend policy.
The exemption is also why the tax has to be collected from you. The income is deliberately taxed once, in the unit holder's hands rather than the fund's. Until YA 2025 that single charge was the flat 10%. Now it is whatever your own rate happens to be.
The rates from YA 2026, by who you are
Practice Note 2/2026 sets out the position for each class of unit holder. The right-hand column is what applies to distributions received in 2026 and later:
| Unit holder | YA 2016–2025 | YA 2026 onwards |
|---|---|---|
| Resident individual | 10% final withholding | Scaled individual rates, 0%–30%, self-reported |
| Non-resident individual | 10% final withholding | 30% of chargeable income, self-reported |
| Resident company | Corporate rate, 24% | Corporate rate, 24% (unchanged) |
| Non-resident company | 24% final withholding | 24% final withholding (unchanged) |
| Foreign institutional investor | 10% final withholding | 30% of chargeable income |
| Others — resident (e.g. co-operative) | 10% final withholding | Corporate or scaled rate |
| Others — non-resident | 10% final withholding | 30% of chargeable income |
Worked example: the investor who now pays more
This is LHDN's own illustration. A resident individual earns RM120,000 from employment and receives RM150,000 of REIT distributions in 2026, claiming RM9,000 self relief plus RM7,000 for EPF and life insurance (the RM4,000 EPF cap and the separate RM3,000 life insurance relief):
| Step | Amount (RM) |
|---|---|
| Employment income | 120,000 |
| REIT distribution | 150,000 |
| Total income | 270,000 |
| Less: reliefs (9,000 + 7,000) | (16,000) |
| Chargeable income | 254,000 |
| Tax on first RM100,000 | 9,400 |
| Next RM154,000 at 25% | 38,500 |
| Total tax payable | 47,900 |
How much worse off is that?
Strip the REIT income out and the same taxpayer has RM104,000 of chargeable income and a tax bill of RM10,400. The REIT slice therefore costs RM37,500 — a flat 25%, because the whole of it falls in the 100,001–400,000 band. Under the old regime the same RM150,000 would have suffered RM15,000 of withholding and nothing more.
The difference is RM22,500 in one year, and none of it is collected at source. The money arrives in the bank account in full and the bill lands at filing. That cash-flow trap is the practical risk for anyone with a large REIT holding: it is very easy to spend a distribution that is 25% or 30% pre-tax.
The investors who are now better off
The change is not a tax rise for everyone. Because the charge is now progressive rather than flat, every unit holder whose marginal rate is below 10% pays less than before — and the first RM5,000 of chargeable income is taxed at nothing.
Take a retiree whose only income is RM40,000 of REIT distributions, claiming the RM9,000 self relief:
| Step | Amount (RM) |
|---|---|
| REIT distribution | 40,000 |
| Less: self relief | (9,000) |
| Chargeable income | 31,000 |
| Tax: first RM5,000 at 0% | 0 |
| Next RM15,000 at 1% | 150 |
| Next RM11,000 at 3% | 330 |
| Less: individual rebate (chargeable income ≤ RM35,000) | (400) |
| Total tax payable | 80 |
Where the break-even sits
- Chargeable income up to RM50,000 — your top band is 6% or less, so you now pay less than the old flat 10%. Below RM35,000 the RM400 rebate can wipe out the charge almost entirely.
- Chargeable income in the RM50,001–RM70,000 band — the marginal rate is 11%, so you cross over and start paying slightly more.
- Chargeable income above RM70,000 — the marginal rate is 19% or higher and the change is clearly a tax increase on your REIT income.
- Non-resident individuals lose outright: 30% of chargeable income replaces a 10% final tax, and because nothing is withheld they must now register with LHDN and file a Malaysian return to settle it.
A REIT distribution is not a dividend
This distinction matters more than it used to. A dividend from a Malaysian resident company arrives under the single-tier system and is exempt in your hands; the only charge on it is the separate 2% dividend tax on chargeable dividend income above RM100,000. A REIT distribution is neither. It is income distributed by a trust, and from YA 2026 it is ordinary taxable income reported as statutory income from other gains or profits.
So the 2% dividend surcharge does not reach your REIT income — which is cold comfort, because the full scaled rate now does. The practical consequence is that REIT distributions join your aggregate and chargeable income, and can therefore push you past other thresholds: the RM35,000 rebate cliff, a higher band on your salary, and the apportionment used in the dividend tax formula.
What you now have to do
- Keep every distribution statement. The REIT's statement is your evidence for the figure you report, and it shows the split where part of a distribution is not taxable in your hands.
- Report the taxable distribution in your return for the year you received it. A payout received in 2026 goes in the YA 2026 return — Form BE by 30 April 2027, or Form B by 30 June 2027 if you also have business income.
- Set money aside as distributions arrive. Nothing is withheld; at a 25% marginal rate a quarter of every ringgit received is already owed.
- Expect LHDN to put you on instalments if the amounts are significant. A CP500 notice can follow once there is a history of assessed income with no tax deducted at source.
- If you hold REITs through a nominee or a foreign broker, the reporting obligation is still yours — there is no longer a withholding agent doing it for you.
Caveats
This guide reflects Practice Note No. 2/2026 and the lapse of subparagraphs 1(a) and (c) of Part X, Schedule 1 of the Income Tax Act 1967 from YA 2026. Concessionary rates in Malaysia have been reinstated at Budget time before, so check hasil.gov.my for the current year before relying on the position here. The treatment of distributions that are not wholly taxable, of REITs that fail the 90% test in a given year, and of units held through nominees or trusts all turn on facts this guide cannot see.
The calculator below applies the resident individual brackets and reliefs. Add your REIT distribution to your other income to estimate the new liability, then confirm it with LHDN or a licensed tax agent before filing.
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Last reviewed: 2026-10-24