Changes in Malaysia's Dividend Tax System |
Before 2008, Malaysia had an imputation system for taxing dividends. Under this system, companies paid corporate tax before distributing dividends, and
shareholders could claim tax credits to avoid double taxation. However, in 2008, Malaysia adopted a single-tier system. Under this system, the tax on a company’s profits is final, and
dividends distributed are exempt from tax at the shareholder level. With the introduction of the Budget 2025, the 2% tax on dividends exceeding RM100,000 annually marks the end of this tax-free
era for investors. Investors and entrepreneurs must now reconsider the impact this will have on their financial planning. For many family-owned SMEs, the new dividend tax could significantly affect personal income and business operations. SME owners, who are often both shareholders and business operators, may face the following challenges: - Reduction in Personal Income
Dividends are an important source of personal income for SME owners. The 2% tax on dividends exceeding RM100,000 will directly reduce their net income. - Double Taxation
Since corporate profits are already taxed, the additional dividend tax increases the
tax burden on entrepreneurs. - Reviewing Dividend Distribution
SME owners may reassess profit
distributions, opting to reinvest profits into the business to minimise tax liabilities. - Increased Complexity in Tax Filing
With the introduction of the new dividend tax, investors who previously didn’t need to calculate taxes on dividends will now face more complex tax filing requirements. They will need to understand how to calculate dividend taxes and accurately report dividend income, which adds to their administrative burden.
The 2% dividend tax in Malaysia's Budget 2025 marks a significant shift in tax policy. High-income investors must reassess their financial strategies and explore new tax planning options to adapt to this
change. Therefore, investors must stay informed about the latest updates and adjust their financial strategies to ensure they are fully prepared for the upcoming changes. |
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