KUALA LUMPUR, Oct 20 — If you’re investing in the Malaysian stock market, you may have concerns about the new 2% personal income tax on dividends. However, this tax, which takes effect in 2025, will only apply to individuals receiving taxable dividend income exceeding RM100,000 annually.
According to experts, the tax is primarily aimed at the T20 group—the top 20% of income earners in Malaysia. Veerinderjeet Singh, a senior tax policy advisor at KPMG Malaysia, emphasized that the tax will have minimal impact on T20 individuals due to various exemptions, including dividends from the Employees Provident Fund (EPF), Amanah Saham Nasional Bumiputera (ASNB), and unit trusts. Foreign dividend income, already taxed overseas, will also be exempt.
Although designed for high-income earners, some members of the upper M40 group—the middle-income bracket—could also be affected, depending on their investment portfolios. The tax applies only to dividend income exceeding RM100,000 and remains relatively low at 2%, which Singh believes will not deter investors from the Malaysian stock market.
The tax is easy to implement, Singh noted, as it will be included in annual personal income tax filings. However, the possibility of avoiding the tax seems slim since it relies on companies declaring dividends. The real concern, he suggested, is the potential for the tax rate to increase in the future.
SM Thanneermalai, managing director of Thannees Tax Consulting Services, pointed out that family-owned businesses could be particularly affected. Typically, individual shareholders in such companies rely on dividends as income rather than salaries, meaning they’ll now be subject to the 2% tax. Thanneermalai warned that while the tax is not overly burdensome, individuals might explore ways to bypass it, such as funneling dividends through offshore entities.
Both experts agreed that the tax’s impact on foreign investors will be minimal since most of them are companies rather than individuals. Thanneermalai suggested the dividend tax could lead to some wealthy Malaysians reconsidering their investments, possibly shifting capital abroad or using alternative vehicles like unit trusts.
Prime Minister Datuk Seri Anwar Ibrahim announced the tax as part of Budget 2025, intending to collect revenue from wealthy individuals and company owners. Soh Lian Seng, KPMG’s Head of Tax, reinforced that the tax targets the top 15% of taxpayers, aiming not to burden the remaining 85%.
While the 2% tax is unlikely to disrupt Malaysia’s investment landscape in the short term, the sentiment among investors could shift if rates rise or regulations become more complex.
