As the largest budget ever tabled for Malaysia, Budget 2025 seeks to increase tax revenue and broaden the tax base of both direct and indirect taxes amidst a review of the existing tax incentive framework. Notably, despite the recent implementation of a capital gains tax with effect from January 1, 2024, more new taxes are being proposed for subsequent years of assessment (“YAs”), such as the carbon tax on the iron, steel and energy industries, and a dividend tax. Some of the salient Budget 2025 proposals are discussed below. Unless otherwise stated, the proposed amendments discussed below, when passed by Parliament, would take effect from YA 2025.
Dividend Tax
Dividends (in monetary form or otherwise) paid, credited, or distributed by a tax-resident company to a shareholder who is either a tax-resident or non-resident individual would be subject to a 2% dividend tax on the individual’s dividend income above RM100,000. Dividends below that threshold would remain tax-exempt as would be dividends paid to corporate shareholders.
Other dividends that may be tax-exempt include foreign-sourced dividends, dividends distributed from profits of companies with pioneer status or reinvestment allowances or from shipping companies’ taxexempt profits, dividends distributed to contributors or depositors by unit trusts or the Employees’ Provident Fund, and dividends distributed by Labuan companies to residents, among others. The exact scope of the exemptions remains unclear and concerns linger over the impact of possible double taxation upon shareholders and investors.
