Starting from 1 January 2025, individuals receiving annual dividend income exceeding RM100,000 will be subject to a 2% tax on the amount surpassing this threshold. This measure primarily affects those with substantial retained earnings.
This new tax will apply to dividends received by individual shareholders (residents, non-residents, and individuals who hold shares through nominees).
Illustration: Extra Tax Exposure Due to the New Tax Rule
Scenario: Company X made a profit before tax of RM500,000 and distributed the entire after-tax profit as a dividend to Mr. A, the sole shareholder of the company.
Assumptions:
1. Company X is subject to 24% Corporate Tax.
2. Mr. A has no other income apart from the dividend income received from Company X.
3. No deductions or reliefs are factored into this calculation.
Calculation:
*( RM380,000 – RM100,000 tax-free-portion ) x 2%
Under the new tax rule, Mr. A incurs an additional tax of RM5,600 on the dividend income exceeding RM100,000.
Tax Planning
For companies with substantial retained earnings, distributing dividends before 31 December 2024 could be advantageous. By doing so, shareholders can receive the dividends without being subject to this additional tax, as the new tax applies only to dividends received from 1 January 2025 onwards.
Other Considerations
Companies must also evaluate their financial positions and comply with the Companies Act, including the solvency test before declaring and paying dividends. This test ensures the company remains financially sound after dividend payments, requiring directors to confirm the company's ability to meet its debts within 12 months of the distribution."
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