What do you need to know about the 2% Dividend Tax

Scope:

1. Dividend income received by individual shareholders from both private and public companies.

2. Individual shareholders include resident individuals, non-residents, and individuals who hold shares through nominees.

Commencement: 1 January 2025

Threshold: Annual dividend income exceeding RM100,000.

Rate:  A 2% Tax will be imposed on the chargeable dividend income after taking into account allowances and deductions.

Exemption List: Dividends distributed by KWSP, LTAT, ASNB, or any unit trust.

Tax Planning Ideas a. We recommend clients review their financial positions. If there is substantial retained profit, it may be beneficial to declare and distribute dividends before 31 December 2024.

b. Dividend distribution can be a cash payout or be credited into the "Amount Owing to Shareholders" accounts.

c. Consider strategic shareholding. For family-owned businesses, adding shareholders, such as a spouse, may offer commercial and tax advantages, including eligibility for RM100,000 in tax-free dividends annually.

d. For future dividends, consider limiting the annual payout to RM100,000 per shareholder to stay below the tax-free threshold, provided shareholders do not receive dividends from other companies.

e. For employees or directors who are also shareholders, structuring remuneration packages with salary, benefits in kind, and dividends can effectively reduce the tax burden for both the company and the individual.

*Note:

At the time of writing, the Finance Bill 2024 is not yet available, and the information provided may be subject to change. Further updates will be provided once the tax authority announces the new tax mechanisms.