KUALA LUMPUR, Oct 20 — You're dabbling in investing in the Malaysian stock market, but don't want to start paying 2% personal income tax on dividends from companies in which you own shares. Are you worried about that?
The first thing to know is that you will only be taxed if the taxable dividends you receive in a year exceed RM100,000. In other words, the new tax, which takes effect in the 2025 assessment year, primarily targets individuals who earn significant amounts of income from dividends.
So who has to pay the new dividend tax? And can the Malaysian government easily collect it? Here's what a tax expert told Malay Mail:
Velinderjeet Singh, senior tax policy advisor at KPMG Malaysia, said the new tax on dividend income is “aimed at taxing T20 groups” and meets the criteria set out in the 2025 Budget Speech. He said there was. The T20 group refers to people in the top 20% of income earners in Malaysia.
However, “it may not have much of an impact on the T20 group” as the Malaysian government intends to provide multiple tax exemptions on dividend income, he said.
He said these exemptions include dividends from Employees Provident Fund (EPF), Amanah Saham Nasional Bumiputra (ASNB), Lembaga Tabung Angkatan Tentera (LTAT) and unit trust deposits and savings; He cited dividends received from cooperatives and Labua corporations. , tax-free profits of companies, and foreign dividend income (which would have been taxable abroad).
Although the new dividend tax is targeted at those in the high-income T20 group, those in the upper 40 percent of the middle income group or the M40 group, also known as the middle income group, may also be subject to dividend tax in Malaysia. Yes, Wielinderzito said. You will have to pay this new tax on your investment.
“The 2% tax applies to taxable dividend income exceeding RM100,000 per year, so it is only levied on taxable dividend income exceeding RM100,000.
“Although this tax will affect the T20 group, the top end of the M40 group, who have invested heavily in the stock exchange in excess of fees, will receive significant dividend income in excess of their annual dividends. “The RM100,000 threshold could also affect the person if he or she is in the same category,'' Vice-Chairman of the International Chamber of Commerce (ICC) Global Tax Committee said when contacted by Malay Mail yesterday. spoke.
Verinderzito said that other countries tax dividend income like other types of income, such as employment or business income, and that in some countries, “companies are taxed when they distribute dividend income to shareholders.'' We are imposing withholding tax.”
Meanwhile, Malaysia has decided to only impose a flat rate of 2% on dividend income, he said.
He also said the tax would not be difficult to collect because it would “probably be levied on the personal income tax return that individuals file each year, and they would have to declare the taxable amount.”
Asked whether individual shareholders could find a way to avoid paying this new tax, Fehrinderzito said: “I see no way around the dividend tax as it depends on the company declaring the dividend. If the company does not declare the dividend, the tax does not apply.”
File photo of inventory counter shown on electronic display at Bursa Malaysia in Kuala Lumpur. — Photo by Razak Ghazali
Why has the impact of dividend tax not been seen much in Malaysia so far and what will happen in the future?
Verinderjeet said the new tax is unlikely to significantly increase government revenue at this point, saying: “A 2% tax rate is a very low tax rate. So the impact is not large. It also requires a lot of exemptions. Given this, it is unlikely that significant tax revenues will be generated.The concern, therefore, is that tax rates may rise over the years.
“I don’t think there will be any impact on investing in Malaysia given the lower tax rate, which imposes more tax compliance obligations.
“In the future, this dividend tax could also apply to companies that hold equity investments, which could be a cause for concern for investment holding companies,” he said.
SM Taneermalai, managing director of Tanny's Tax Consulting Services, said the new dividend tax would have no impact on foreign investors in the Malaysian stock market as most foreign investors are companies rather than individuals. He said it was unlikely that he would.
Currently, companies that already pay corporate tax (current Malaysian corporate tax rate is up to 24 percent) will pay dividends from their after-tax profits, and individual shareholders will receive these dividends as tax-free income. Become. It is being taxed by Malaysia, he said.
But Thanirmalai said that in the case of a new dividend tax, it would be family-run businesses that would be affected, as the majority of individual shareholders in such companies typically do not receive salaries or executive compensation, but rather He stated that he would receive the dividends as income.
Instead of receiving the dividends as tax-free income, those individual shareholders will now have to pay a 2% tax on their dividend income, he said.
He said most of these individuals are in high-income brackets and are “most likely near the top personal tax rate of 30%,” adding that the new dividend tax would “effectively reduce them to 30%.” You will have to pay.” The top portion of income, including dividend income. ”
He said the new tax could affect a significant number of individuals as RM100,000 is by no means a significant amount.
When asked whether some individuals may try to avoid the new 2% tax if possible, Tanirmalai said that this could be easily done, such as by having dividends paid to offshore or Labuan companies. Yes, but it depends on the situation. How are the rules and regulations regarding dividend taxes determined?
“What if the individual does not receive the dividend, but a company, trust or other intermediary arranges to receive the dividend? In that case, the 2% tax does not apply and there is a potential for tax avoidance. “Two percent,'' he replied when asked for an example.
“If the government doesn't come up with perfect regulations, people will avoid this 2%,” said a former head of the Chartered Institute of Taxation Malaysia (CTIM).
However, he said that the additional 2% tax is not really a “huge burden” for such individual shareholders, and that if a very wealthy and loyal public looks the other way, the additional 2% He said he may have to pay taxes. .
He said that Malaysia's dividend tax is an easy-to-calculate and collect tax payable by individual shareholders, as opposed to other countries where companies levy dividend tax by withholding tax on their dividend income. He said it was not difficult to implement.
Mr Thanirmalai said the dividend tax was introduced at a time when the government needed revenue, but he hoped it was only a temporary measure and not a permanent measure.
He said this is because personal income tax for Malaysians is already quite high at 30%, the highest rate in the region, and the new dividend tax will give Malaysians the option of moving capital overseas to invest or transfer ownership. He said this is because there is a possibility that it will be considered. We are interested in locally owned companies or companies established overseas.
He said that while the new dividend tax may not have a significant impact on the real amount or the actual value of the funds invested here, it could “weaken” investor sentiment.
“If we keep increasing this, people will say, why invest here or invest in Malaysian stocks through other avenues overseas?” He said the new tax on high dividends would reduce Malaysian investors' He pointed out that it would be a psychological burden. On the other hand, new investors may see it as a disadvantage.
As for whether the new dividend tax would encourage shareholders to invest in other options such as unit trusts, he said it was possible, but individual shareholders would not simply change their investments.
“Rather than just moving to other financial products, they will consider the highest return and if they can afford to pay 2%, they will still stay where they are,” he said, adding that they do not care about receiving. He said he would not. If such a dividend still provides the highest return, the return on investment will be slightly lower.
On Friday, Prime Minister Datuk Seri Anwar Ibrahim said in his 2025 budget speech that the new dividend tax is also aimed at collecting taxes from corporate owners and individuals who own shares worth millions of ringgit. said.
Saw Lian Seng, head of tax at KPMG in Malaysia, said in a statement on Friday that the new dividend tax is “clearly targeted at the top 15% of taxpayers and will place an additional burden on the remaining 85%. No,” he said.
KPMG is booklet Online, we detail the questions raised by the announcement of the new dividend tax, including whether the attractiveness of Malaysian companies to investors will be affected and how high-net-worth and ultra-high-net-worth individuals will hold their assets. This includes whether to use a different method. Should you pay dividends or switch to alternative investments?
