Dividends Were Completely Tax-Free in Malaysia for 17 Years. Since YA 2025, Anything Above RM100,000 Isn't.

From YA 2008, when Malaysia moved to the single-tier system, dividends in the hands of individual shareholders were completely exempt. Company pays tax on profit, that tax is final, shareholder pays nothing.

That ended on 1 January 2025.

Under the Finance Act 2024, individual shareholders now pay 2% on chargeable dividend income exceeding RM100,000 a year. The first RM100,000 remains exempt under paragraph 12B of Schedule 6 of the Income Tax Act 1967, but everything above it is taxed under a new Part XXII of Schedule 1.

If you get RM150,000 in Malaysian dividends, RM100,000 is exempt and RM50,000 is taxed at 2%. That's RM1,000. Not enormous — but it is the end of a seventeen-year rule, and it is the clearest signal that the exemptions in this article are not permanent.

1. Foreign-sourced income: the one people get most wrong

This is the highest-stakes item on the page, and the online guidance is genuinely contradictory.

The history. Until 1 January 2022, Malaysia operated a territorial system — foreign income earned abroad and kept abroad was irrelevant to LHDN, and even remitted foreign income was exempt. The Finance Act 2021 removed that blanket exemption for Malaysian residents from 1 January 2022, to meet international commitments.

The exemption that replaced it. Following an MOF announcement on 30 December 2021, exemption orders were gazetted on 19 July 2022 — Income Tax (Exemption) (No. 5) Order 2022 [P.U.(A) 234] and (No. 6) Order 2022 [P.U.(A) 235] — exempting, from 1 January 2022 to 31 December 2026:

• Individuals — all classes of income under section 4 of the ITA, excluding income from a partnership business in Malaysia
• Companies and LLPs — foreign-sourced dividend income
• Individuals bringing in foreign dividends in relation to a Malaysian partnership business

Then it was extended, twice. Budget 2025 (tabled 18 October 2024) extended the individual exemption by ten years to 31 December 2036. Budget 2026 extended the exemption on foreign-sourced dividends and capital gains for companies, LLPs, cooperatives and trusts to 31 December 2030.

Now the honest warning. A number of sources still circulating in 2026 say the exemption expires on 31 December 2026 and that FSI becomes taxable from 1 January 2027. That reflects the pre-Budget-2025 position and, for individuals, appears to be out of date. We flag this because it is the single most confusing area in Malaysian personal tax right now and because acting on it — for instance rushing a large remittance before an imaginary deadline — has real financial consequences. Confirm the current position with LHDN or a tax agent before you move money.

Three conditions people miss:

It is not automatic. The income must have been subjected to tax of a similar character to income tax in the country where it arose. If you earn dividend income from a fund domiciled in a zero-tax jurisdiction and it was never taxed anywhere, the exemption may not apply on remittance.

You must still declare it. Even though exempt, a resident individual must declare in their Malaysian return that the FSI qualifies, and retain supporting documentation. A dedicated FSI disclosure section has been in the return forms since YA 2022.

"Received in Malaysia" means brought in. LHDN has clarified that only income brought into Malaysia by cash or electronic funds transfer counts as remitted. Income kept offshore and never remitted generally stays outside the charge.

2. Dividends: the change that caught people out

What applies from YA 2025:

Applies to individual shareholders — residents, non-residents, and those holding through nominees — for dividends paid, credited or distributed by listed or unlisted companies, whether in monetary form or otherwise.

Dividends that remain outside the charge entirely:

• Foreign dividends (subject to the FSI rules above)
• Companies with pioneer status or reinvestment allowance
• Tax-exempt shipping companies
• Cooperatives
• Closed-end funds
• Labuan entities
• Dividends with specific shareholder exemptions, e.g. under a section 127 ministerial exemption

Two mechanics worth knowing. Where you have dividend income and other income, a statutory formula in the Rules gazetted 7 May 2025 determines what portion of chargeable income is attributable to dividends. Where you have only dividend income, the formula does not apply and paragraph 1 of Part XXII applies directly. And from YA 2025, section 108 obliges dividend-paying companies to furnish individual shareholders with a dividend certificate — keep these, they are what you file from.

3. Employment-related exemptions: the ones that actually matter to salaried Malaysians

Compensation for loss of employment

This is what you get on retrenchment, VSS or MSS.

A widely repeated error worth correcting. You will see RM20,000 per year of service quoted. That was a temporary measure for employment ceasing between 1 January 2020 and 31 December 2021 only. The current figure is RM10,000.

The exemption sits in subparagraph 15(3) of Schedule 6 and, from YA 2007, covers early termination of an employment contract including under a VSS or MSS. Important carve-out: if the separation scheme offers re-employment with the same or any other employer, the payment does not qualify.

Worked example: 8 completed years, terminated 2026, RM120,000 payout. Exempt: 8 × RM10,000 = RM80,000. Taxable: RM40,000.

Retirement gratuity

Different from compensation for loss of employment, and taxed differently. Fully exempt where:

• The Director General is satisfied retirement is due to ill health; or
• Retirement on or after age 55 or the compulsory retirement age, with 10 years' continuous service with the same employer or group; or
• Retirement at the compulsory retirement age under contract or collective agreement at age 50 but before 55, with 10 years' service; or
• Gratuity paid out of public funds on retirement under any written law; or
• Gratuity paid out of public funds to a contract officer on termination, whether or not the contract is renewed

If you don't meet any of those, the exemption is only RM1,000 per completed year of service. That is a very large gap, and whether you fall on one side or the other of the age-55-with-10-years line can be worth six figures.

Where service spans several companies in the same group, the partial exemption applies only to the gratuity attributable to service with the last company in the group.

Benefits-in-kind and allowances

Government grants and subsidies received are fully exempt.

4. Savings, funds and interest

EPF and approved fund withdrawals. Withdrawals from EPF and other approved provident funds are exempt. This is one of the most valuable exemptions in the Malaysian system and one nobody thinks about, because it operates silently.

Interest from licensed banks. Interest earned by individuals on deposits with licensed banks and financial institutions in Malaysia is exempt. This covers ordinary savings and fixed deposit interest for individuals.

Death gratuities. Exempt.

Scholarships. Exempt.

Pensions. Pensions from an approved scheme on reaching retirement age or on ill-health retirement are exempt, subject to conditions.

5. A table of the main exemptions, with the caveat that matters

The caveat, stated plainly: every figure in this table is set by Budget and can change every year. The dividend exemption was total for seventeen years and then wasn't. The retrenchment exemption was RM20,000 for two years and then went back to RM10,000. FSI has been extended twice in three years. Check the current position at hasil.gov.my before you file, and do not rely on any article — including this one — that you found through a search engine without checking its date.

6. Exemption is not the same as relief, and both are different from a rebate

This trips people up constantly and costs them money.

Exemption removes income from the tax net entirely. It never enters your chargeable income.

Relief (personal relief, lifestyle relief, medical relief, education relief) is a deduction from your total income to arrive at chargeable income. It reduces the income that gets taxed.

Rebate is a deduction from the tax payable itself, after the tax is calculated. A rebate is worth more per ringgit than a relief.

Practical consequence: if you spent RM2,500 on a laptop, that is lifestyle relief, not exemption — worth RM2,500 × your marginal rate, not RM2,500. If your EPF withdrawal was RM100,000, that is exempt — worth the whole RM100,000 staying out of the calculation.

What to actually do

Before you file (for YA 2025, filed in 2026):

• Pull your EA form and check what your employer has and has not included. Exempt benefits should not appear as taxable income; if medical benefits or a RM6,000-and-under petrol allowance are sitting in your gross, ask HR.
• If you received dividends, collect the dividend certificates companies must now issue under section 108. Add them up. If the total exceeds RM100,000, you have a filing obligation you did not have before YA 2025.
• If you have foreign-sourced income remitted to Malaysia, declare it in the FSI section even though it is exempt, and keep proof it was taxed in the source country.

If you were retrenched or took a VSS:

• Count your completed years of service with the same employer or group. Partial years don't count.
• Multiply by RM10,000. That is your exemption.
• Check whether the scheme offered re-employment — if so, the exemption may not apply.
• Separate any gratuity element from the compensation element; they are taxed differently. Ask your employer to identify each in writing.
• If the loss of employment was due to ill health, the whole thing may be exempt. Get the medical documentation.

If you are retiring:

• Check whether you meet the age 55 plus 10 years' continuous service test, or the age 50–55 compulsory retirement plus 10 years test. The difference between full exemption and RM1,000 a year is enormous.
• If you are near the line, the timing of your retirement date is worth professional advice before you sign anything.

If you have offshore income or assets:

• Confirm the current FSI expiry date for your specific category. Individuals and companies differ, and the dates have moved.
• Establish whether the income was taxed at source. If it came from a zero-tax jurisdiction, get advice before remitting.
• Remember that income kept offshore and never remitted generally stays outside the charge — but residency and remittance rules for freelancers and remote workers are genuinely tricky.

Generally:

• Keep receipts and documentation for seven years. Exemption claims get audited.
• Check hasil.gov.my for the current year's position rather than relying on last year's guide.
• If the amounts are material — a large retrenchment payout, a retirement gratuity, or offshore remittances — use a licensed tax agent. The fee is trivial next to the exposure.