Dividend tax in Malaysia

Updated on Thursday 29th November 2018

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People who choose to do business in Malaysia can benefit from the interesting opportunities on the market and from the incentives and advantages that come with the taxation system in the country. For instance, it is good to know that the dividends of companies in Malaysia are not taxed, which is why shareholders can enjoy the 100% share profit. 

The taxation of dividends in Malaysia is subject to a single-tier system and those dividend payments made by companies under this system are not subject to tax. According to this regime, the corporate income tax imposed on a company’s profits is in the form of a final tax and the distributed dividends are exempt from tax in the hands of the shareholders.

Our Malaysian tax lawyers are able to offer suitable information about the taxes in the country and also about the available legal services for your company or for personal matters.
 

How are dividends distributed in Malaysia?

 
The dividends can be considered as a reward for the company’s shareholders for holding stocks in the corporation. Essentially, they represent a part of the company’s profit that is distributed to a shareholder class.
 
Companies in Malaysia that have corporate shareholders are also subject to the single-tier dividend distribution scheme and can further distribute the dividends to their shareholders, who will also be exempt from tax on the distribution of the said dividends.
 
A company in Malaysia defines the restrictions or permissions on dividends for its shareholders in its Articles of Association. For example, preferential shares can allow their owners to have different rights on dividend payments or even have this option restricted, according to the type of shares that they own.
 
Dividend clawback is the process through which the company recovers excess dividend payments. This is an action that is subject to two exemptions: when the shareholder receives the distribution in good faith and when he had no knowledge of the fact that the company did not comply with a satisfactory solvency test. Apart from these two situations, the company can also recover applicable amounts (inappropriate dividend distributions) from a company director who is aware that the dividends he received are not derived from profits and is willing to pay the dividend equivalent in contravention.
 
Our tax lawyers in Malaysia can give you complete details about the relevant laws regarding dividend distribution. We can help you observe the rules for dividend distributions out of profits and at the same time observe the rules for solvency. One of our attorneys can explain the applicable requirements according to the type of company, number of shareholder and other variables that might influence the overall requirements.
 

What is dividend payment liability in Malaysia?

 
According to the Companies Act, dividend payments in Malaysia are to be made solely from the profits of that legal entity. Company directors who allow for dividend payments out of assets that are not considered profits can be found liable and this liability can be a double one, as highlighted below by our tax lawyers in Malaysia:
 
  • Legal liability: the company director who allows unlawful dividend payments is liable for an offense against the Companies Act;
  • Liability towards creditors: the director who allows for unlawful dividend payments is also subject to liability towards the company creditors, for the debts he owed them according to the excess of profits from which the payment was made, in the disadvantage of the creditors.
 
The penalty for these unlawful dividend distributions is imprisonment and/or fifty thousand ringgits. This liability shall not pass down to the executor or the administrator on the death of the company director.
 
Company directors must make sure that the company can pay its debts before allowing any distribution of dividends. This is called the solvency test and it is to be performed two times, prior to the actual dividend payment. The liability for the performance of the solvency test, or lack thereof, falls onto the director. He must decide if the company can pay the existing debts within one year after the distribution. Our team of attorneys in Malaysia can give investors full details about the duties and liabilities of company directors.

How are dividends taxed in Malaysia? 


From the beginning, foreign and local entrepreneurs with activities in Malaysia are exempt from the withholding tax on dividends, which is why many shareholders choose to invest such profits in the stock exchange and to gain more money. The dividends can be considered as a reward for the company’s shareholders for holding stocks in the corporation. The dividends in Malaysia can be distributed once, twice per year or quarterly, according to the rules of the company and considering the financial status.

The brand-new registered enterprises in Malaysia can postpone the dividend payment to the shareholder for the first two years, retaining the profits to a further development of the company. We remind that you can receive complete information from our tax lawyers in Malaysia about the corporate tax regime as well as the applicable laws and how to manage the requirements imposed by the tax authorities.

Companies do not need to deduct tax from the dividend paid to shareholders. Moreover, there is no tax credit offset against the recipient’s liability.

Labuan companies are subject to a beneficial tax regime, one that is generally perceived as very advantageous for offshore company creation. Dividends received from Labuan companies that carry out trading activities is not subject to tax. 

As far as exchange control is concerned, the repatriation of capital is subject to relaxed rules in Malaysia. dividends are included in those types of profits and income (along with interest, royalties, income from rents and commissions) for which repatriation is permitted without any hindering rules.
 

What are other taxes for companies in Malaysia?


In Malaysia, the companies are levied on incomes and the tax rate is settled at 25%. As for the technical fees, royalties and other earnings, we remind that the tax rate is 10%. There are many tax exemptions in Malaysia, which is why the country is quite attractive from this point of view to foreign investors, and here we remind the following:

•    the incomes paid from outside Malaysia;
•    the interests;
•    the incomes resulting from research findings;
•    the traveling allowances;
•    the pensions.

Our team of lawyers can provide you with complete details on the dividend regime for your type of company. We can also provide assistance to non-resident legal entities.

Additional information about the taxation system in Malaysia and about the legal services available for your company can be found if you contact our Malaysian law firm.