(Tax Update) New Tax Rules on Dividend for Individuals – What SME Bosses Must Know

Dear Clients of KTP,

The latest Federal Gazette dropped something important – and if you’re a shareholder receiving big dividends, this update from LHDN is not something you want to miss.

Effective from Year of Assessment 2025 onwards, a new rule kicks in under P.U. (A) 148/2025 — Income Tax (Determination of Chargeable Income of an Individual in Respect of Dividend) Rules 2025, and it's all about how dividend income is taxed for individuals.

Let us break it down — no tax jargon, just plain Malaysian-style explanation.

What's the Rule?

If you're:

✅ An individual (whether resident or non-resident)
✅ Earning dividends above RM100,000,
✅ And also have other income (e.g. director's fee, rental, business income),

Then your dividends are no longer tax-free or ignored like before.

LHDN now says these dividends are deemed from a Malaysian source and subject to personal income tax — but not in a straight line. It’s taxed based on a formula.

The Tax Formula (Simplified)

Don’t worry, no need to grab your calculator yet. The idea is simple:

They will proportion out your total chargeable income to estimate how much of your dividends are taxable.

✅ Formula = Dividend Income ÷ Total Income × Your Chargeable Income

So the more income you have from other sources, the more of your dividend gets taxed.

Joint Assessment?

If you opt for joint assessment with your spouse — LHDN will combine your spouse’s income too when applying the formula. Meaning, your dividend may be taxed even higher.

Final Word: The Tax Impact

This is a game changer especially for SME directors who used to receive high dividends under the radar.

✅ You could face a higher tax bill next year if your dividend exceeds RM100k.
✅ This also applies to non-residents receiving Malaysian dividends.

What You Should Do Now

✅ Review your 2025 dividend strategy with your accountant.

✅Restructure where necessary — maybe split income, adjust salary/dividend mix, or use

family trust structures (legally, of course).

✅Talk to us — we can help simulate the impact for your case..

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