Crowe Chat Vol.4/2025

Introduction

Malaysia has introduced a new dividend tax effective from the year of assessment 2025. Part XXII of Schedule 1 of the Malaysian Income Tax Act 1967 (MITA) provides that individuals – whether tax residents or non-residents – who receive annual dividend income from Malaysian sources exceeding RM100,000 will be subject to a 2% dividend tax.

Where an individual derives both dividend income and income from other sources, Paragraph 2 of Part XXII states that the individual’s “chargeable income” shall be “as prescribed by the Minister”.

New Income Tax Rules

The Minister has now prescribed the relevant rules in the Income Tax (Determination of Chargeable Income of an Individual in respect of Dividend) Rules 2025, which was gazetted on 7 May 2025.

Details of the Income Tax Rules

• The Rules take effect from the year of assessment (YA) 2025.
• Under these Rules, where dividend income exceeds RM100,000 and the taxpayer also has another source of income, the portion of the chargeable income attributable to dividends is determined using the statutory formula below:
  
  

  𝐴/𝐵  𝑋 𝐶

  
  Where:
  A is the statutory income in respect of dividend in the basis period for that YA;
  B is the aggregate income in the basis period for that YA; and
  C is the chargeable income in the basis period for that YA which is subject to tax as specified in Paragraph 1 of Part I and Part XXII of Schedule 1 to the MITA.

Dividend and Other Sources of Income

• Example of the computation of chargeable income for dividend tax purposes:
  
  
  
  

Introduction

A shipping or sea transport undertaking is granted special tax treatment under Sections 54 and 54A of the MITA, along with the relevant subsidiary legislation. Effective from YA 2012, Section 54A(1) of the MITA provides that a Malaysian tax resident is given a tax exemption up to 70% of its statutory income for carrying on the following businesses:

• transporting passengers or cargo by sea on a Malaysian ship; or 
• letting out on charter a Malaysian ship owned by him on a voyage or time charter basis. 

However, the implementation of Section 54A of the MITA has been deferred through the gazette of the following subsidiary legislation, which provides a 100% income tax exemption on shipping profits for the YAs 2012 to 2026:

1. Income Tax (Exemption) (No. 2) Order 2012 [P.U.(A) 167/2012] is for the YAs 2012 and 2013,
2. Income Tax (Exemption) Order 2018 [P.U.(A) 38/2018] is for the YAs 2014 to 2015,
3. Income Tax (Exemption) (No.2) Order 2018 [P.U.(A) 48/2018] is for the YAs 2016 to 2020,
4. Income Tax (Exemption) (No.7) Order 2022 [P.U.(A) 312/2022] is for the YAs 2021 to 2023, and
5. Income Tax (Exemption for Malaysian ships) Order 2024 [P.U.(A) 184/2024] is for the YAs 2024 to 2026

Replacement of PR10/2012

The PR 10/2012 – Tax Treatment of Malaysian Ship on the tax treatment of a Malaysian ship, issued on 13 December 2012, which outlined the applicable tax treatment and income exemption applicable prior to the YA 2014, is now considered obsolete and due for revision. 

On 15 May 2025, the IRBM issued PR 1/2025 - Tax Treatment of Malaysian Ship to replace PR10/2012.

Notable Changes

• PR 1/2025 covers the tax treatment until YA 2026, in line with the extension of the exemption period to YA 2026.
• Paragraph 10 has been added to address compliance with the conditions for exemption. An annual verification of these conditions must be obtained from the Ministry of Transport for each Malaysian ship. The conditions include incurring a minimum annual operation expenditure of RM250,000, and employing full-time employees, including the following:
  1. at least four (4) shore employees and the majority of the employees shall be Malaysian citizens, namely:
     • (i) a chief executive officer;
     • (ii) an administrative and finance officer;
     • (iii) an operating officer; and
     • (iv) an officer having charge of the health, protection, safety and environmental affairs; and
  2. the employees who are ship personnel under Part III of the Merchant Shipping Ordinance 1952 [Ord. 70/1952], shall be subject to the minimum requirement as specified in the Safe-Manning Certificate issued by the Marine Department of Malaysia.