Malaysia Investment Income Guide 2026

Dividends — Tax-Free Under Single-Tier System

Since 2008, Malaysia has operated a single-tier dividend system. Under this system:

• Malaysian-resident shareholders: Dividends received from Malaysian companies are fully tax-exempt
• Non-resident shareholders: Dividends are also exempt from Malaysian tax — no withholding tax applies
• Corporate shareholders: Dividends received are not subject to corporate tax (tax-exempt income)

Before 2008, Malaysia operated a full imputation system (dividends carried franking credits). The transition to single-tier was completed in 2014, after which all dividends from the single-tier tax-exempt income account are tax-free. Companies with a remaining Section 108 (imputation) balance as of 2008 may still pay franked dividends until the balance is exhausted, but most Malaysian companies now pay single-tier dividends entirely free of tax.

Dividend washing: Special share buy-back rules and dividend-stripping anti-avoidance rules exist, but for ordinary investors, dividends are simply tax-free — no reporting required in the annual tax return.

Interest Income — Withholding Tax Rules

Residents: Interest income earned by Malaysian residents from banks, financial institutions, loans, and bonds is generally subject to withholding tax only in specific cases. Most interest income for residents is subject to final withholding where applicable, or taxed as part of total income. In practice, interest from licensed banks and financial institutions paid to residents is not subject to withholding tax at source but is taxable as part of total income at progressive IIT rates (0–30%).

Non-residents: Interest paid to non-residents is subject to withholding tax at 15% (or lower treaty rate). This applies to:

• Interest on loans (Section 109)
• Interest on bonds, debentures, and sukuk
• Interest on deposits with financial institutions (if the non-resident is not carrying on business in Malaysia)
• Royalties (also 10% WHT for non-residents, or reduced treaty rate)

The payer must deduct WHT at source and remit to LHDN within 1 month of payment. Failure to do so results in the expense being disallowed for the payer. Tax treaties may reduce the 15% rate to 10% or lower depending on the jurisdiction.

Capital Gains on Investments

As covered in the Capital Gains Guide, Malaysia does not tax capital gains on the disposal of:

• Listed shares on Bursa Malaysia: Completely tax-free for all investors (except day traders deemed to be in a business)
• Unlisted shares: Generally tax-free unless the seller is in the business of trading
• Unit trusts and ETFs: Gains on disposal are tax-free for individuals
• REITs (M-REITs): Gains on disposal are tax-free
• Bonds and sukuk: Gains on disposal are capital in nature and not taxed

This creates a highly attractive investment environment where reinvestment of gains is not eroded by tax.

Real Estate Investment Income

Rental income from real estate is taxable as part of total income (or corporate income). Deductible expenses include:

• Quit rent and assessment
• Maintenance and repair costs
• Fire insurance premiums
• Mortgage interest (on the loan used to purchase the property)
• Management fees and agent commissions
• Depreciation on furniture (50% deduction for furnished lettings)

Rental income from real estate investment trusts (REITs) — distributions from M-REITs are generally treated as tax-exempt dividend income in the hands of individuals, as REITs distribute at least 90% of their income and are taxed at the entity level (with certain pass-through treatment for withholding tax).

Foreign Investment Income

For Malaysian residents, foreign investment income (dividends, interest, gains from foreign shares) received from abroad is generally not taxable in Malaysia if it is capital in nature. However:

• Foreign dividends: Since 2022, foreign-sourced income remitted to Malaysia by resident companies and individuals may be subject to tax, but the Government has announced various transitional exemptions.
• Foreign interest: Similar treatment as dividends — may be taxable depending on the timing and exemption status.
• Foreign capital gains: Gains from foreign assets are generally not taxable in Malaysia (except for certain deemed income rules).

Tax treaties with over 70 countries provide relief from double taxation through foreign tax credits and exemption methods. Non-residents investing in Malaysia enjoy treaty protection on dividends, interest, and royalties.

FAQs

Are dividends from Malaysian companies really tax-free?

Yes. Under the single-tier system, dividends paid by a Malaysian resident company from its single-tier income are tax-exempt in the hands of shareholders. No reporting is required.

Do I need to pay tax on bank interest?

Interest earned from licensed banks in Malaysia by residents is generally subject to final withholding tax or taxed as part of total income. Most individuals with modest interest income do not have additional tax beyond the withholding already deducted.

Is there withholding tax on dividends paid to foreign investors?

No. Malaysia does not impose withholding tax on dividends paid to non-residents under the single-tier system.

What is the WHT rate on interest for non-residents?

The standard rate is 15%, but this may be reduced under an applicable Double Taxation Agreement (DTA). For example, the DTA with Singapore reduces the rate to 10% on interest.

Disclaimer

This guide provides general information about Malaysian investment income taxation for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified tax advisor or LHDN directly for advice specific to your situation. InvestmentKit does not provide tax advice.