Repatriating Profits and Dividends from Malaysia

Foreign founders arrive expecting a dividend withholding tax, because almost every comparable jurisdiction has one. Malaysia does not, and the confusion costs real money — in structures built to avoid a tax that was abolished, and in pricing that assumes a leakage that never happens.

There is no dividend withholding tax

Malaysia moved to a single-tier system: tax paid by the company on its chargeable income is final, and the profits are then distributable without further tax.

The operative provision is paragraph 12B of Schedule 6 to the Income Tax Act 1967, which exempts any dividend paid, credited or distributed to any person other than an individual where the company paying it is not entitled to deduct tax under the Act.

So a Malaysian subsidiary paying a dividend to its Singapore, Hong Kong or Delaware parent deducts nothing and remits nothing to LHDN. There is no form, no clearance and no treaty claim required — the exemption operates in the shareholder’s hands, domestically and unconditionally.

The exception: individual shareholders from YA2025

The words “other than an individual” were inserted by s.17 of the Finance Act 2024, and they carve individuals out of the general exemption. In their place:

• Schedule 6 paragraph 12B(2) exempts a dividend to an individual amounting to RM100,000 or less; and
• Schedule 1 Part XXII, inserted by s.16 of the same Act, charges income tax at 2% on every ringgit above RM100,000 of an individual’s dividend income that is deemed under s.14 to be derived from Malaysia.

Both have effect from the year of assessment 2025, under s.3(1) of Act 862.

Read the scope carefully, because it is commonly mis-stated as a tax on resident individuals. Part XXII charges “the income of an individual”, with no residence qualifier, and the charging provision s.6(1)(x) — which imposes the rate in Part XXII of Schedule 1 — reaches “an individual, who is a shareholder of a company, either through direct shareholding or a nominee”. The gate is that the dividend is Malaysian-sourced, not that the shareholder lives here. A non-resident individual holding shares in a Sdn Bhd is within the terms of the charge.

The practical planning point follows directly: a foreign corporate shareholder is outside this charge entirely. Where the ultimate owners are individuals, holding through a company rather than personally is the difference between paragraph 12B(1) and Part XXII.

What is not tax-free

The zero rate attaches to dividends, not to every payment to a parent. Sums routed out as interest on a shareholder loan attract withholding under s.109 at 15%, royalty at 10%, and fees for the special classes of income under s.109B at 10%. Recharacterising a distribution as a management fee to move it out of Malaysia converts an untaxed dividend into a taxed payment — and one whose deductibility is at risk under the s.39(1) disallowance limbs if the withholding is not paid over.

The FEP condition people miss

Bank Negara imposes no ceiling on repatriation and requires no approval. Part E of Notice 4 of the Foreign Exchange Policy Notices allows a non-resident to repatriate funds from Malaysia, including income earned and proceeds from divestment of a Ringgit Asset, on two conditions: the repatriation is made in foreign currency, and the conversion of ringgit into foreign currency is undertaken in accordance with Part B of Notice 1.

That first condition is the operative one. The Notices contemplate money leaving Malaysia in foreign currency; a request to transfer ringgit offshore is not what Part E approves.

One useful provision sits in Notice 7. Appendix B allows a resident exporter to receive less than the full value of its export proceeds where it enters an offsetting arrangement with a non-resident covering, among other things, its own dividend payment. Netting a dividend against receivables from the same overseas counterparty is expressly contemplated.

Common mistakes

Budgeting for a 5% or 10% dividend withholding tax. There is none, at any rate, for any shareholder.

Assuming the 2% only hits Malaysians. Part XXII is drafted around the individual and the Malaysian source of the dividend, not the individual’s residence.

Treating the RM100,000 as an exemption on the whole amount. It is a threshold: the 2% applies to the excess above RM100,000, not to the first ringgit once you cross it.

Chasing a treaty rate. Domestic law already gives zero to corporate shareholders. There is nothing for a treaty to reduce.

What’s next

Confirm whether your ultimate shareholders hold personally or through a company, because from YA2025 that determines whether Part XXII applies at all. Then check the company has distributable profits and that the directors can properly authorise the distribution under the solvency requirements in the Companies Act 2016 — the tax position is the easy half. Finally, agree the settlement currency with your bank before declaring.