New 2% Dividend Tax for YA 2025

The Danger Zone: Why You Can't Ignore the New 2% Dividend Tax for YA 2025

For years, Malaysian taxpayers have enjoyed a straightforward rule: under the single-tier system, dividends received from Malaysian companies are tax-free. Because of this, many business owners and investors have developed a habit of simply copying last year's tax figures when filing their Form B. Starting in Year of Assessment (YA) 2025, that habit enters a dangerous new territory.

The Inland Revenue Board (LHDN) has introduced a new 2% Dividend Tax effective YA 2025. Because this is the first year taxpayers have to deal with it, it represents a massive "danger zone" for compliance. Failing to declare this income correctly can lead to severe penalties under Section 112(3) or Section 113(1) of the Income Tax Act 1967 for submitting incorrect returns.

What Changed with Dividend Tax in Malaysia?

To broaden the tax base, the government now imposes a 2% tax on dividend income distributed by a company to individual taxpayers that exceeds RM100,000 per annum. This applies whether the dividend is received in cash or in-specie.

The key facts you must know:

• The tax applies to dividends received from both listed and unlisted shares in Malaysia.
• It affects resident individuals, non-resident individuals, and individuals holding shares through nominees.
• Only the portion of dividend income exceeding the RM100,000 threshold is subject to the 2% tax.

How the Tax is Computed (It's Not Simple)

You cannot just lump your dividend income together with your business or employment income anymore. Under the new rules gazetted on 7 May 2025, dividend tax requires a separate computation.

The portion of your chargeable income attributable to dividends is determined using a specific statutory formula (A/B x C) under Part XXII of Schedule 1. This means your Form B now has a split structure to handle this dual tax computation:

• Part BA (Item B8): You must report your statutory dividend income here, separate from other income sources.
• Part BB (Item B26): The chargeable income subject to the dividend tax is calculated here using the formula.
• Part BB (Item B27): The 2% tax is applied to the calculated dividend amount.
• Part BB (Item B28): Your remaining chargeable income is taxed at normal scale rates.

Getting the mapping wrong between these sections will misstate your tax liability and could trigger an LHDN audit.

The Good News: Exemptions Apply

Not all dividends are caught in this new tax net. The following dividend sources remain exempt and are out-of-scope for the 2% tax:

• Profit distributions from the Employees Provident Fund (EPF / KWSP)
• Distributions from Amanah Saham Nasional Bumiputra (ASNB)
• Distributions from Lembaga Tabung Angkatan Tentera (LTAT) or any unit trusts
• Overseas (foreign source) dividend income
• Dividends from companies enjoying pioneer status or reinvestment allowances
• Dividends distributed by co-operatives

Who Needs to Be Careful?

The taxpayers most at risk of falling into this danger zone are:

Business owners and directors: Those who regularly extract profits from their private companies (Sdn Bhd) via dividends instead of salaries.

High-net-worth investors: Individuals holding significant portfolios of listed shares on Bursa Malaysia.

Joint assessment filers: Spouses filing together must now separately disclose the dividend-earning spouse's statutory dividend income.

Need Help Navigating YA 2025?

Do not assume your dividends are still tax-free. The first year of a new tax law is when the most costly mistakes happen. Let our team review your dividend income position and handle the complex new Form B computations for you.

Contact KS Chia & Associates (AF001828) for professional tax advisory and compliance services. WhatsApp us at 011 2366 5233.

Form C YA 2026: Key Changes

Form C YA 2026: Key Changes and Updates Explained

LHDNM just released the new Form C for YA 2026. If you run a company in Malaysia, you need to understand how these reporting changes affect your annual tax filing. Our team compared the YA 2025 and YA 2026 forms to highlight the most important updates.

 

New Disclosures for Labuan and Venture Capital Entities

The YA 2026 form introduces three new disclosure items in the basic particulars section. Companies must now declare if they are a Labuan company (Item 19), a Venture Capital Company (Item 20), or a Venture Capital Management Company (Item 21). These items did not exist in the YA 2025 form.

LHDNM also added specific lines in the chargeable income section — A21 for Venture Capital Fund Entity income and A22 for Venture Capital Management income. The tax payable section now includes dedicated rate lines: 5% for VC Fund Entities and 10% for VC Management Companies.

Beneficial Owner Section Removed

One major change is the complete removal of the "Beneficial Owner" section from Part G. This removal addresses significant practical challenges raised by industry bodies like CTIM. Previously, tax practitioners struggled to acquire BO information because company secretaries were often restricted from releasing this confidential data without explicit director consent. There was also a timing mismatch between CCM anniversary filings and tax financial year-ends. LHDNM has acknowledged these challenges, and this duplicative reporting requirement is now gone in YA 2026.

Expanded Top-up Tax Reporting

For multinational companies, the reporting for Domestic Top-up Tax (DTT) and Multinational Top-up Tax (MTT) has been expanded. Instead of a simple Yes/No, companies must now specify if they are subject to DTT only, MTT only, both, or neither. The Ultimate Parent Entity's name and jurisdiction are now captured in separate fields.

Declaration Wording Updated

The declaration section now includes "to the best of this company's knowledge" — a new qualifier that was not present in YA 2025. Directors signing the declaration should take note of this change.

Direct Communication with Taxpayers

A very notable addition is the new standalone fields for the company's telephone number (G3) and email address (G4) in Part G. This indicates that LHDNM intends to communicate directly with the taxpayer company, rather than relying solely on correspondence through the appointed tax agent. Companies should ensure the contact details provided here are actively monitored.

Other Changes

The transfer pricing section replaces generic "Others" options with more specific descriptions like "Manufacturer other than the above." The CbCR reporting entity attachment now includes a TIN field for the ultimate holding entity.

Need Help?

Contact KS Chia & Associates (AF001828) for professional advice on your corporate tax filing under the new Form C YA 2026 requirements. WhatsApp us at 011 2366 5233.

Which Form Should I File — Form B or Form BE? Get It Wrong, You May Receive CP500 Next Year

 

Filing season for Year of Assessment (YA ) 2025 is here, and choosing between Form B and Form BE is causing real confusion. If you pick the wrong form or classify your income incorrectly, LHDN might issue an unexpected CP500 instalment notice. Many pure salary earners received these notices recently — and it caught them off guard.

LHDN has clarified that CP500 notices are meant for individuals with non-employment income. If you only earn a salary, you do not need to pay CP500 instalments. The government also announced a penalty-free concession throughout 2026 for CP500 errors. But to avoid future headaches, you must get your YA 2025 filing right.

Form B vs Form BE: What Is the Difference?

Your choice of tax form depends entirely on your income type.

Form BE is for resident individuals who only have employment income. This covers your monthly salary, bonuses, and allowances where PCB (Monthly Tax Deduction) is already deducted by your employer. Passive rental income under Section 4(d) can also be reported on Form BE. The statutory deadline is 30 April 2026, with an additional 15-day grace period until 15 May 2026 for e-filing.

Form B is for resident individuals who carry on a business. You need Form B if you are a sole proprietor, partner, freelancer, online seller, or commission agent. Rental income is treated as business income under Section 4(a) only if the property is actively managed with comprehensive support services such as cleaning, security, and maintenance. If your rental is just passive income, it falls under Section 4(d) and can go on Form BE. The statutory deadline for Form B is 30 June 2026, with an additional 15-day grace period until 15 July 2026 for e-filing. Manual filing for Form B is no longer allowed from YA 2024 onwards.

Both forms share the same YA 2025 changes, such as the new 2% dividend tax on dividend income exceeding RM100,000 and updated tax reliefs. You choose the form based on how you earn your money, not the reliefs you claim.

	Form BE	Form B
Who	Salary earners only	Business owners, freelancers, sole proprietors
Income type	Employment income, passive rental S.4(d)	Business income, actively managed rental S.4(a)
PCB	Already deducted by employer	No PCB on business income
Statutory deadline	30 April 2026	30 June 2026
E-filing grace period	15 May 2026	15 July 2026
Manual filing	Available	Not allowed (from YA 2024)

Why Did Pure Salary Earners Get CP500 Notices?

LHDN issues CP500 notices based on your previous year's tax return. The system targets people with non-employment income where no PCB is deducted. So why did employees get them?

On 31 December 2025, LHDN issued a statement confirming that many employees received CP500 because their previous Form BE contained errors. The common mistake: keying bonuses or allowances under "other income" instead of employment income. Some taxpayers also declared one-off side income in the wrong category, causing the LHDN system to treat it as recurring business income.

When the system sees "other income," it assumes you have non-employment earnings and automatically generates a CP500 instalment schedule for the following year.

What to Do If You Received CP500 by Mistake

If you truly have employment income only, LHDN has confirmed you do not need to comply with the CP500 instructions. There is a penalty-free concession throughout 2026, so you will not face fines for missing these payments.

But you must correct your record. Submit Form CP502 (Application for Amendment of Instalment Payments) together with your EA form and a brief explanation to the CP500 Help Desk at mejabantuanCP500@hasil.gov.my. You can also submit via the LHDN portal.

The CP502 amendment deadlines are 30 June 2026 for the first revision and 31 October 2026 for the second revision.

If you actually do have non-employment income — like actively managed rental under Section 4(a) or freelance earnings — CP500 is a valid prepayment mechanism. While penalties are waived for 2026, unpaid instalments can attract penalties after the concession period ends. LHDN encourages voluntary payments to reduce your final tax bill when you file your return.

Practical Steps to Avoid CP500 Surprises

Here is how you can prevent this issue when filing your YA 2025 taxes.

1. Confirm whether you have business income. Ask yourself: do you run any side business, even a small one — online sales, freelance work, consultancy, commissions, or content creation? Is your rental income actively managed as a business under Section 4(a) with support services like cleaning, security, and maintenance? If your rental is just passive income under Section 4(d), it can go on Form BE. When in doubt, seek professional advice.

2. Follow LHDN working sheets for employment income. For Form BE, LHDN provides the HK-2 working sheet for employment income. It covers salary, wages, leave pay, overtime, fees, commissions, bonuses, perquisites, awards, and allowances. Complete HK-2 first and transfer the total to the employment income line in Form BE. This reduces the risk of accidentally entering bonuses or allowances under the wrong item such as "other gains or profits."

3. Use the correct lines for dividends, interest, and other investment income. These items have their own dedicated lines in Form BE and Form B. Do not lump them together with employment income or put employment-type items into these boxes.

4. Keep proper documentation for seven years. The Malaysian tax system relies on self-assessment. You do not submit all supporting documents with your return, but you must keep them for at least seven years. This includes EA forms, business accounts and records (if any), dividend vouchers, rental agreements, and receipts for reliefs and rebates. Good documentation protects you if LHDN raises a query or audit later.

Key Deadlines for YA 2025

Form	Statutory Deadline	E-Filing Grace Period
Form BE	30 April 2026	15 May 2026
Form B	30 June 2026	15 July 2026
CP502 (1st revision)	30 June 2026	—
CP502 (2nd revision)	31 October 2026	—

Need Help?

Contact KS Chia & Associates (AF001828) for professional advice on tax filing and compliance.

WhatsApp us at 011 2366 5233.