Under the 2026 Federal Budget, the Malaysian government has introduced a new dividend tax framework aimed at broadening the tax base while maintaining fairness within the investment landscape.

Key features of the new dividend tax include:

• Individuals whose total annual dividend income exceeds RM100,000 will be subject to a 2% tax on the excess amount only.

• The tax is imposed at the individual level, not at the company or fund level, and must be declared through the individual’s annual income tax return.

Importantly, the scope of the tax goes beyond traditional corporate dividends.

From the Year of Assessment 2026, the measure will also cover:

• Profit distributions received by individual partners of Limited Liability Partnerships (LLPs).

• These distributions will be subject to the same 2% tax once total annual income exceeds RM100,000.

• This marks a significant policy shift, as LLP profit distributions were previously not taxed at the individual level.

From an investment vehicle perspective, funds and asset managers are not directly taxed under this framework.

This includes:

• Unit trusts

• Exchange-Traded Funds (ETFs)

• Institutional fund managers such as Public Mutual and BlackRock

However, the tax burden ultimately rests with the individual investor. If an individual’s combined dividend income from all sources exceeds RM100,000, the excess portion will still be taxable, regardless of the investment vehicle.

Overall, the impact on small retail investors is expected to be minimal. The new rules are expected to be more relevant for high-dividend earners, income-focused investors, and individual LLP partners.

Tax professionals advise affected individuals to review their income structures early and closely monitor further guidance issued by the Inland Revenue Board of Malaysia (LHDN) to ensure proper compliance ahead of the 2026 assessment year.