For decades Malaysia's headline pitch to investors included a simple line: there is no general capital gains tax and dividends are tax-free in the shareholder's hands. Both halves of that line have now changed. From 1 March 2024 Malaysia introduced a Capital Gains Tax (CGT) on gains from the disposal of unlisted shares by companies, and from the 2025 year of assessment it introduced a 2% dividend tax on individual shareholders receiving more than RM100,000 of dividends a year. Neither is huge in rate, but both change how a foreign-owned group should structure ownership, plan exits, and pay profits out to its owners. This guide explains exactly what CGT covers, the two rate options, who is caught and who is exempt, how the new 2% dividend tax works, the important exemptions on both, and what foreign-owned groups should do about them now.
Part 1 — Capital Gains Tax on unlisted shares
Malaysia's CGT is not a broad tax on every capital gain. It is a targeted charge, introduced by the Finance (No. 2) Act 2023 and effective from 1 March 2024, on gains from the disposal of capital assets — principally unlisted shares in Malaysian companies, plus shares in foreign companies that derive their value from Malaysian real property. Real estate itself continues to be taxed under the separate Real Property Gains Tax (RPGT); CGT fills the gap for share disposals that RPGT did not reach.
Who is caught — and who is not
This is the most misunderstood point. CGT applies to companies, limited liability partnerships (LLPs), trust bodies and co-operative societies when they dispose of qualifying capital assets. It does not generally apply to individuals disposing of shares — an individual selling shares in a private Malaysian company is, as a rule, outside CGT. The tax targets corporate-level and institutional transactions, which is precisely why how a foreign group holds its Malaysian subsidiary — through a company or through individuals — now has real tax consequences on exit.
The two rate options
The rate depends on when the shares were acquired:
| Shares acquired | CGT rate | Base |
|---|---|---|
| Before 1 January 2024 | 10% on net gain OR 2% on gross disposal price (disposer's choice) | Net gain = price − cost − incidental costs; or simply gross proceeds |
| On or after 1 January 2024 | 10% on net gain only | Net gain = price − acquisition cost − allowable incidental costs |
The 2%-of-gross option only exists for shares acquired before 1 January 2024, and it can be the cheaper choice where the gain is very large relative to the sale price (a low-cost, long-held stake). Where the gain is modest, 10% of the net gain is usually lower. The net gain is the disposal price minus the original acquisition cost and allowable incidental costs — legal fees, stamp duty, valuation fees and commissions directly connected to the acquisition or disposal.
A quick example makes the choice concrete. Suppose a foreign parent company sells its 100% stake in a Malaysian subsidiary — acquired in 2019 for RM500,000 — for RM3,000,000. The net gain is RM2,500,000, so 10% on net is RM250,000; but the 2%-of-gross option (available because the shares predate 2024) is just RM60,000 — dramatically lower, because the cost base is tiny relative to the price. Now take the opposite case: the same subsidiary bought in 2022 for RM2,700,000 and sold for RM3,000,000. The net gain is RM300,000, so 10% on net is RM30,000, while 2% of gross is RM60,000 — here the net-gain method wins. The rule of thumb: the 2%-gross option favours low-cost, long-held stakes with a big embedded gain; the 10%-net option favours disposals where the gain is thin relative to the price.
Filing and payment
CGT is self-assessed. The disposer must file a CGT return and pay the tax through LHDN's MyTax portal within 60 days of the disposal. This is a much shorter clock than the annual corporate-tax cycle, and missing it carries penalties — so a company selling or restructuring shares needs to compute and remit CGT promptly, not fold it into next year's tax return.
The key exemptions
Several important exemptions soften the CGT regime for genuine business and group activity:
- Foreign capital assets (foreign-sourced gains). Gains on the disposal of capital assets situated outside Malaysia, received in Malaysia, are exempt from 1 January 2024 to 31 December 2026, provided the qualifying person meets the economic-substance conditions in the guidelines. This is the exemption most relevant to holding structures repatriating offshore gains.
- Approved internal restructuring. Gains on transfers of shares within the same group in an approved reorganisation, reconstruction or amalgamation can be exempt, subject to conditions — important when you are re-plumbing a group.
- IPO-related disposals. Disposals of shares in connection with an approved initial public offering on Bursa Malaysia are exempt, subject to conditions.
- Unit trusts and certain other entities are outside the charge.
These exemptions are conditional and documentation-heavy. The foreign-capital-asset exemption in particular is tied to substance conditions and currently has a 2026 sunset — so groups relying on it should watch whether it is extended.
Part 2 — The 2% dividend tax
The second change lands on the way profits reach individual owners. Malaysia operates a single-tier dividend system: company profits are taxed at the corporate level and dividends are then paid out tax-free to shareholders. That remained true for most people — but from the 2025 year of assessment, a new 2% tax applies to an individual's dividend income that exceeds RM100,000 in a year.
| Feature | Detail |
|---|---|
| Effective from | Year of assessment 2025 |
| Rate | 2% |
| Threshold | First RM100,000 of annual dividend income is exempt; only the excess is taxed |
| Who it applies to | Individual shareholders — residents, non-residents, and those holding via nominees |
| Who it does NOT apply to | Corporate shareholders (companies receiving dividends are not subject to this tax) |
| How it is paid | Self-assessed and declared in the individual's personal income tax return |
So an individual who receives, say, RM250,000 of taxable Malaysian dividends in a year pays 2% only on the RM150,000 above the threshold — RM3,000 of tax. It is a modest charge aimed at high-income shareholders, not a broad dividend tax on ordinary investors. Crucially, it does not touch dividends flowing to a corporate shareholder — which is one reason a holding-company layer above the operating business can matter more than it used to.
What is exempt from the dividend tax
A wide list of dividend sources is carved out, so the 2% rarely applies as broadly as owners fear. Exempt dividends include:
- Foreign-sourced dividends (dividends from outside Malaysia).
- Dividends from companies with pioneer status or reinvestment allowance, and tax-exempt shipping income.
- Dividends from Labuan entities, co-operatives and closed-end funds.
- Distributions from EPF, ASNB unit trusts (e.g. ASB), Amanah Saham schemes and similar approved funds.
- Any dividends that already carry a specific statutory exemption for shareholders.
The practical effect is that the 2% dividend tax mainly targets large dividends paid by ordinary Malaysian companies to their individual owners. If your dividends come from exempt sources, or you hold through a corporate vehicle, the charge may not apply at all.
How the two changes fit together
For a China- or foreign-owned group, CGT and the dividend tax are two sides of the same question: how do profits and value ultimately reach the owners, and in what form?
- If the plan is to draw profits as dividends, the 2% tax is the relevant one — and only for individual shareholders above RM100,000 a year. A corporate holding layer, or dividends from exempt sources (including Labuan), keeps profits outside the charge.
- If the plan is to build and sell the business, CGT is the relevant one — and it bites on a company that disposes of the shares, not an individual. From 2026 it also bites on redemptions, capital reductions and winding up, so exits and reorganisations need CGT modelling up front.
- Both regimes reward substance and clean structuring. The foreign-capital-asset CGT exemption is conditional on substance; the intra-group restructuring exemptions are conditional on approvals; and the dividend-tax exemptions reward specific, well-documented sources.
What foreign-owned groups should do now
Neither tax is a reason to avoid Malaysia — the rates are low and the exemptions are wide. But both are reasons to get ownership structure and record-keeping right from the start:
- Fix your acquisition-cost records. CGT on net gain depends on a defensible acquisition cost and incidental costs. Keep share subscription documents, valuations and stamp certificates from day one — reconstructing them years later at exit is painful.
- Decide the ownership form deliberately. Individual vs corporate holding now changes both the dividend-tax and CGT outcomes. Choose it against your actual plan (hold vs sell), not by default.
- Watch the 2026 sunsets. The foreign-capital-asset CGT exemption currently runs to 31 December 2026; confirm the position before relying on it for a future gain.
- Diarise the 60-day CGT clock. Any share disposal, redemption or reduction can start a 60-day filing deadline — build it into every deal timeline.
- Coordinate CGT, dividend tax and RPGT. A single transaction can touch more than one regime; treat them together, not in silos.
Getting the tax on ownership and exit right
Malaysia's move to a targeted capital gains tax and a modest dividend tax has not dulled its appeal — the rates are among the lowest in the region and the exemptions are generous — but it has ended the era where ownership structure could be an afterthought. ONEKEY BIZ helps China and foreign-owned groups structure Malaysian ownership with both the income side and the exit side in view: choosing individual versus corporate holding, keeping the cost and substance records that CGT and the exemptions demand, modelling the dividend-tax cost of profit repatriation, and handling the CGT filing when shares are sold, redeemed or restructured.
Tax on ownership sits on top of how the entity itself is set up and run. See our guides on corporate tax and SST compliance, choosing the right business structure, and the Labuan 3% tax regime whose dividends sit outside the new 2% charge. When you want your Malaysian ownership structured for both income and exit, talk to ONEKEY or explore our tax advisory service. WhatsApp us at +60 12-321 1349.
Frequently asked questions
Does Malaysia have a capital gains tax?
Malaysia now has a targeted Capital Gains Tax (CGT), effective from 1 March 2024, on gains from the disposal of capital assets — mainly unlisted shares in Malaysian companies (and shares of foreign companies deriving value from Malaysian real property). It is not a broad tax on all gains, and real estate is still taxed under the separate Real Property Gains Tax (RPGT). CGT applies to companies, LLPs, trusts and co-operatives — not, as a rule, to individuals disposing of shares.
What is the capital gains tax rate on unlisted shares in Malaysia?
For shares acquired before 1 January 2024, the disposer can choose either 10% on the net gain or 2% on the gross disposal price. For shares acquired on or after 1 January 2024, the rate is 10% on the net gain only. Net gain is the disposal price minus the acquisition cost and allowable incidental costs (legal fees, stamp duty, valuation fees, commissions). CGT is self-assessed and must be filed and paid via LHDN's MyTax within 60 days of the disposal.
What is Malaysia's 2% dividend tax and who pays it?
From the 2025 year of assessment, a 2% tax applies to an individual shareholder's dividend income that exceeds RM100,000 in a year. The first RM100,000 is exempt and only the excess is taxed — so someone with RM250,000 of taxable dividends pays 2% on RM150,000, i.e. RM3,000. It applies to resident and non-resident individuals and those holding via nominees, but not to corporate shareholders. It is self-assessed in the personal tax return.
Which dividends are exempt from the 2% dividend tax?
A wide list is exempt: foreign-sourced dividends; dividends from companies with pioneer status or reinvestment allowance; tax-exempt shipping income; dividends from Labuan entities, co-operatives and closed-end funds; distributions from EPF, ASNB unit trusts (such as ASB) and Amanah Saham schemes; and any dividends already carrying a specific statutory exemption. In practice the 2% mainly targets large dividends paid by ordinary Malaysian companies to their individual owners.
How should a foreign group structure ownership given CGT and the dividend tax?
Because CGT catches corporate disposals (usually not individuals) while the 2% dividend tax catches individuals above RM100,000 (not corporate shareholders), the right structure depends on your plan: hold-and-earn-dividends versus build-and-sell. There is no single answer — but ownership form is now a live tax decision on both the income and exit sides. Keep clean acquisition-cost records for CGT, watch the foreign-capital-asset exemption's 2026 sunset, diarise the 60-day CGT filing clock, and avoid rushed restructurings, which can themselves be CGT disposals.
Sources & references
This article is general information only, not legal, tax or immigration advice. Policies, thresholds and official fees are set by the relevant Malaysian authorities and may change. Talk to our consultants about your specific situation.