Foreign Dividends Can Be Tax Exempt From 2027, But Not For Everyone

Dividends received from overseas and brought into Malaysia will be exempt from income tax from 2027, but only if certain conditions are met.

The exemption is set out in P.U. (A) 367, gazetted on 22 October 2026. It runs for four years, from 1 January 2027 to 31 December 2030.

To qualify, the dividend must pass one of two tests. Under the first test, the dividend must already have been taxed in the country it came from, and that country's highest tax rate must be at least 15%. If this test is not met, the recipient can still qualify under the second test by having enough employees and enough operating spending in Malaysia. Both are needed.

The exemption is open to Malaysian residents in the form of companies, limited liability partnerships, co-operative societies, trust bodies, and Labuan companies that have chosen to be taxed under the Income Tax Act. Individuals qualify only for dividends linked to a partnership business in Malaysia. Banks, insurers, and sea and air transport businesses are left out.

Two other points stand out. Expenses related to the exempt dividend cannot be deducted against other income. The exemption also does not remove the duty to file tax returns and accounts with LHDN.

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