Dividend Income received

By Tan Thai Soon

Section 4(c)
Dividend income received is chargeable under the Income Tax Act.

Comment:-
1) Under Imputation System
1.1. Dividend received under imputation system, tax paid by companies are not final tax.Tax paid by companies are passed on to shareholders as tax credit (S110).

1.2. Where shareholders received dividends have been tax deducted as source (e.g.25%) and received a net dividend (e.g. 75%)

1.3.Tax payer is require to declare gross dividend income (100%) in the income tax return. If the Tax payer is in the lower tax bracket (e.g.19%), then the tax payer is entitle for a refund of 6%. On the other hand, if the tax payer is in the tax bracket of 27%, the tax payer is require to pay 2% additional tax on the gross dividend received.

2) Under Single Tier System
2.1. Dividend received under Single Tier System.

2.2. Tax paid (e.g.25%) by companies is final tax. The dividend income (100%) received by shareholders are tax exemption.

2.3. Tax payer is not required to declare the dividend income in the tax return.

Dividend received from foreign source

By Tan Thai Soon

Section 127 (1) - Exemptions from tax
Any income specified in Part 1 of Schedule 6 shall be exempt from tax

Part 1 Schedule 6, para 28 (1)
Income of any person, other than a resident company carrying on the business of banking, insurance or sea or air transport, for the basis year of assessment derived from sources outside Malaysia and received in Malaysia.

Comment:
1. Section 2(1)
Provides that "person" includes a company, a body of persons and a corporation sole.
In other words, its cover individual, company or holding company incorporated in Malaysia, & business enterprise.

2. This section has specifically excludes a resident company carrying on the business of banking, insurance or sea or air transport. In other words, except from the above four type of business, all other types of business can enjoy the tax exemption from dividend received from foreign source.

3. The tax exemption is based on the principle that the income is not derived in Malaysia.

4. The rationale for the exemption is to encourage Malaysian individuals or companies to remit back their income from oversea investment.