s 4(c) Dividend Income

Dividend represents distribution or payment out of profits or any undistributed profits of a company to its shareholders in accordance with the shareholding ratio.

With effect from 1.1.2014, Malaysia operates fully on dividend single tier system. All Malaysia derived dividend is now tax exempt.

Bonus shares are not dividend income

Bonus shares are not income in the hands of shareholder. The company's asset has not been reduced in any way. The wealth of the company remained the same before and after the issuance of bonus shares.

Bonus share was held not to be dividend income due to the following principles:

a. the issuance of bonus shares did not release any assets of the company to its shareholders

b. the shareholders' holding remained the same after the issuance of bonus shares

c. there was no 'dividend' out of the accumulated profuts, the profits were devoted to increase the capital of the company.

Deduction of tax from dividend

With effect from 1 jan 2008, company is effectively placed on single tier dividend system. Any dividend paid out under single tier dividend system will be tax-exempt in the hand of shareholders.

Deduction of expenses

When the shareholders are assessed on the dividend income, they can only deduct expenses that are'wholly and exclusively' incurred in the production of the dividend income (s 33). This includes interest expenses, management charges, if a loan is taken to finance the investment of shares.

Exempt dividend

The following dividends received by a person are exmpt from income tax:

a. dividends paid, credited or distributed to a member of a co-operative society

b. dividends paid out of the exempt income of unit trusts and property unit trusts

c. dividend paid out of the exempt income of venture capital companies

d. dividends paid out of an exempt income account arising from tax incentives enjoyed by a resident company under the Promotion of Investment Act 1986.

e. dividend paid out of an exempt income account arising from tax incentives enjoyed by a resident company under the Income Tax Act 1967

f. dividends paid out of tax exempt account arising from foreign income recived in Malaysia by a resident company or unit trust.

g. dividends paid out of exempt income account arising from chargeable income for which tax is waived for YA 2000

h. dividend from Labuan Offshore Company

i. dividend from company paying under single tier dividend system (YA 2008 onwards).