Budget 2025: Tax Highlights

  • Budget 2025, themed “Madani Economy: Negara Makmur, Rakyat Sejahtera,” focuses on sustaining economic momentum with bold fiscal policies.
  • A 2% dividend tax applies to income exceeding RM100,000, effective YA 2025.
  • Foreign-sourced income tax exemption extended to December 2036 for Malaysian residents.
  • Accelerated capital allowances for e-Invoicing apply from YA 2024 to YA 2025.
  • Personal income tax relief expanded for healthcare, disability, and housing expenses, with new incentives for sustainability and flexible work arrangements.

The 2025 Budget was announced on 18 October 2024 by Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim. With the theme “Madani Economy: Negara Makmur, Rakyat Sejahtera,” it arrived at a time of growing optimism, thanks to the strengthening Ringgit and an improving economic outlook. The nation anticipated policies that would sustain this positive momentum and boost confidence in Malaysia’s long-term economic viability.

The Budget 2025 focuses on bold fiscal policies aimed at rebuilding investor confidence and positioning Malaysia on track to become a high-income nation with a fairer distribution of wealth. This includes broadening the tax base to support sustainable growth.

The Budget 2025 focuses on bold fiscal policies aimed at rebuilding investor confidence and positioning Malaysia on track to become a high-income nation with a fairer distribution of wealth. This includes broadening the tax base to support sustainable growth.

Significant tax initiatives include the following:

Significant Tax Initiatives

Significant tax initiatives of the 2025 Budget introduces a 2% dividend tax on annual dividend income exceeding RM100,000, extends foreign-sourced income tax exemption for Malaysian residents until 2036, and offers accelerated capital allowances for e-Invoicing implementation from YA 2024 to YA 2025.

Dividend Tax

Dividend Tax at the rate of 2% will be imposed on annual dividend income exceeding RM100,000 received by individual shareholders (resident individuals, non-residents and individuals who hold shares through nominees).

The chargeable dividend income will be computed based on dividends paid, credited or distributed from company profits and exclude dividend income from abroad, profit distributions made to contributors by the Employees Provident Fund (EPF) etc.

Effective from the year of assessment (YA) 2025.

Foreign-Sourced Income Tax Exemption

Income tax exemption on Foreign Sourced Income received in Malaysia by Malaysian resident individuals which are currently available until 31 December 2026 will be extended until 31 December 2036.

Tax Incentive For E-Invoicing

Tax incentive for implementation of e-Invoicing in the form of Accelerated Capital Allowances for the purchase of ICT equipment and computer software packages, including consultation, licensing and incidental fees related to customised computer software development, to be fully claimed within 2 years.

Effective from YA 2024 to YA 2025

Personal Income Tax

Health & Family

Tax relief for full medical check-up, mental health check-up or consultation and COVID-19 detection test limited to RM1,000 will be expanded. Effective from YA 2025.

Tax relief for assessment and diagnosis, early intervention programme and continuous rehabilitation treatment for children aged below 18 years etc. be increased from RM4,000 to RM6,000. Effective from YA 2025.

Expansion of tax relief for sports activities, health and elderly care to parents and grandparents.

Expansion of tax exemption on childcare allowance received by employees or paid directly by employers to childcare centres and further tax deductions on childcare allowance paid by employers to employees, to include elderly care (parents/grandparents). Effective from YA 2025.

Disability

Tax relief for disabled individuals, individual taxpayers with a disabled spouse, and individual taxpayers with unmarried disabled children will be increased up to RM8,000.

Effective from YA 2025.

Retirement

Tax relief of up to RM3,000 on contributions to Private Retirement Schemes and premiums paid for deferred annuities be extended for a period of 5 years from YA 2026 until YA 2030.

Insurance

Tax relief on premiums paid for education and medical insurance will be increased from RM3,000 to RM4,000 from YA 2025.

Education

Tax relief on net savings in the national education savings scheme of up to RM8,000 on net annual savings in SSPN be extended for 3 years from YA 2025 until YA 2027.

Tax relief for nursery or kindergarten fees will be extended from YA 2025 until YA 2027.

Housing

Tax relief on housing loan interest payments for first residential home loan (individually or jointly owned) up to RM7,000 for the sales and purchase agreement of the first residential home executed from 1 January 2025 until 31 December 2027.

Environment and Sustainability

Tax relief on ‘greening’ expenses will be expanded to include the purchase of domestic food waste composting machines for household use, with the relief limit remaining at RM2,500 to be claimed once within 3 YAs. Effective from YA 2025 until YA 2027.

Corporate Tax Incentives

Tax incentive for smart logistics complex (SLC) be given Investment Tax Allowance (ITA) of 60% on qualifying capital expenditure incurred for a period of 5 years and available for set-off against up to 70% of statutory income for each YA. For application received by the Malaysian Investment Development Authority (MIDA) from 1 January 2025 until 31 December 2027.

Tax deduction on cost of developing new courses by Private Higher Education Institutions (PHEIs) be allowed to be fully claimed within the same year of assessment. This incentive is also extended to include the development of Technical and Vocational Education and Training (TVET) courses by private skills training institutions. Effective from YA 2025 until YA 2030.

Employers implementing flexible work arrangements (FWA) on expenses for capacity building and software acquisition will be given a 50% further deduction capped at RM500,000. For application received by Talent Corporation Malaysia Berhad from 1 January 2025 until 31 December 2027.

Employers providing caregiving leave benefits (additional paid leave of up to 12 months for employees caring for children or ill or disabled family members) be given a 50% further deduction. For application received by Talent Corporation Malaysia Berhad from 1 January 2025 until 31 December 2027.

Employment expenses for hiring women returning to work (paid for a period of 12 months) will be given a 50% further deduction. For application received by Talent Corporation Malaysia Berhad from 1 January 2025 until 31 December 2027.

Extension/Expansion of Current Corporate Income Tax Incentives

Extension of tax deduction for sponsorship of smart artificial intelligence driven reverse vending machines for a period of 2 years from 1 January 2025 until 31 December 2026.

Tax incentive for increased exports will be expanded to include IC Design services from YA 2025.

Stamp Duty

Fixed stamp duty of RM10 to be imposed on loan or financing agreements for the purchase of goods based on Shariah principles, other than hire purchase. For loan or financing agreements based on Shariah principles executed from 1 January 2025.

Full exemption of stamp duty on loan or financing agreements executed by Micro, Small and Medium Enterprises (MSMEs) and investors through the Initial Exchange Offering (IEO) platforms registered with the Securities Commission Malaysia for 2 years. For loan or financing agreements executed from 1 January 2025 until 31 December 2026.

Indirect Tax

Sales tax exemption on mastectomy bras. For applications received by the Ministry of Finance from 1 November 2024 until 31 December 2027.

Sales tax to be increased on non-essential items such as imported premium goods. Effective from 1 May 2025.

Service tax to be expanded to include new services such as commercial service transactions between businesses (B2B), with effect from 1 May 2025.

At G&A, we are dedicated to helping our clients navigate the changes from Budget 2025, providing strategic guidance to make the most of the opportunities and address any challenges.
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