Should I Pay Myself a Salary or Dividend Share in Malaysia? 

Did you know that starting in 2025, Malaysia will impose a 2% tax on dividend income exceeding RM100,000? For business owners, this adds a new layer of complexity when deciding how to compensate themselves. This decision has gained even greater significance as outlined during the Budget 2025 by the Prime Minister Datuk Seri Anwar Ibrahim. 

The big question remains: should you pay yourself a salary or a dividend share? Each option has tax implications, impacts cash flow differently, and shapes your long-term financial security.

This guide explains the differences, benefits, and trade-offs between a salary and dividend share in Malaysia, so you can make an informed choice backed by the latest tax rules.

💡 TL;DR

If you’re a Malaysian business owner, you can pay yourself through either a salary or a dividend share. A salary offers steady income, EPF contributions, and tax deductions for your company, but it is subject to personal income tax.

A dividend share is tax-efficient (exempt from further tax at the personal level under Malaysia’s single-tier system), but it depends on profits and doesn’t provide employee benefits. The best approach often involves a mix of both, balancing steady income with tax efficiency. Always check the Income Tax Act 1967 and the latest updates from LHDN before making your decision.

What Is the Difference Between Salary and Dividend Share?

Before comparing, let’s clarify the two options.

• Salary:
  • Fixed, regular payment as an employee or director.
  • Subject to personal income tax and statutory deductions (EPF, SOCSO, EIS).
  • Considered a business expense, reducing the company’s taxable income under the Income Tax Act 1967.
• Dividend Share:
  • Paid from company profits to shareholders.
  • Not tax-deductible for the business.
  • Subject to corporate tax first, then personal tax for shareholders.
  • From 2025, dividend income exceeding RM100,000 attracts an additional 2% tax.

Benefits of Paying Yourself a Salary

A salary can be a smart choice if you value predictability and long-term financial planning.

1. Consistent Income

Salaries provide steady monthly income, which is essential for managing household budgets, loan repayments, or school fees.

2. Tax Deduction for Business

Salaries are treated as tax-deductible expenses, reducing your company’s taxable profits. For instance, if a business earns RM500,000 and pays RM100,000 in salary, only RM400,000 is subject to corporate tax.

3. Retirement Security

Mandatory contributions to EPF and SOCSO build retirement savings and provide a safety net in case of health or employment challenges.

4. Better for Loan Applications

Banks generally prefer stable, salaried income when evaluating mortgage or loan approvals.

Drawback: Salaries are taxed at Malaysia’s progressive personal income tax rates, which can be high for top earners.

Benefits of Paying Yourself a Dividend Share

A dividend share offers flexibility and potential tax savings, particularly for profitable businesses.

1. Tax Efficiency

Dividends often result in a lower effective tax rate compared to salaries, especially for those in higher income brackets.

2. Flexibility

Dividends can be declared only when the company performs well. This allows business owners to align payouts with the company’s financial performance and goals.

3. No Statutory Contributions

Unlike salaries, dividends do not require EPF or SOCSO deductions, lowering payroll costs.

4. Preserves Cash Flow

Dividends come from surplus profits, meaning you don’t strain company finances during lean months.

Drawback: Dividends rely entirely on profitability. No profits = no income. Plus, they don’t help build retirement funds like EPF.

A Note on Foreign-Sourced Income

Malaysia currently exempts foreign-sourced dividends received by resident companies and individuals from 2022 until 2026, as announced in the national budget. This means if you own shares abroad and bring those dividends into Malaysia, you won’t pay additional Malaysian tax during this exemption window. Always check the Inland Revenue Board of Malaysia (LHDN) or the Income Tax Act 1967 for the latest updates.

Salary vs Dividend Share: How to Decide

When choosing how to compensate yourself, consider these factors:

1. Personal Tax Bracket

If you fall into a high-income tax bracket, dividends may be more efficient—though the new 2% tax on dividend share income above RM100,000 must be factored in.

2. Business Profitability

• Stable profits → dividends can be more rewarding.
• Fluctuating profits → a salary ensures steady income.

3. Long-Term Goals

• Salary → better for retirement planning through EPF.
• Dividends → better if you prefer managing your own investments.

4. Compliance Requirements

Both options are regulated by Malaysia’s Income Tax Act 1967. For the latest updates, always refer to the LHDN website or annual Budget announcements.

Best Approach: A Hybrid Strategy

For many entrepreneurs, the most practical approach is to combine both salary and dividend share:

• Pay a modest salary to cover personal expenses, qualify for EPF, and reduce corporate tax.
• Supplement income with dividends during profitable years for tax efficiency and flexibility.

This balance provides financial security, tax savings, and business sustainability.

Conclusion 

So, should you pay yourself a salary or dividend share in Malaysia? The answer depends on your personal tax bracket, company profitability, and long-term goals.

• A salary provides stability, retirement savings, and tax deductions for your business.
• A dividend share offers flexibility, potential tax efficiency, and cash flow advantages.

In most cases, a hybrid approach works best. But since every business owner’s situation is unique, it’s wise to consult a qualified tax advisor like Grof.

👉 Need expert guidance? Contact Grof today for personalised advice on tax planning, accounting, and business strategy.