The directors declare it, by board resolution, and only out of available profits while the company is solvent: able to pay its debts as they fall due for the twelve months after the payment. Since the 2025 year of assessment the company must also give each individual shareholder a dividend certificate, and individuals pay 2% on Malaysian dividends above RM100,000 a year.
Key takeaways
- Section 132(1) of the Companies Act 2016 puts the decision with the board: every distribution “shall be authorized by the directors of the company”.
- The solvency test for a dividend looks twelve months ahead at cash flow. The longer test in section 112, with its assets-over-liabilities limb, is written for share redemptions, capital reductions and financial assistance.
- From YA2025 the Income Tax Act requires a certificate for every dividend paid to an individual shareholder, and the company's Form C reports how many individuals received more than RM100,000.
- Paying an unlawful dividend is an offence carrying up to five years' imprisonment, a fine of up to RM3 million, or both.
On this page9
What does the Companies Act 2016 require before a Sdn Bhd pays a dividend?
Two things, both in section 131(1): the money must come out of profits available for distribution, and the company must be solvent. Section 132 then says who decides. The directors authorise the dividend, at a time and in an amount they choose, once they are satisfied the company will still be solvent immediately after paying it.
The rule exists for creditors. SSM's training academy puts it plainly in its 2026 course brief on dividends:
“The payment of a dividend to shareholders will however leave the company with fewer assets with which to meet its liabilities to its creditors.”
— SSM Training Academy, Dividends – When and How to Pay (2026)
The same brief adds: “Even if the solvency is met, there are other legal considerations which the company has to adhere to.” For most Sdn Bhds those are the profits condition and the constitution.
Which solvency test applies to a dividend?
The one in section 132(3), a cash-flow test: the company “is regarded as solvent if the company is able to pay its debts as and when the debts become due within twelve months immediately after the distribution is made.” The directors judge it themselves when they authorise the dividend.
Some published guides describe a two-limb test, one limb a balance sheet, and a solvency statement in a prescribed form before any dividend. That test exists, but in section 112(1), which applies “For the purposes of provisions relating to redemption of preference shares, reduction of share capital and financial assistance”. Its extra limb, that “the asset of the company is more than the liability of the company at the date of the transaction”, is not part of section 132.
The directors should still work from the latest accounts, because the profits condition in section 131 must be met as well.
How do the directors declare a dividend, step by step?
Check what your constitution says, confirm there are available profits, look twelve months ahead at the company's debts, then pass a board resolution fixing the amount and payment date. Record it in the minute book, check again before the money moves, and issue a dividend certificate to each individual shareholder when you pay.
- Read the constitution. By default an ordinary share carries “the right to an equal share in dividends authorized by the Board.” Section 71(2) lets the constitution or the terms of issue change that right.
- Confirm profits are available in the latest accounts, as section 131(1) requires.
- Assess solvency over the next twelve months: the debts falling due, and the cash to meet them once the dividend has gone out.
- Pass the board resolution, stating the amount per share and the payment date. Under the Third Schedule, a written resolution signed or assented to by all the directors is as valid as one passed at a Board meeting.
- Enter it in the minute book. “A copy of any such resolution shall be entered in the minute book of Board proceedings.”
- Check again before paying. If the directors “cease to be satisfied on reasonable grounds that the company will be solvent immediately after the distribution is made, the directors shall take all necessary steps to prevent the distribution from being made” (section 132(4)).
- Pay, and issue the certificates. Payment is usually cash; SSM notes it can also be a set-off against money the shareholder owes, or a transfer of assets.
What paperwork does a dividend leave behind?
Four records: the directors' resolution in the minute book, a dividend certificate or voucher for each individual shareholder, new items on the company's Form C, and a line in the directors' report that goes out with the year's financial statements. The certificate and the Form C items are the 2025 additions.
| Record | Who it is for | The rule |
|---|---|---|
| Directors' resolution, entered in the minute book | The company's own statutory records | Companies Act 2016, s.132(1); Third Schedule paras 15 and 17 |
| Dividend certificate (voucher): gross amount, and amount paid or market value | Each individual shareholder, direct or through a nominee | Income Tax Act 1967, s.108(2), from YA2025 |
| Form C items G7a to G7c | LHDN, in the company's own tax return | From YA2025 |
| Directors' report: dividends recommended, paid or declared | Members, with the circulated financial statements | Companies Act 2016, Fifth Schedule |
The certificate comes from the Finance Act 2024, which added section 108(2) to the Income Tax Act: the company must “furnish the shareholders with a certificate setting forth in respect of the dividend” its gross amount and the amount paid. LHDN published a format and sample voucher on 24 June 2025, Bernama reported, and Kaizen CPA notes it applies to payments made on or after 1 January 2025. For a dividend paid in assets, “the market value of those assets at the time of distribution must be stated on the dividend voucher”.
On Form C, Kaizen CPA lists three new items: whether the company paid dividends to individual shareholders (G7a), whether it issued vouchers (G7b), and “The number of individual shareholders who received dividends exceeding RM100,000.” (G7c). It advises keeping the vouchers for at least seven years. The dividend appears again in the directors' report when you circulate the financial statements to members.
How does the 2% dividend tax work from 2025?
An individual shareholder pays 2% on Malaysian dividend income above RM100,000 in a year of assessment, starting with YA2025. The first RM100,000 is deducted from dividend statutory income. The tax falls on the individual shareholder, not on the company, and it applies to resident and non-resident individuals alike.
Under the single-tier system in force since YA2008, dividends were not taxed again in the shareholder's hands. The Finance Act 2024 changed that for individuals, charging dividends “in excess of one hundred thousand ringgit at the rate of 2 per cent on every ringgit of the chargeable income in respect of such dividend” from year of assessment 2025.
LHDN's explanatory notes apply it to listed and unlisted Malaysian companies. In LHDN's own example, a Sdn Bhd shareholder receives RM2,500,000 in 2025, RM100,000 is deducted, and RM2,400,000 is reported for YA2025. The chargeable income is then worked out under rules gazetted on 7 May 2025 as P.U. (A) 148/2025. That calculation is for the shareholder's tax agent; the company's part is a correct certificate for every individual it pays.
What happens if a dividend is paid when the company could not afford it?
It is an offence: under section 131(2) the company and every officer involved face imprisonment of up to five years, a fine of up to RM3 million, or both. The company can also claw back the excess from shareholders, and directors who paid it knowingly can be made to repay it themselves.
Section 133(1) lets the company recover any amount paid above what could properly have been distributed, unless the shareholder received it in good faith and “has no knowledge that the company did not satisfy the solvency test required under subsection 132(3).” Under section 133(2), a director or manager who wilfully pays a dividend in breach of section 131 or 132, knowing it is not out of profits, is liable to the company for the excess. A dividend history also matters later if you decide to close the Sdn Bhd.
Where does the company secretary come in?
The company secretary prepares the directors' resolution and keeps the minute book and statutory registers up to date. The accountant confirms the profits; a tax agent handles the shareholders' tax. PT Corporate Services is a corporate secretarial firm, not a tax agent, and does not give tax advice.
The dividend sits on the same yearly calendar as the filings in our guide to company secretarial compliance, and it reads from the same accounts as the audit exemption question.
Frequently asked questions
Do the shareholders have to approve a dividend in a Sdn Bhd?
The Companies Act puts the decision with the board: section 132(1) says a distribution “shall be authorized by the directors of the company.” The constitution or the terms of a share issue can change the dividend rights attached to shares, so read yours before drafting the resolution.
Does a dividend under RM100,000 still need a voucher?
Yes. Section 108(2) of the Income Tax Act sets no minimum: the certificate is due on any dividend paid to an individual shareholder, directly or through a nominee. The RM100,000 figure decides only whether the shareholder pays the 2% tax.
How often can a Sdn Bhd pay a dividend?
Section 132(2) lets the directors authorise a distribution “at such time and in such amount as the directors consider appropriate”. SSM notes dividends are commonly paid once a year, though some companies distribute profit more than once. Each payment needs its own solvency check and resolution.
Sources
- Companies Act 2016 (Act 777): sections 71, 112, 131, 132 and 133; Third Schedule paragraphs 15 and 17; Fifth Schedule.
- SSM Training Academy, Dividends – When and How to Pay (2026 course brief).
- Finance Act 2024 (Act 862): section 108(2) and Schedule 1 Part XXII of the Income Tax Act 1967.
- LHDN, Explanatory Notes to Form BE 2025: scope of the dividend tax and the worked example.
- Bernama, 24 June 2025: Format, sample of dividend voucher now available on IRB portal.
- Kaizen CPA: the new dividend voucher format and the Form C items G7a to G7c.