Introduction
Taxation of unit holders of unit trust funds in Malaysia is governed by the Income Tax Act 1967. Unit holders are taxed differently based on their residency status, type of income received, and category of investor. This article explains how taxable and non-taxable distributions are treated, applicable tax rates, and exemptions for unit holders.
Taxable Distributions
Unit holders are taxed on their share of the trust’s taxable income distributed during the assessment year.
- Distributions are received net of tax.
- Any attached tax credit (the tax already paid by the fund) can be used to offset the unit holder’s own tax liability.
- This is allowed under subsection 110(9A) of the ITA 1967.
Non-Taxable and Exempt Distributions
Certain types of income are exempt from tax in the hands of unit holders:
- Exempt income at fund level – e.g. specific interest income, foreign-sourced income.
- Disposal of investments – gains from sales by the fund are not taxable when distributed.
- Redemption/sale by unit holders – treated as capital gains and not taxable, except for dealers in securities or financial institutions (taxed under section 4(a) ITA).
- Bonus issues of units – exempt if representing a division of existing investment or unrealised gains. However, taxable if representing distributed income.
Tax Rates for Unit Holders
Tax depends on the residency and category of the unit holder.
| Unit Holders | Tax Rates |
| Companies and non-resident companies | 25% (prevailing rate) |
| Resident individuals & others (e.g. co-operatives, associations, societies) | Scale rates |
| Non-resident individuals & others (e.g. co-operatives, associations, societies) | 26% (current rate) |
📌 Note: Non-resident unit holders are not subject to withholding tax on distributions from unit trusts.
Undistributed Income
Unit holders are not taxed on undistributed income or gains retained by the unit trust fund.
Sale or Redemption of Units
- Gains from selling or redeeming units are treated as capital gains and are not taxable.
- Exception: if the seller is a securities dealer or financial institution, the gains are treated as business income and taxed under section 4(a) ITA.
Key Takeaways
- Unit holders are taxed only on taxable distributions received.
- Tax credits can offset personal tax liability.
- Certain incomes (foreign, disposal, bonus issues) are exempt.
- Tax rates vary by residency and entity type.
- Sale or redemption gains are generally not taxable, unless by dealers or financial institutions
ANC Group – Your Personal Tax Advisor
Tax consulting is the core service of ANC Group. Our tax professionals provide clients with comprehensive tax support and guidance. We offer tax consulting and compliance services for expatriates, entrepreneurs, and listed and non-listed companies.
Our tax consulting services include business tax, transaction tax, personal tax, and corporate income tax. We don’t just guide you in interpreting and applying complicated taxation rules, but to explore new opportunities and business trends.
ANC Group keep you abreast with Malaysia tax updates and any changes in the local regulations.
We work closely with industry specialists, authorities, and associated professionals within ANC Group to provide the best-in-class integrated tax planning solutions. ANC specialists coordinate the accounting and taxation services to bring your business to success.
If you need professional tax advisory services regarding the Malaysia Income Tax Act 1967, our team is ready to assist you. Contact us here to discuss how we can support your business.
