Malaysia stops giving preferential rate for REIT withholding tax

KUALA LUMPUR (March 19): Malaysia has stopped giving preferential rates for the withholding tax on dividends from real estate investment trusts (REITs) or property trust funds (PTFs), a government notice showed.

The previous concessionary rate of 10% for most non-corporate investors has ceased to apply beginning 2026, according to the Inland Revenue Board Practice Note 2/2026. Malaysians will be taxed based on prevailing individual rates with no withholding tax deduction.

“Income distribution by REITs or PTFs… to companies and other unitholder entities are subject to their respective tax rates while individual unitholders will be subject to the individual tax rate,” the IRB said in the notice.

The tax authority added that “the deduction of WHT [withholding tax ]… will not be applicable to resident unitholders”, requiring them to declare REIT income in their annual tax filings.

Foreign individuals and institutional investors will be taxed at 30% of chargeable income. Non-resident corporations, meanwhile, will pay a final 24% withholding tax rate.

The policy shift comes right after Finance Minister II Datuk Seri Amir Hamzah Azizan indicated in early February that Malaysia’s REIT market has evolved into a stable and widely accepted asset class, which may no longer need continued fiscal support.

While the removal of preferential tax treatment could dampen sentiment — particularly among foreign and tax-sensitive investors — Maybank Investment Bank (Maybank IB) said the sector’s underlying yield profile remains relatively resilient.

The research house estimates that “net yields could still average at 4.7%-6.0%, and remain attractive relative to most sectors”, even after factoring in the new tax regime.

As it stands, the Bursa Malaysia REIT Index — which tracks 30 listed REITs with a combined market capitalisation of RM61.73 billion — still offers an average yield of about 5.17%, according to Bloomberg data. That compares favourably with the 3.54% yield on Malaysia’s 10-year government bonds (Malaysian Government Securities) as of Wednesday.

“While not affecting earnings, the new tax treatment could still weigh on sector sentiment and marketability by reducing the appeal of post-tax distribution yields for certain investor groups,” Maybank IB added.

The research house added that investors may now increasingly favour REITs with stronger organic distribution per unit growth, visible rental reversions, asset enhancement initiatives, and acquisition pipelines to offset the drag from lower post-tax yields.

Its top picks include Paradigm Real Estate Investment Trust (KL:PARADIGM), CapitaLand Malaysia Trust (KL:CLMT), and Al-Salam REIT (KL:ALSREIT).

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