Malaysia's Inland Revenue Board issued Practice Note No. 1/2026 on 27 February 2026, clarifying the tax treatment of income distributions from retail money market fund unit trusts, including a 24% withholding tax requirement for non-individual unit holders and tax exemption for individual investors.
The Inland Revenue Board of Malaysia (IRBM) has released Practice Note No. 1/2026, dated 27 February 2026, outlining the tax treatment of distributions from retail money market fund (RMMF) unit trusts.
The key aspects of this tax treatment are summarised below:
1. This Practice Note is issued to clarify the tax treatment for unit holders of unit trusts (“unit holders”) who received income distributions from an RMMF unit trust.
2. An RMMF is a type of unit trust fund that invests in short-term debt instruments with low risk. This fund is established with the aim of providing a stable investment medium, ease in liquidation of assets and serves as a temporary investment mechanism for retail investors who are seeking better return than savings accounts without being exposed to high investment risks.
3. Interest income received in Malaysia from licensed banks and financial institutions is taxable under paragraph 4(a) or 4(c) of the Income Tax Act 1967 (ITA). However, unit trusts have been granted tax exemption on the interest income received under paragraph 35A, Schedule 6 of the ITA.
4. Although tax exemption on interest income has been granted to unit trusts (including RMMF), such interest income is taxable for unit holders other than individuals in the case of an RMMF.
5. Therefore, an RMMF is required to deduct and pay withholding tax pursuant to section 109DA of the ITA on behalf of unit holders other than individuals when gross interest income or profit distributions are made. The applicable withholding tax rate is 24% of the gross amount of interest income distributed in accordance with the provision in Part XIX of Schedule 1 of the ITA.
6. According to subsection 61(1A) of the ITA, a unit trust holder shall be assessed and charged to tax on income equivalent to an amount ascertained in reference to his share of the total income of the unit trust for a year of assessment, which is distributed to him by the unit trust on the basis of that year of assessment.
7. The tax treatment for unit holders of RMMF is as follows:
- for individual unit holders, the income distributed by the unit trust is tax-exempt.
- for non-resident unit holders other than individuals, the income distributed by the unit trust is the gross income after withholding tax deduction, which is the final tax; and
- For resident unit holders other than individuals, the income distributed by the unit trust is a taxable income. These unit holders are eligible to claim tax credits arising from the withholding tax deducted by the unit trust. This tax credit can be claimed as a tax deduction under subsection 110(9A) of the ITA.
8. This Practice Note explains the format and terms used in the profit distribution vouchers of unit trusts, including an RMMF. The format is required to be followed by an RMMF and will be a reference to unit holders each and every time distribution of profits are made by an RMMF to unit holders. The details are as follows:
(a) Format of profit distribution voucher field.
| Taxable Income
(RM) (1) |
Malaysian Tax
(RM) (2) |
Foreign Tax
(RM) (3) |
Non
Allowable Expenses (RM) (4) |
Non
Taxable Income (RM) (5) |
Distribution Equalisation
(RM) (6) |
Net
Payable Before WHT (RM) (7) |
Withholding tax that has been deducted and paid.
(b) Explanation of terms used in the profit distribution voucher section.
| Term | Explanation |
| Taxable Income | Relates to the portion of total unit trust income distributed to unit holders. This amount is considered the gross income of the unit trust. |
| Malaysian Tax | Relates to the portion of total income tax that may be charged on the unit trust. |
| Foreign Tax | Relates to foreign tax borne by the unit trust (relief under Section 132 of the ITA). Set-off under Section 110(9A) is calculated as: Column (2) minus Column (3). |
| Non-Allowable Expenses | Expenses that are not deductible for tax purposes which are deducted from the divisible amount. |
| Non-Taxable Income | Income or profits that are specifically exempt from tax or otherwise not taxable. |
| Distribution Equalisation | Used for the equalisation of the profit distribution payment amount. |
| Net Payable Before WHT | The total net distribution distributed or credited to unit holders before Withholding Tax is applied. |
| Withholding Tax Paid | Notification of the amount of withholding tax that has been deducted and paid by the RMMF. |
9. For the purpose of calculating the taxable income and eligible tax credits in the basis year for a year of assessment, an RMMF is required to declare the taxable income in column (1) of the profit distribution voucher. The unit holder should also refer to the amount stated in column (1) of the profit distribution voucher.
