Malaysia's tax authority has overhauled the treatment of REIT and property trust fund distributions, ending preferential withholding tax rates for individuals and foreign institutional investors while introducing new reporting requirements that could significantly increase tax burdens for certain unit holders from 2026.
The Inland Revenue Board of Malaysia (IRBM) released Practice Note No. 2/2026 (including examples) on 18 March 2026, addressing significant changes to how income distributions from real estate investment trusts (REITs) and property trust funds (PTFs) are taxed for most unit holders starting from the year of assessment (YA) 2026.
The guidance was necessary because the preferential withholding tax (WHT) rates that benefited many investors have expired.
For resident unit holders, the WHT system has been eliminated. Instead, distributions must now be reported in tax returns and taxed accordingly:
- Resident companies continue paying 24% corporate tax (no change).
- Resident individuals face progressive tax rates ranging from 0% to 30%.
- Other resident unit holders pay either corporate rates or progressive rates from 0% to 30%.
For non-resident investors, the treatment varies. Non-resident companies remain subject to 24% final withholding tax. However, other non-resident unit holders—including individuals and foreign institutional investors—must now file tax returns and pay 30% tax on their chargeable income.
The changes reflect the expiration of tax incentives originally granted under Part X, Schedule 1 of the Income Tax Act 1967, while REITs and PTFs themselves continue receiving full tax exemption when distributing at least 90% of total income to unit holders.
