For many years, Malaysian investors have enjoyed a simple and attractive tax treatment when investing in Real Estate Investment Trusts (REITs) and Property Trust Funds (PTFs).

If you received REIT income distributions, chances are a 10% final withholding tax was deducted at source. In most cases, that also meant no additional tax reporting headache in your personal tax return.

But from Year of Assessment (YA) 2026 onwards, this has changed. This change does not apply to resident and non-resident companies.

The Inland Revenue Board of Malaysia (LHDN) has issued Practice Note No. 2/2026, confirming that the 10% preferential withholding tax treatment for REIT and PTF distributions has ceased to apply for individual and certain non-corporate investors.

If you are investing in REITs for passive income, this change directly affects how your REIT income is taxed and reported in Malaysia from YA 2026 onwards.

What Has Changed?

Previously, individual investors, certain non-corporate investors, and foreign institutional investors enjoyed a final 10% withholding tax on REIT and PTF distributions.

✔ Yes — this was a final tax, meaning no further reporting was required.

This concession applied from YA 2020 to YA 2025, under the relevant provisions in Part X, Schedule 1 of the Income Tax Act 1967.

However, due to the sunset clause of the concessionary provisions under paragraph 6(1)(i), the preferential tax treatment has now expired from YA 2026 onwards.

As a result:

The 10% final withholding tax regime is no longer applicable for affected investors.

Instead, REIT and PTF distributions must now be reported and taxed under the normal income tax framework based on the investor’s tax profile.

💡 In simple terms:
REIT income is no longer “final tax and forget” — it now flows into your tax return.

Why Does This Matter?

Let’s look at a simple example.

Imagine you receive RM20,000 in annual REIT distributions.

Before YA 2026:

• Gross distribution: RM20,000
• Final withholding tax: 10%
• Tax paid: RM2,000

✔ No further action required

From YA 2026 onwards:

• RM20,000 must be included in your tax return
• Taxed based on your individual tax bracket (0%–30%)

For some investors, the tax impact may still be low.
But for others, especially those in higher income brackets, the tax payable may be significantly higher than 10%.

👉 This is where tax planning becomes important.

Comparison Summary (Investor Categories)

The tax impact varies depending on investor type:

As shown in the comparison summary table, the tax treatment for REIT and PTF income distributions to companies—whether resident or non-resident—remains unchanged in Malaysia.

However, there are significant changes in REIT tax treatment for other investor categories, particularly individual investors and non-corporate investors, following the removal of the 10% final withholding tax regime from Year of Assessment (YA) 2026 onwards under LHDN Practice Note No. 2/2026.

Example from Practice Note No. 2/2026

Mr. Padzli is a REIT unit holder (resident individual) receiving profit distribution income of RM150,000 for the YA 2026. The following is the tax calculation for that year of assessment.

Where to Declare REIT Income in Tax Return?

Since YA 2026 personal income tax return forms are not yet released, we refer to the latest available structure (Form BE/ Form B YA 2025).

REIT income is generally declared under:

“Statutory Income from Other Gains or Profits” section of Form BE / Form B

💡 In short:

• REIT income is no longer final tax
• It must be reported as taxable income in your annual tax return

Do REIT/ PTF Distributions Carry Tax Credits?

Apart from declaring income distributed by a REIT or PTF, you may have heard that some distributions come with a tax credit.

The answer is: Yes, in certain situations.

Whether a REIT or PTF distribution carries a tax credit depends on the tax treatment of the REIT or PTF itself before the income is distributed to unit holders.

Under Section 61A of the Income Tax Act 1967 (ITA), a REIT or PTF may be exempt from tax on its total income if at least 90% of its total income is distributed to unit holders during the basis period for a year of assessment.

Let’s look at two common scenarios.

Scenario 1: REIT/PTF Qualifies for Tax Exemption under Section 61A

If a REIT or PTF listed on Bursa Malaysia satisfies the conditions under Section 61A, the income distributed to unit holders is exempt at the REIT/PTF level.

As a result, the distribution received by the unit holder generally does not carry any tax credit under Section 110 of the ITA.

Based on the current Form BE/Form B structure, the REIT income would generally be reported under:

“Statutory Income from Other Gains or Profits”

In this scenario, there is no Section 110 tax credit available to claim.

Scenario 2: REIT/PTF Does Not Qualify for Tax Exemption under Section 61A

Now let’s consider a different situation.

If a REIT or PTF (whether listed or unlisted) does not satisfy the requirements under Section 61A, the income may be subject to tax at the REIT/PTF level before being distributed to unit holders.

In this case, the distribution received by the unit holder may carry a tax credit under Section 110 of the ITA.

The tax credit can generally be used to offset the income tax payable by the unit holder.

How Should the Income and Tax Credit Be Reported?

Based on the current Form BE/Form B structure:

✅ The REIT/PTF distribution is generally reported under:

“Statutory Income from Other Gains or Profits”

✅ Any tax credit attached to the distribution may be claimed under:

“Section 110 Tax Deduction (Others)”

This allows the tax credit to be set off against the income tax payable by the unit holder.

Key Takeaway: Not all REIT distributions are the same. Some distributions are received without any tax credit because the REIT/PTF has already enjoyed tax exemption under Section 61A, while others may carry a Section 110 tax credit that can be used to reduce your personal tax liability.

Common Questions from REIT Investors

1. Do I Still Need to Declare REIT Income as an individual?

Yes. From YA 2026 onwards, resident individuals or non-resident individual must report REIT and PTF income distributions in their tax returns instead of relying on the previous final withholding tax mechanism.

2. Will Everyone Pay More Tax?

Not necessarily.

The impact depends on your overall taxable income and tax bracket.

Some investors may pay less than 10%, while others may pay substantially more.

3. Does This Affect All REITs?

No. This change affects investors’ tax treatment, not the REIT structure itself.

REITs and PTFs may still enjoy tax exemption at the fund level if they distribute at least 90% of their total income to unit holders.

What Should Investors Do Now?

With the removal of the 10% final withholding tax, investors should:

• Review investment income structure
• Understand impact on chargeable income
• Keep REIT distribution vouchers properly
• Reassess tax planning strategy
• Stay updated with LHDN announcements

Most importantly:
👉 Do not assume previous tax treatment still applies.

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