Passive Income: How it Works and Examples

As the cost of living continues to rise, more people are looking for ways to supplement their monthly wage. A passive income provides an additional stream of income, helping you earn extra cash without needing to get a second job. 

Here, we’ll provide ideas for earning a passive income in Malaysia and share some examples to help you get started. We’ll also explain the reporting requirements so you can make sure your passive income is tax compliant.

Key Takeaways

• Passive income is money earned with minimal active effort, from sources like property, dividends, or online sales.
• In Malaysia, all passive income must be reported to the LHDN/IRBM under the Income Tax Act 1967 and Finance Act updates, with tax rates varying by income type.
• Common examples include real estate rentals, dividend funds, and e-commerce sales.
• Earning passive income supports financial security and flexibility.
• Using Intuit QuickBooks helps track income and simplify LHDN-compliant reporting.

Passive income meaning

Passive income refers to money earned without working for it directly. Once you’ve set up a source of passive income, you don’t need to put in very much active effort to keep it coming in. 

In Malaysia, passive income can come from various sources such as rental properties, dividends, royalties, or online businesses. It’s a popular way for Malaysians to supplement their earnings and achieve greater financial independence. 

If you’re looking into ways to set up a passive income stream, it’s important to be aware of the regulatory requirements as set out by the Lembaga Hasil Dalam Negeri (LHDN) in Malaysia. We’ll provide more detail about this in the sections below. 

Difference between active and passive income

The main difference lies in how the money is earned:

• Active income comes from direct work, such as a salary, freelance projects, or running a business that requires your daily involvement.
• Passive income continues to generate revenue with little ongoing effort, such as from property rentals, dividends, or digital products.

In short, active income trades time for money, while passive income builds long-term earnings with less hands-on management.

IRBM/LHDN reporting requirements for passive income

In Malaysia, passive income is taxable under the Income Tax Act 1967 and must be reported to the LHDN. The level of tax applied depends on the type of income, its source, and whether the recipient is a resident or non-resident. Businesses and individuals earning passive income must disclose these earnings in their annual tax returns in accordance with the Finance Act updates.

Key reporting requirements include:

• Dividends: Most Malaysian company dividends are subject to a single-tier tax system, meaning they are exempt from further taxation when received by shareholders. However, foreign-sourced dividends may still be taxable and must be declared.
• Rental income: Treated as business or non-business income depending on how actively the property is managed. Deductions for maintenance, assessment, and loan interest may apply.
• Interest and royalties: Taxed at the prevailing rate, with withholding tax applicable for payments to non-residents.
• Other passive earnings: Such as affiliate marketing or online income, must be declared under “other income” in your tax filing.

Keeping accurate records with cloud-based tools like QuickBooks reporting can simplify tax tracking throughout the financial year.

How to make passive income

Starting a stream of passive income begins with identifying opportunities that match your skills and financial goals. Before investing time or money, consider the amount of effort and capital you can commit, and evaluate the potential risks and returns.

Here are a few steps to help you get started:

• Assess your resources: Decide how much time and money you can invest upfront.
• Choose your method: Pick a passive income stream that aligns with your goals (such as, for example, property, stocks, or online ventures).
• Stay consistent: Monitor your income regularly and make adjustments to improve returns.

Once you’ve identified the right approach, explore the different options available. You can gain a better understanding of how to earn a passive income from the examples provided in the next section.

Examples of passive income

If you’re looking for passive income ideas​, the table below provides an overview of popular options in Malaysia. We’ve also included the taxation rate for your reference.

Why should you start earning passive income?

Earning passive income gives you greater financial security and flexibility in an evolving job market. While Malaysia’s labour market remains strong—with 16.85 million people employed and unemployment down to 3.0%—diversifying income streams can help safeguard against economic uncertainty.

Key benefits include:

• Financial stability: With the median monthly wage at RM2,864, passive income can help supplement living costs and offset inflation.
• Wealth growth: Reinvesting returns from property, dividends, or digital assets helps build long-term savings and financial independence.
• Flexibility: Extra income reduces reliance on a single job, offering freedom to pursue personal or professional goals.

As Malaysia continues moving toward a high-income economy, developing multiple income sources can play a vital role in securing your financial future.

Take care of cash flow with Intuit QuickBooks

Building passive income is easier when you have full visibility over your finances. Intuit QuickBooks provides business performance management tools that give you clarity and control. With real-time financial reporting capabilities, you can run a cash flow forecast and make adjustments where needed. 

Whether you’re earning from property, dividends, or online sales, Intuit QuickBooks keeps you updated with real-time financial insights. Stay organised, simplify reporting for LHDN, and plan your next investment with confidence.

Find a plan that’s right for you and take control of your passive income with Intuit QuickBooks.