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Directors' + Shareholders' Liability for Company's Tax

Updated: Oct 13, 2023

Who is liable to pay tax liabilities of a Company, if the Company fails to pay its corporate tax and Monthly Tax Deductions as an employer?


According to Income Tax Act 1967 (ITA), Section 75A, "a director" of a Company is liable.


What is meant by "a director" by the Act?


Meaning of a Director

The meaning of “A Director” as provided under S75A(2) and as explained further in Public Rulings 2/2019 are summarised below:

  • A person who is holding the post of a director (or by whatever name it is called), regardless of whether he actually performs any of the functions of a director, he is a director for income tax purposes if he holds at least 20% of the Company’s ordinary share capital either on his own or together with an associate.

  • A person who has the powers of a director but is not given the title of a director, he is to be regarded as a director for income tax purposes if he holds at least 20% of the Company’s ordinary share capital either on his own or together with an associate.

  • A person who is not called a director but he is involved in the management of the Company’s business and he holds at least 20% of the Company's ordinary share capital either on his own or together with an associate.


Significant change

It is worth to note that prior to 24.1.2014, the ordinary share capital requirement was more than 50%.


Meaning of Associate

"Associate" in relation to a person for the above purpose are very broad, as follows:


(a) A person in any of the following relationships to that person, that is to say, husband or wife, parent or remoter forebear, child or remoter issue, brother, sister and partner; or

(b) Where that person is interested in any shares or obligations of a Company which are subject to any trust or are part of the estate of a deceased person, any other person interested therein.


Company Directors Who are Liable

A company director who is liable under S75A is a person who is:


(a) a director during the period in which tax was due and payable by the Company.

(b) a director during the period in which the debt (relating to MTD) is liable to be paid by the company.


Reference

hasil.gov.my>>>legislation>>>public rulings>>>2/2019 (14 March 2019)


Disclaimer

This is a tax news issued by Gunalan & Associates. While every care has been taken in compiling this news, we make no representations or warranty about the accuracy, suitability, reliability or completeness of the information for any purpose. Gunalan & Associates, its employees and agents accept no liability, and disclaim all responsibility, for the consequences of anyone acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. Recipients should not act upon it without seeking specific professional advice tailored to your circumstances, requirements or needs.


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