Who must pay the Company’s tax liabilities in case they fail to pay corporate yearly and monthly tax deductions? Based on the Section 75A Income Tax ACT 1978 (ITA), the company “director” is liable.
The Act pertains to a “director” as someone who:
- Holds the “director” post or whatever they call it, and holds the ordinary share capital of the company by at least 20%.
- Is a person who holds the company’s share capital indirectly or directly by at least 20%.
- Is someone who holds the ordinary share capital of a company through an “associate” by at least 20%.
It is worth noting that before January 24, 2014, the requirement for the ordinary share capital was above 50%.
Example:
Ms. Amyza and Ms. Ayuni got appointed to hold the Managing Director and Operations Manager from Feb. 5, 2018 in Valentia Sdn Bhd (VSB). The 19% belongs to them and 55% of the company’s ordinary share capital respectively in VSB.
Ms. Ayuni holds the director post for ITA section 75A since she owns 55% of the ordinary share capital of VSB, which is more than 20%.
Ms. Amyza is not a director in this ITA section 75A since the ordinary share capital she owns is not at least 20%.
What Do They Consider an “Associate”?
“Associate” relates to someone for the above purpose and has a broad range. These are:
The liable company directors:
The company director under the S75A is someone who:
- Takes the director post during the due date of the tax and must be paid by the company.
- Takes the director post when the debt relating to the MTD must be paid by the company.
General Ruling of the Inland Revenue Board of Malaysia
The rule that was issued to the public serves as guidance to the Inland Revenue Board of Malaysia officials. It is an outline of the Director-General of Inland revenue regarding certain Tax Law provisions and the policies and procedures applied to it.
There is a possibility for the ruling to be revoked as a whole or partially, by a withdrawal notice or by issuing a new rule that is not consistent with it.
What Do They Consider a Company?
A corporate body that is comprised of people that established their own separate legal entity or covered by the territory laws outside of Malaysia and business trust.
The Company Tax and Debt Recovery from Directors
A director who is holding at least 20% of the company’s ordinary share capital is liable for:
- Paying the corporate income tax
- Monthly tax deduction (MTD)
Example:
Mr. Akmal, Mr. Ismali, and Mrs. Amy are company owners and directors of Italian Design Sdn Bhd because they own 35%, 50%, and 15% of the ordinary share capital. Therefore, they are not company associates.
The company was not able to pay the income tax and did not remit the deducted amount from employee remuneration who must have MTD.
The recovery action based on ITA section 75A can be held against Mr. Ismali and Mr. Akmal.
- They must recover the income tax that the company owes; and
- They must recover the failed remittance of the MTD
Even if Ms. Amy is also a company director, she is not liable to recover the outstanding taxes because she only holds 15% of the ordinary share capital, which is less than 20%.
Disclaimer
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