COMPANY non-executive directors are a special breed of taxpayers under our tax laws. They are treated differently from their position recognized in contract law. Directors are not employees; they do not have a master-servant relationship with the company of which they are directors. So non-executive directors should be in no doubt that the tax man would seek to tax many, if not all the benefits which they receive as directors. The benefits are becoming more varied, with levels of remuneration packages increasing. Public companies generally make payments to their non-executive directors in some of the following forms:
- Director fees are generally fixed to motivate responsibility and Meeting fees are paid to encourage participation. Both fees are taxable in full. A recent change in the law allows the fees to be taxed in the year they are received rather than in the year for which they are paid.
- Fees received from a foreign tax resident company are not taxable on the basis of it being foreign income. Exceptionally a Malaysian incorporated company can be tax resident outside Malaysia if it is managed and controlled from outside the country.
- Ex-post and ex-gratia payments are made to recognise long service and substantial contributions. These are taxable in full unless they meet the criteria of “retirement gratuities”.
- Stock awards paid to cultivate a longer-term perspective and sense of belonging are taxable on the market value of the stocks.
In certain instances, the use of a personal service company of the director to receive the fees could be used to benefit from the lower 20% rate. However care should be taken in structuring this to avoid challenge as a tax avoidance arrangement.
No comments:
Post a Comment