In layman's terms, if your Company has "Amount Due From Directors", you have to calculate an interest income for the Company based on the outstanding amount and Average Lending Rate (ALR) by Bank Negara Malaysia (BNM) and disclose it in your Audited Financial Statements as Interest Income and pay income tax for it.
The applicable section is; Section 140B of Income Tax Act, 1967.
Effective from: For the Year of Assessment 2014 onwards and for the Basis Year starting from 1st January 2014.
Applicable for all Companies that gives loan or advances to directors without interest or interest free or with interest but below arm's length.
Arm's length means market rate.
The calculation of interest is simple; i'll publish in my next writing.
The interest will be taxable under Section 4 (c) of the Income Tax Act.
Section 4 is about classes of income on which tax is chargeable.
The above is only applicable for loans and advances given to directors of the Company by using the internal funds of the Company.
