The Maldives Inland Revenue Authority (MIRA) has released a guide examining the tax implications of transactions recorded in directors’ current accounts. This guidance reflects MIRA’s ongoing efforts to clarify the interpretation of tax laws and regulations.
The guide focuses on three key aspects: debit balances in directors’ current accounts, personal expenses of directors paid by the company, and the waiver of loans or advances.
Interest on a loans or advance issued by a company to its directors as interest free or at a rate lower than ordinary open market rate of interest are exempt from tax if (1) repayment period of the loan or advance does not exceed 12 months, (2) the principal amount of loan or advance does not exceed MVR 50,000, and (3) there is only one such loan or advance outstanding at any given time.
Personal expenses paid by the company
The guide explains that when a company covers a director’s personal expenses, how these payments are treated for tax purposes depends on whether they are repayable. If the director is expected to repay the amount, it is treated as a loan or advance, which may be exempt from tax subject to exemption. However, if the director is not required to repay the company, the amount is regarded as a direct financial benefit and must be included as part of their remuneration.
Waiver of loans or advances
When a company waives a loan or advance granted to a director, the benefit includes both the waived amount and any applicable interest. Both components must be included in the director’s total remuneration for tax computation.
Debit balances in director’s current account
Daily debit balances in a director’s current account are treated as loans or advances. These balances represent a financial benefit to the director and are subject to interest calculated at the ordinary open market rate.
The Underlying Nature of Transactions
While the guide clarifies that tax implications arise from the underlying nature of transactions—not merely their recording in directors’ current accounts—it does not provide detailed examples of what constitutes this “underlying nature.”
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