The Maldives Inland Revenue Authority (MIRA) has issued detailed guidance on how directors’ financial transactions with their companies should be treated under the Income Tax Act, emphasising that various forms of compensation and benefits can constitute taxable remuneration.
The newly published Income Tax Guide: Directors’ Current Account Debit Balances, lays out how company directors, who are classified as employees for tax purposes, must account for loans, advances, and personal expenses. It warns that interest-free or under-market-rate loans from a company are taxable, as are any personal expenses paid on behalf of a director by the company.
Where a director withdraws funds from the company as a loan or advance, the taxable portion is the financial benefit calculated as the difference between the market interest rate and the actual rate charged. If the company pays personal expenses for the director and the director is not required to repay the amount, the full sum is considered remuneration.
However, the guidance provides some relief under specific exemption criteria. A loan or advance is not treated as a taxable benefit if it does not exceed MVR 50,000 and is repaid within 12 months. This exemption only applies if there is no other outstanding loan to the director at the time. Companies must keep detailed records to qualify for this exemption.
Additionally, if a company waives any portion of a director’s debt, the waived amount is treated as remuneration equivalent to a cash payment, and the open market interest rate must be used to assess the financial benefit up until the waiver date.
MIRA also clarifies that any daily debit balances in a director’s current account should be considered a loan or advance, and if no interest is charged at market rates, the implied benefit must be included in the director’s remuneration.
The guide reiterates that the tax liability does not arise from how transactions are recorded but from the nature and treatment of the transactions themselves.
