Are Directors Personally Liable for a Company’s Unpaid Tax in Malaysia?
Yes, in many cases. Section 75A of the Income Tax Act 1967 makes certain directors jointly and severally liable with the company for its unpaid income tax and for tax it should have deducted from employees’ salaries under the monthly tax deduction (PCB) scheme. The rule applies to a person who was a director during the period when the tax was payable and who, alone or together with associates such as a spouse or children, owns or controls at least 20% of the company’s ordinary share capital. LHDN can sue such a director personally, stop him or her from leaving Malaysia and, once it has judgment, start bankruptcy proceedings.
This article explains who counts as a director for this purpose, which years are covered, what a director can and cannot argue, and the steps to take.
Key takeaways
- Section 75A covers the company’s income tax and its debts as an employer for monthly tax deductions (PCB).
- A director for this purpose is a person occupying the position of director, including anyone concerned in the management of the company’s business, who owns or controls at least 20% of the ordinary share capital alone or with associates.
- Shares held by associates, such as a spouse, parents, children and siblings, are counted together for the 20% test, and indirect holdings count too.
- The Court of Appeal has held that a director is not liable for tax relating to years before he became a director.
- In a recovery suit, the court will not hear arguments that the tax is excessive or under appeal. The amount must be challenged before the Special Commissioners of Income Tax.
On this page
- What does section 75A say?
- Who counts as a director under section 75A?
- Am I liable for tax from before I became a director?
- Can a director argue that the tax is wrong?
- What can LHDN do to recover from a director?
- What if the other directors ran the company?
- What should directors do now?
- Frequently Asked Questions
What does section 75A say?
A company is a separate legal person, and its tax is normally its own debt. Section 75A of the Income Tax Act 1967 is an exception. Where tax is due and payable by a company, LHDN may recover it from the company and from certain directors, who are jointly and severally liable for it. The same applies to amounts the company owes as an employer for monthly tax deductions from its employees’ remuneration.
Joint and several liability means that LHDN can choose whom to pursue. It can sue one director for the whole amount, even if there are other directors or the company still has assets. A director who pays may then try to recover a contribution from the company or from the other directors, but that is a separate claim.
Who counts as a director under section 75A?
LHDN’s Public Ruling No. 2/2019 on director’s liability explains that the section applies to a person who:
- occupies the position of director, by whatever name called, including any person concerned in the management of the company’s business; and
- alone, or together with one or more associates, owns or controls, directly or indirectly, not less than 20% of the ordinary share capital of the company.
Associates include a spouse, parents and grandparents, children and grandchildren, siblings and business partners, so dividing shares among family members does not avoid the test. In the ruling’s examples, a husband and wife who each hold 10% are both caught, and shares held indirectly through another company are counted.
A director who holds no shares, and whose associates hold none, is generally outside section 75A. Such a director may still face other consequences, for example for breach of directors’ duties under the Companies Act 2016. See Directors’ Duties in Malaysia.
Am I liable for tax from before I became a director?
The Court of Appeal has said no. In Government of Malaysia v Mahawira Sdn Bhd & Anor (Civil Appeal No. W-01(NCVC)(W)-152-03/2019), the court refused to hold a director appointed in 2003 liable for assessments covering the years of assessment 2001 to 2004 that were issued in 2014. Liability depends on having been a director at the material time, and High Court decisions have taken the same approach.
Resigning does not end liability for tax that became payable while you were a director. If you are leaving a company with unresolved tax issues, make sure your resignation, and any transfer of your shares, is properly documented and lodged with SSM, and keep records showing when you ceased to hold office.
Can a director argue that the tax is wrong?
Not in the recovery suit. When LHDN sues for unpaid tax under section 106 of the Income Tax Act 1967, the court will not entertain a plea that the amount is excessive, incorrectly assessed or under appeal. Tax is payable even while an appeal is pending, and LHDN commonly obtains summary judgment. The place to challenge an assessment is an appeal to the Special Commissioners of Income Tax, filed on Form Q within 30 days after the notice of assessment is served.
That is why directors need to make sure the company appeals on time. Once the appeal period has passed, it is very difficult to reopen the assessment. The defences left to a director in a recovery suit are narrower, for example that he or she was not a director at the material time, did not meet the 20% test, or that LHDN has not met the formal requirements for recovery. See Challenging an LHDN Decision: SCIT Appeal or Judicial Review?
What can LHDN do to recover from a director?
LHDN’s main tools are:
- a civil suit against the director, usually followed by an application for summary judgment;
- a stoppage order under section 104 preventing the director from leaving Malaysia;
- enforcement of the judgment, including bankruptcy proceedings.
See LHDN Travel Ban in Malaysia: How to Check and Lift a Stoppage Order for how stoppage orders work and how to have them lifted.
What should directors do now?
Directors who are, or may be, within section 75A should:
- check the company’s tax position on MyTax, including PCB deducted from employees, and ask for copies of all notices of assessment;
- diarise the 30-day deadline for Form Q whenever the company receives an assessment;
- if the company cannot pay, negotiate an instalment arrangement with LHDN early;
- before joining a board, ask about the company’s tax position and consider an indemnity from the company or its shareholders;
- on leaving, document the resignation and any share transfer, and lodge the changes with SSM promptly.
Frequently Asked Questions
Can LHDN sue a director personally for company tax in Malaysia?
Yes. Under section 75A of the Income Tax Act 1967, a person who was a director when the tax was payable and who owns or controls at least 20% of the company’s ordinary share capital, alone or with associates, is jointly and severally liable with the company for its tax and PCB debts.
Does section 75A apply to a director who holds no shares?
Generally not, unless the director’s associates, such as a spouse or children, own or control shares that bring the total to at least 20% of the ordinary share capital, or the director controls shares indirectly through another company.
Am I still liable after resigning as a director?
Resigning does not remove liability for tax that became payable while you were a director. The Court of Appeal has, however, held that a director is not liable for years before his or her appointment.
Can I dispute the amount when LHDN sues me?
Not in the recovery suit itself. The court will not entertain arguments that the tax is excessive or under appeal. The amount must be challenged by appealing to the Special Commissioners of Income Tax within 30 days after the notice of assessment is served.
Can a director be stopped from travelling because of company tax?
Yes. LHDN can issue a stoppage order under section 104 against a director who is liable under section 75A, preventing him or her from leaving Malaysia until the tax is paid or a temporary release is granted.
Need advice on your own situation?
Every case turns on its own facts and documents. Our lawyers in Puchong and Mont Kiara advise once we have reviewed your documents at a consultation, online or in person.
Related reading
This article is general information on Malaysian law as at October 2026 and is not legal advice. Laws and procedures change, so please seek advice on your own facts before acting.
