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The recent enforcement of the Companies (Amendment) Act 2024 mandates all companies (local and foreign) to maintain and lodge a register of beneficial owners (BO) with the Companies Commission of Malaysia (SSM).

This new framework enhances corporate transparency and supports law enforcement efforts against financial crimes.

At the same time, the Inland Revenue Board ("IRB"), has with effect from Year of Assessment (YA) 2025 requires the disclosure of beneficial ownership information in the tax returns (Form e-C) despite that the Income Tax Act 1967 currently lacks explicit provisions on BO declaration. 

This regulatory gap raises valid concerns about data privacy, especially in cases involving undisclosed shareholders.

For many SMEs and family-owned businesses in Sabah, especially those with foreign shareholders or layered ownership structures, the implications of BO reporting may not yet be fully understood.

Here are the main implications:

Undisclosed BO will face serious tax risks under the new BO disclosure regime, especially if the IRB detects inconsistencies between ownership disclosures and actual economic control. Below is a breakdown of the key tax risks, with focus on audits, reassessments, and penalties.

Why this matters: BO disclosure and tax risk

The BO regime is primarily about enhancing transparency, but tax authorities worldwide including Malaysia’s IRB are increasingly leveraging BO data to trace hidden income or wealth, identify potential tax avoidance or evasion schemes, and match actual economic control with declared tax positions.

With BO information now formally collected by SSM and likely to be shared with the IRB, the risks of non-disclosure or misreporting are significantly heightened, such as:

Targeted tax audits and investigations: If the IRB detects discrepancies between:

• The BO register (submitted to SSM),
• Company tax returns,
• Dividend payouts, or
• Related-party transactions,

It can trigger audits of both the company and the (possibly hidden) beneficial owners.

For example: a foreign individual effectively controls a Sabah company through a local nominee but isn’t disclosed as BO. IRB may audit both the company and the nominee to trace the real source of control and income.

• Tax reassessments and back taxes where undisclosed BOs result in: i) improper income recognition, ii) artificial under-declaration of profits, or iii) improper claiming of incentives (e.g., SME tax rates, pioneer status), IRB can issue back-dated reassessments for up to 7 years (or longer in cases of fraud or willful evasion). Companies may also lose tax incentives retroactively if they were granted under false pretenses (e.g. appearing to be 100 pc Malaysian-owned when not).
• Transfer Pricing Scrutiny: BO disclosure may uncover undeclared related-party relationships, such as: i) Parent-subsidiary relationships hidden by layers of ownership, or ii) Common control over two or more entities (local or cross-border). These can trigger transfer pricing (TP) audits, TP documentation requirements, or imposition of TP adjustments, penalties, and surcharges. This is especially risky for Sabah-based companies dealing with foreign affiliates (e.g., trading companies, manufacturers, plantations, or export-import operations).
• Withholding Tax (WHT) Exposure: If a BO is ultimately foreign, certain payments to them (interest, royalties, service fees, etc.) may be subject to withholding tax under the Income Tax Act or double tax treaties. Failure to disclose this correctly can lead to: 
• Back taxes + penalties
• Denial of treaty benefits
• Additional WHT on deemed payments (even if paid to a local nominee)

Furthermore, IRB could “look through” the nominee and impose WHT on payments assumed to have been made to the true foreign BO.

Deemed Income and Beneficial Owner Taxation: IRB may deem that BOs receive indirect income (e.g., retained earnings, undistributed profits, or indirect benefits), especially if the BO has: i) Effective control, ii) Board influence, iii) Access to assets, or iv) Economic benefits. Undisclosed BOs may then be taxed on deemed dividends or benefits-in-kind, depending on control and influence.

Possible tax penalties and legal consequences

The consequences of failing to comply with the beneficial ownership (BO) disclosure requirements extend beyond administrative inconvenience. The table below highlights some of the key issues and their potential consequences under the BO regime and tax laws.

To better illustrate how these risks may arise in practice, the following scenarios highlight common structures and the potential tax consequences of non-disclosure or misreporting of beneficial ownership.

Key recommendations:

To mitigate these risks, companies should take proactive steps to strengthen their compliance approach, such as:

Identify and declare all BOs properly:

• Ensure BO information filed with SSM matches actual economic control.
• Align BO records with income distribution patterns.

Align tax disclosures with ownership reality:

• Disclose actual control in tax filings (e.g., controlled transactions).
• Update tax incentive claims (SME status, pioneer status) if ownership changes.

Review withholding tax obligations:

• Identify any payments to or for the benefit of foreign BOs.
• Apply proper WHT rules and treaty relief (if applicable).

Update transfer pricing files: If BO disclosure creates new related-party connections, update TP documentation.

Voluntary disclosure (if necessary): Consider approaching IRB for voluntary disclosure of undeclared BOs or related issues to mitigate penalties.

Conclusion: Beneficial ownership as a transparency tool

The BO regime should not be viewed purely as a compliance exercise. For tax authorities, it is a powerful transparency and enforcement tool.

As Malaysia strengthens its governance frameworks, businesses especially those with foreign shareholders, layered structures, or nominee arrangements, will need to review ownership records, align tax positions, and ensure compliance with both corporate and tax reporting obligations.

For companies in Sabah and across Malaysia, proactive steps taken now will be critical in reducing compliance risk, maintaining investor confidence, and positioning for growth under an increasingly transparent business environment.