Income Tax Act 2007 section 372D

Profit share agency arrangements

Section 372D explains how the rules on deduction of income tax at source apply when a person enters into a Sharia-compliant profit share agency arrangement, by treating the arrangement as if it were a conventional loan.

• Where a person (the principal) appoints a financial institution as agent under a profit share agency arrangement, the principal is treated as having made a loan to the agent equal to the money provided under the arrangement.
• If money is provided in instalments, those instalments are treated as drawdowns of the loan, with the first instalment date treated as the first drawdown date and cumulative instalments treated as the cumulative amount drawn down.
• The outstanding capital on the notional loan equals the balance of repayable money held by the agent, and any repayment of that money is treated as repayment of the loan.
• References to the beneficial owner of the loan or to disposal of the loan extend to the person entitled to repayment and to disposal of the right to receive repayment respectively.