Determining the Financial Year End
How to Choose the Financial Year End
The financial year-end for a newly set-up company can be any date so long as it is within 18 months from the Company’s incorporation date. We would recommend our clients to avoid fixing financial year-end during the peak-period (ie. March, June, September & December) as the audit fees during these period is rather difficult to be negotiated.
Factors to take into consideration when choosing the Financial Year End
Business Cycle
The financial year end doesnt have to coincide with the anniversary of your incorporation date, nor does it need to coincide with the end of the calendar year. The ideal year-end really has more to do with your business cycles, which vary from business to business.
Businesses that manage a lot of inventory may consider choosing a year-end that corresponds with the end of the busy season and presumably, a time when inventory is at its lowest. This means less inventory has to be counted, which decreases costs and increases accuracy. Furthermore, a quiet time of year makes it easier to close the books as there are fewer transactions in process and more time available from support staff, if needed.
Taxation Period
Generally, the basis period (i.e. taxation period) of a company is same as the Companys accounting period. The first accounting period is the basis period for a year of assessment when the accounts are closed. It would be the first year of assessment for the entity. Please refer PR No.8/2014 Basis Period Of A Company, Limited Liability Partnership, Trust Body And Co-operative Society for further details.
The sooner your financial year-end, the sooner you have to pay to file your corporate income taxes, Selecting a fiscal year-end that is far enough away will allow you to postpone the filling and payment of the corporate tax.
Synchronize the Financial Year with Its Holding Company
Section 247 of the CA 2016 generally provides that the financial year of a subsidiary company must coincide with its holding company. A holding company that is not a foreign company shall take the necessary steps to ensure that within two (2) years after any corporation becomes a subsidiary of the holding company, the financial year of that corporation coincides with its financial year. Notwithstanding, a holding company may apply in writing to the Registrar under Section 247(3) of CA 2016 if there is good reason for the subsidiary to continue having a different financial year.
Other Considerations
Some corporations may have their fiscal year end determined by other factors such as a franchisee agreement, joint venture agreement and etc. Its a decision that deserves some thought and planning to make the financial year-end as easy as possible to execute, as cost-effective as possible for your business and as tax advantageous as possible to both you and your business.
Should you have any questions in relation to determining your companys financial year end, please contact the secretary in charge or email us at info@3ecpa.com.my