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Determining the Financial Year End

The Companies Act 2016 does not specify the date on which a financial year/period of a company shall end. The decision to determine the financial year/period, including any changes thereof, is entirely at the discretion of the company.
 
Every company are obliged to prepare Financial Statements for a financial period not more than 18 months from the date of incorporation and subsequently within 6 months of each financial year end and submit the Financial Statements with the Companies Commission of Malaysia and the Inland Revenue Board of Malaysia. A company can fully maximise its first accounting period to 18 months from the date of incorporation for the preparation of its first Financial Statements.
 
However, the majority of companies fix their financial year/period to end as on either the last day of a calendar year (December 31) or on the last day of any of the quarter (March 31, June 30 or September 30).
 

 

How to Choose a Financial Year-End

The financial year end for a newly setup company can be any date so long as the financial period is within 18 months from the Company’s incorporation date. It can actually fall on any day within the year. For e.g., a company incorporated on 20th March can have its first financial period ends as late as on the 19th September of the following year. However, we would recommend our clients to end their financial year on the last day of a month which is within 18 months from incorporation as per common practice and to avoid any inconvenience as there may be a need to customize the accounting software used to maintain the company’s accounts. Companies may also want to avoid fixing financial year end which ends during peak periods (i.e. March, June, September & December).

 

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 the year makes it easier to close the books as there are fewer transactions in process and more time available from support staff.

Taxation Period

Generally, the basis period (i.e. taxation period) of a company is the same as the company’s 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 to 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 ends, the sooner you have to file and pay your corporate income taxes. Selecting a fiscal year-end that is far away enough will allow you to file and pay the corporate tax later.

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. It’s 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 company’s financial year end, please contact the secretary-in-charge or email us at info@3ecpa.com.my