In a move that could significantly impact businesses and investors, Malaysia has announced the change in financial year end in Malaysia. This shift has stirred discussions within the financial sector, raising questions about its implications for reporting, planning, and regulatory compliance. Understanding these changes is crucial for stakeholders to adapt effectively and stay ahead in navigating Malaysia’s evolving financial landscape. 

What does the financial year-end entail? 

According to Section 2 of the Companies Act 2016, the financial year of a corporation is the period for which any financial statements are prepared, irrespective of their duration. Companies are mandated to prepare financial statements within 18 months from their incorporation date and within 6 months for subsequent years, after which they must submit them to both the Companies Commission of Malaysia (SSM) and the Inland Revenue Board of Malaysia (LHDN). 

Working out the financial year-end of a new company

When incorporating a company, selecting the financial year-end is a pivotal decision, typically within 18 months of establishment. Options like December 31st or the close of a quarter month are common, while others such as March 31st, April 30th, or October 31st are also feasible. Engaging the company secretary for guidance can streamline the process, aiding in the preparation of the initial board resolution to establish the financial year-end. 

Key changes in financial year-end in Malaysia 

In Malaysia, the financial year-end signifies the conclusion of the reporting period for businesses. Understanding key changes in this landscape is crucial for compliance and strategic planning. Recent years have seen shifts in financial year-end practices due to regulatory reforms and global standards, impacting businesses’ operations and reporting. Find out about the recent changes surrounding the financial year-end in Malaysia. 

Managing business cycles 

The timing of a company’s financial year-end isn’t necessarily linked to its incorporation date or the close of the calendar year; instead, it should be tailored to its unique business cycles, which can vary significantly between industries and individual enterprises. 

For businesses heavily involved in inventory management, strategically selecting a year-end that corresponds with the conclusion of the busy season, when inventory levels tend to be at their lowest, can result in reduced counting expenses and heightened accuracy in financial reporting. Furthermore, opting for a quieter period of the year facilitates smoother book closure processes, as there are typically fewer ongoing transactions and more available support staff time to ensure meticulous financial record-keeping. 

Company taxation period 

In general, a company’s basis period, which aligns with its taxation period, typically corresponds to its accounting period. This means that the first accounting period serves as the basis period for a year of assessment once the accounts are finalized, marking the initial year of assessment for the entity. Referring to PR No. 8/2014, the basis period of a company, limited liability partnership, trust body, and cooperative society can provide further clarification on this matter. Strategically selecting a fiscal year-end further into the future can afford the company more time to prepare and file its corporate income taxes, thereby delaying the payment deadline. 

This can be advantageous as it allows for more flexibility in financial planning and management. By extending the duration between the financial year’s conclusion and the tax filing deadline, companies can better optimize their resources and cash flow, potentially mitigating any financial strain associated with immediate tax obligations. Therefore, careful consideration of the fiscal year-end can contribute significantly to a company’s overall financial strategy and tax compliance efforts. 

Financial year alignment with the holding company 

Section 247 of the Companies Act 2016 stipulates that the financial year of a subsidiary company must align with that of its holding company. It mandates that a holding company, unless classified as a foreign entity, must take proactive measures to synchronize the financial year of any corporation it acquires as a subsidiary within a period of two (2) years. 

However, exceptions can be made under Section 247(3) of the Companies Act 2016, allowing a holding company to submit a written request to the Registrar if there are valid grounds for the subsidiary to maintain a distinct financial year. This provision underscores the importance of harmonizing financial reporting practices within corporate structures while acknowledging circumstances that may necessitate deviations for practical or strategic reasons. 

Company inventory 

In any given financial year, a scenario where a company maintains lower inventory levels holds undeniable advantages. Primarily, this translates into reduced costs for inventory accounting, as there’s less physical counting involved, concurrently enhancing the accuracy of inventory records. 

Moreover, with fewer items in stock, the process of closing financial books becomes notably smoother, minimizing the number of transactions in progress and affording ample time for support staff to meticulously conduct due diligence. This streamlined approach not only fosters operational efficiency but also cultivates a conducive environment for comprehensive financial scrutiny and analysis. 

Implications of changes in the financial year in Malaysia

If a company opts to change its financial year, it must still adhere strictly to the requirements outlined in SSM’s Practice Note 2/2008, Section 143 of the CA 1965 regarding the Annual General Meeting (AGM), and Section 169 of the CA 1965 concerning the laying of a profit and loss account. These provisions mandate that a company holds an AGM annually, with no more than 15 months between each AGM, during which audited accounts must be presented, prepared no more than six months before the AGM date, and laid at intervals of no more than 15 months. 

Change of Financial Year End in Malaysia: Crucial steps after changes in the financial year 

When a company decides to alter its financial year, meticulous planning becomes essential to ensure adherence to the pertinent provisions of the Companies Act of 1965. It is imperative to recognize that such modifications can potentially lead to challenges, particularly in scenarios where the revised financial year aligns in a manner that impedes the timely presentation of financial statements during the Annual General Meeting (AGM) within the same calendar year. Therefore, meticulous attention must be devoted to strategizing and implementing the transition effectively to mitigate any potential complications and uphold regulatory compliance. 

Premia TNC’s accounting expertise: Change of Financial Year End in Malaysia 

At Premia TNC, we streamline your financial operations with our comprehensive accounting services. From facilitating payment and receipt processes to expert check handling, meticulous maintenance of accounting records, and tailored account preparation, we ensure compliance and transparency at every step. 

Trust us for year-end management account preparation, seamless audit support, and efficient monthly payroll management, including submission for EPF, SOSCO, EIS, PCB, and HRDF. With our expertise, you have the freedom to focus on growing your business while we handle the complexities of financial management with the utmost precision and care.