Startups are required, by the Company Act 2016, to prepare their financial statements within 18 months of incorporation. Subsequently, they are required to prepare within 6 months of their financial year-end.
However, according to the Companies Act 2016, determination of financial year end is at the company’s own discretion, there’s no specific date for financial year end. Most of the companies will fix their fiscal year end date either by the end of any quarter of a year (March, June and September) or end of December.
As a startup, you can choose any date to submit your first financial statements as long as it is within 18 months of the company’s incorporation date.
Things to consider when deciding financial year end of a company
Tax period
First and foremost is your taxation period. In general, taxation period is the same as a company’s accounting period. As Malaysia have just passed our tax transition period (from Goods and Service Tax, GST to Sales and Service Tax, SST), the government has gave a timeline on how company’s taxation period will be, depending on your company’s financial year end month. You can read our blog on the first SST taxable period to know more about the timeline given by the government.
Other than SST, you will need to pay your company’s income tax as well. Your company’s income tax period depends on your financial-year-end period as well. The nearer your financial-year-end closing date, the sooner you will have to file and pay your company’s income tax. Hence, it is advisable to choose a financial-year-end that is far enough so that you have enough time to file and pay your company’s income tax as well.
Business seasons
For most businesses, they may have peak and low business season. You may want to set your company’s financial year end during the low seasons as you will be less busy. There will be less transactions and less inventory to be managed and counted. Having your financial-year-end in this period means you can greatly reduce costs and increase accuracy.
Other factors
If you are a subsidiary company, you will need to consider your holding company’s financial year as financial year of a subsidiary company must coincide with its holding company.
For some company, franchise agreement might also needed to be taken into consideration when deciding financial year end.
In short, financial year end period is important for a company and requires well thought and planning. If planned well, you can reduce costs and increase efficiency for your business operation. Hence, a startup should not take determination of financial year end lightly as well.
You can also visit the links below to read more on related topics in TreezSoft:
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