Practice Note No. 2/2008 issued by the SSM on Change of Financial Year

COMPANIES ACT 1965: SSM’S PRACTICE NOTE NO 2/2008

RE: CHANGE OF FINANCIAL YEAR

1. This Practice Note serves to inform on the relevant actionsto be taken following a change in the financial year of a company.

Financial year of a company

2. Section 4 of the Companies Act 1965 (CA 1965) defines“financial year” in relation to any corporation as the period inrespect of which any profit and loss account of the company, laid before it at a general meeting is made up, whether that period isa year or otherwise.

3. As the CA 1965 does not specify the date in which a financial year shall commence or end, the decision to determine the financial year, including any changes thereof, is entirely at the discretion of the company.

4. Commonly, a company changes its financial year due to the following reasons:

(i) to coincide with the financial year of its holding company pursuant to section 168 of the CA 1965; or

(ii) pursuant to a change of its internal operations or policy.

Change of Financial Year Pursuant to Section 168 of the CA1965

5. Section 168 of the CA 1965 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 theholding company, the financial year of that corporation coincides with its financial year pursuant to section 168(1)(b) of the CA 1965. Notwithstanding, a holding company may apply in writingto the Registrar under section 168(3) of the CA 1965 if there is good reason for the subsidiary to continue having a different financial year.

6. To synchronize the financial year of the subsidiary with its holding company, the approval from the Registrar is not necessary. However the holding company or any of its subsidiaries shall not, without the consent of the Registrar, alter the financial year of any of the entities that would result in the financial years not coinciding.

7. A situation where the Registrar may make an order granting the application under section 168(3) of the CA 1965 is when a subsidiary company acquired is incorporated outside Malaysia.

Consequences of a Change in Financial Year

8. If a company elects to change its financial year, it is still required to strictly observe the requirements relating to the holding of the Annual General Meeting (AGM) [section 143 of the CA 1965] and laying of a profit and loss account [section 169 ofthe CA 1965]. Principally, the crux of the two (2) provisions areas follows:

(i) A company is required to hold an AGM in every calendar year;

(ii) The AGM must be held not more than 15 months after the holding of the last preceding AGM;

(iii) A company must lay its audited profit and lossaccount and balance sheet (audited accounts) during the AGM where the audited accounts is made up to a date not more than six (6) months before the date ofthe AGM; and

(iv) The audited accounts must be laid at an interval of not more than 15 months.

Appropriate Actions Following a Change in Financial Year

9. When a company changes its financial year, proper planning must be exercised to ensure that the relevant provisions of the CA 1965 are complied with. In some circumstances, the change in the financial year may result in the inability to lay the financial statements at the AGM during the calendar year.

10. The following are potential scenarios of changes of a company’s financial year and the proposed course of action to be taken in furtherance to such changes:


Example I:

In the case of a change of financial year from 30 June to 31 December, it is advised that the company prepares a 6 month accounts (1 July – 31 December) to be tabled at the AGM of the next calendar year following the change of the financial year and a 12 month accounts (1 January – 31 December) to be tabled at the subsequent calendar years.

Illustration:

X Sdn Bhd has changed its financial year end from 30 June 2006 to 31 December 2006. Its last AGM was held in December 2006. Under these circumstances, X Sdn Bhd is advised to take the following actions:

• To prepare the accounts for six (6) months from1 July 2006 to 31 December 2006 and table it at the AGM for calendar year 2007;

• Subsequently, to prepare the accounts from 1 January 2007 to 31 December 2007 and table it at the AGM for calendar year 2008.

Example II:

In the case of a change of financial year from 31 December to 30 June, it is advised that the company prepares an 18 months accounts and to be tabled at the next calendar year following the change of the financial year.

Illustration:

Y Sdn Bhd changed its financial year from 31 December 2005 to 30 June 2006. Its last AGM held in June 2006. Under these circumstances, Y Sdn Bhd is advised to take the following actions:

• To prepare the account for 18 months from 1 January 2006 to 30 June 2007 and table it at the AGM for calendar year 2007;

• To apply for an extension of time under sections143(2) and 169(2) of the CA 1965 to enable the company to table the accounts that exceeds the interval of 15 months.


Application for Extension of Time to Hold an AGM Beyond the Calendar Year


11. Following a company’s decision to change a financial year, SSM noted that an application for an extension of time under sections 143(2) and 169(2) of the CA 1965 may result in the AGM
to be held beyond the calendar year. Section 143(1) of the CA 1965 however only allows for one (1) AGM to be held in any particular calendar year. As such, the approval given under
section 143(2) may result in a company having to convene two AGMs in the following calendar year.

Illustration:

Z Sdn Bhd changed its financial year from 30 June 2006 to 31 December 2006. The company held its last AGM on 15 November 2006.

Due to the company’s internal operations and policy, its next set of audited accounts was drawn up for a period of 18 months from 1 July 2006 to 31 December 2007. The company was due to hold its AGM in November 2007. However, since the audited accounts were not ready, the company applied for an extension of time under sections143(2) and 169(2) of the CA 1965 to hold its AGM beyond the calendar year and to table the audited accounts ending December 2007.

An extension of time was granted by the Registrar under sections 143(2) and 169(2) until 28 February 2008 for the AGM to be convened for the calendar year 2007.

As a result of the approval of extension of time until 28 February 2008, Z Sdn Bhd faces predicament as it still needs to comply with the requirement under section 143(1)for calendar year 2008.

12. To address this legal anomaly, an AGM convened following an approved application under section 143(2) of the CA 1965 resulting in it being held beyond the calendar year shall be deemed to have fulfilled the requirement of section 143(1) of the CA 1965 for the calendar year it was supposedly held. This is because compliance of section 143(1) of the CA 1965 is still required.

Illustration:

Following an approval for an extension of time under sections 143(2) and 169(2) until 28 February 2008 for the AGM for calendar year 2007, Z Sdn. Bhd. held its AGM on 20 February 2008. This AGM shall be deemed to be held for the calendar year 2007.

In calendar year 2008, Z Sdn Bhd is required to convene an AGM pursuant to section 143(1) but no audited accounts need to be tabled as the audited accounts for the relevant financial year has been duly tabled.

13. If and only if, by operations of the provisions under sections 143(1) and 143(2) of the CA 1965 has resulted in a situation where there is no audited accounts to be laid before the AGM, the annual return of the company shall be accepted without the inclusion of a copy of the audited accounts. However, the company must substantiate the lodgement of the annual return with a copy of the approval of the extension of time. It must be noted that this practice shall be applicable only to bona fide cases.


14. This Practice Note serves to reiterate SSM’s stance that although a company has the prerogative to decide its financial year, a company intending to change its financial year must
strictly adhere to the provisions of sections 143 and 169 of the CA 1965.


REGISTRAR OF COMPANIES
COMPANIES COMMISSION OF MALAYSIA
31 DECEMBER 2008

SECOND ECONOMIC STIMULUS PACKAGE 2009

In response to the current global economic crisis, the honourable Deputy Prime Minister and Finance Minister, Y.A.B. Dato’ Sri Mohd Najib Tun Abdul Razak announced the Second Stimulus Package on 10 March 2009.

A brief summary of the relevant tax measures proposed is stated below:

a) Carry back of current year business losses of up to RM100,000 for years of assessment 2009 and 2010 to the immediately preceding year. The proposal is not available to amongst others, a person who:

i) has been granted pioneer status or approval for investment tax allowance under Promotion of Investments Act 1986;

ii) has made a claim for re-investment allowance under Schedule 7A of the Act;

iii) has been granted an exemption under Section 127(3)(b) or 127 (3A) of the Act;

iv) has made a claim for deduction under the Income Tax (Deduction for Investment in an Approved Food Production Project) Rules 2006; the Income Tax (Deduction for Cost of Acquisition of Proprietary Rights) Rules 2002; or the Income Tax (Deduction for Cost of Acquisition of Foreign Owned Company) Rules 2003;

v) has been exempted from tax on its income under Section 54A of the Act;

vi) is an investment holding company under Section 60FA;

vii) carries on insurance business under Section 60, inward re-insurance business under Section 60A or offshore insurance business under Section 60B;

viii) carries on takaful business under Section60AA; or

ix) in the case of an individual, has no source consisting of a business.

b) With effect from year of assessment 2009, interest of up to RM10,000 each year expended by an individual citizen who is a resident to finance the purchase of one residential property, the sale and purchase agreement of which has been executed between 10 March 2009 and 31 December 2010, is allowed deduction for 3 consecutive years from the year in which the interest is first expended.

c) With effect from year of assessment 2009, qualifying capital expenditure of up to RM100,000, incurred by a person between 10 March 2009 and 31 December 2010, on renovation or refurbishment of a premise which is used for the purpose of a business of his, shall be allowed an allowance equal to one-half of that expenditure. The list of proposed qualifying renovation or refurbishment expenditure is as follows:

i. general electrical installation;

ii. lighting;

iii. gas system;

iv. water system;

v. kitchen fittings;

vi. sanitary fittings;

vii. door, gate, window, grill and roller shutter;

viii. fixed partitions;

ix. flooring;

x. wall covering;

xi. false ceiling and cornices;

xii. ornamental features or decorations excluding fine art;

xiii. canopy or awning;

xiv. fitting room or changing room;

xv. children play area; and

xvi. recreational room for employee.

d) Paragraph 71 of Schedule 3 of the Act provides that where a person incurs qualifying expenditure in relation to an asset which he owned for a period of less than two years and such asset is disposed of, balancing charge equal to any allowance claimed in respect of the qualifying expenditure shall be made against that person, except by reason of death of that person. With effect from year of assessment 2009, the Director General of Inland Revenue is empowered to consider other reasons he thinks appropriate for not clawing back the allowance claimed.

e) For an individual who ceased employment on or after 1 July 2008, the exemption from tax on payment for compensation for loss of employment has been raised from RM6,000 to RM10,000 for each completed year of service.

f) Effective from the year of assessment 2009, double deduction is granted for remuneration incurred on employing Malaysian citizens and residents retrenched on or after 1 July 2008 and the termination has been registered with the Director General of Labour, the Ministry of Human Resources. The incentive is applicable for the employment of full time employees between the period from 10 March 2009 to 31 December 2010. The double deduction incentive is restricted to remuneration not exceeding RM10,000 per worker per month for a maximum period of 12 months.

This incentive is not applicable where the employment is for the replacement of a former employee or the former and present employers are associates or controlled companies as defined under Section 139 of the Act.

g) For the banking and financial institutions, with effect from year of assessment 2009, the interest which is due and payable for the period of twelve consecutive months related to the deferment on the repayment of a housing loan taken by a retrenched Malaysian citizen before termination of his employment, will be taxed on a receipt basis. This is on conditions, amongst others that the request for the deferment of the housing loan repayment is made between 10 March 2009 and 9 March 2010 and that the individual was retrenched on or after 1 July 2008.

h) Effective from year of assessment 2009, Accelerated Capital Allowance (ACA) of 40% annual allowance is given to a Malaysian resident on qualifying expenditure incurred under Schedule 3 of the Act between 10 March 2009 and 31 December 2010. For asset acquired under hire-purchase, only qualifying expenditure incurred during that period shall be eligible for the ACA. The incentive shall not apply to a person who in the period from 10 March 2009 to 31 December 2010:

i) has been granted incentives under the Promotion of Investments Act 1986;

ii) has made a claim for re-investment allowance under Schedule 7A of the Act;

x) has been granted an exemption under Section 127(3)(b) or 127 (3A) of the Act; or

xi) qualifies for an allowance at a higher fraction under the Act or any rules made under Section 154 of the Act.

Declare Dividend disregard accumulated losses

Can a company declare dividend out of a profit year and disregard accumulated losses?

• Companies Act had stipulated that no dividend shall be paid by the company except out of profits [S365(1)].

• No part of the capital of the company may be distributed as dividen as this would constitute a reduction of capital in a manner not permitted by the law.

• Profits are calculated by applying prudent accounting standards and practice so as to determine the source of dividends. However, when it comes to deciding whether it is lawful for a company to pay a dividend, profits as calculated under the law will be preferred as there is no legal necessity to make good any losses in fixed capital or depreciation of fixed capital (in accounting, loss or depreciation of fixed assets is allowed for in computing profits) and the profits made in the current financial year can be lawfully distributed by way of dividend without making good trading losses of earlier years.
• This means that if a company had suffered loss in the past, but has currently made a profit, legally this current profit can be distributed.
• However, directors are required to exercise reasonable commercial prudence to ensure going concern of the company and therefore, would usually make provisions for the past losses (accumulated losses) to be recovered before a dividend is declared.

Form EA (Form CP 8A) for Year 2008

Letter from Inland Revenue Board (IRB) dated 24 February 2009 informing the following: -

(i) Scope of Part G

The IRB has informed that the amount to be reported in Part G of the EA Form (Form CP 8A) includes allowances/perquisites/gifts/benefits which are already accorded exemption prior to the announcement of Budget 2009. Please refer to the Notes to Part G of Form EA attached to the 2008 Form E or to Part F at page 3 of the Explanatory Notes to the 2008 Form E.

(ii) Concession on Compliance

Members are informed that employers having problems complying with the new Form EA format (Form EA – Rev 2008) may file the Form EA using the old format (Form EA – Rev 2005). This effectively removes the need to disclose Part G of the EA Form. However, members are reminded that this concession is granted for filing of the form relating to income for the year 2008 only.

Reference:

http://pull.xmr3.com/cgi-bin/pull/DocPull/1597-490674-E541/93415722/Form_EA_2008_-_Concession_and_Clarification.pdf

Procedures for Submission of Return Forms for Year of Assessment 2008 (Repayment/Refund cases)

The IRB has issued guidelines setting out the procedures for submission of 2008 tax return forms relating to refund under Section 110 of the Income Tax Act 1967 or overpayment of tax. Members may view the guidelines: -

http://pull.xmr3.com/cgi-bin/pull/DocPull/1597-490674-2640/93415726/Guides_to_Submission_of_Tax_Return_YA_2008_(Refund_Case).pdf

Tax return forms relating to refund under Section 110 of the Income Tax Act 1967 or overpayment of tax to be submitted to: -

Pusat Pemprosesan Pandan Indah

Kaunter Khas No 16 Tingkat 12

Layout and Explanatory Notes for CP 8D and Format for CP 8D

The IRB has uploaded the layout and explanatory notes for CP 8D as well as format of CP8D on its website recently. You may view the documents on IRB’s website respectively at:

http://www.hasil.gov.my/cP/upload/Form/Nyata/Panduan%20Maklumat%20CP%208D.pdf &

http://www.hasil.gov.my/cP/upload/Form/Nyata/Format%20C.P.%208D.xls .

Revised 2009 Filing Programme

MIT has received a letter from the Inland Revenue Board (IRB) dated 5 February 2009 informing the revision of 2009 Filing Programme. The said revised filing programme can be viewed at:

http://www.hasil.gov.my/cP/upload/News/2009_Filing_Programme_for_Forms.pdf

The key changes in the filing programme are as follows:

(i) Extension of Time to File Form CP 8D

Employers having problem in submitting Form CP 8D on or before 31 March 2009 are given extension of time till 31 May 2009 to submit the said Form. However, employers are reminded that they still have to submit Form E by 31 March 2009.

Please refer to item 3.1(ii) of the Revised 2009 Filing Programme.

(ii) Submission of Form CP 8D by employer using e-filing

For employer submitting Form E via e-filing, Form CP 8D can be submitted via e-filing as well. Employers may also submit using text file on CD/Diskette or Excel file on CD/Diskette.

Please refer to item 3.2(ii) of the Revised 2009 Filing Programme.

(iii) Procedure for Claiming Refund Under Section 110 (ITA 1967)/Section 51 (FA 2007)

The IRB has indicated that dividend vouchers need not be submitted. Taxpayers are required to submit the following work sheets together with the return form.

(a) Work sheet HK 3;

(b) Work sheet HK 6 and relevant documents in respect of other claim for Section 110 tax deduction;

(c) Work sheet HK 8/ HK 9 (if applicable) and relevant documents pertaining to the foreign tax deducted in the country of origin.

However, taxpayers are still required to keep the original dividend vouchers for the purpose of tax audit. Please refer to item 6 of the Revised 2009 Filing Programme.