# Choosing and Changing Your Financial Year End in Malaysia

> Your financial year end drives the audit exemption lookback, your e-Invoice phase and your LHDN basis period — and changing it mid-stream can break the three-year test that exemption depends on.

- Category: accounting
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/accounting/financial-year-end

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Choosing a financial year end feels like an administrative decision. It is
usually made in the first week of a company's life, by someone with no reason to
think about it, and then never revisited.

It is actually the single date from which three separate regimes are calculated.
It decides which audit exemption threshold applies to a given year. It sets your
LHDN basis period, your Form C deadline and your CP204 obligations. It fixed your
e-Invoice implementation phase back when your 2022 accounts were prepared. And
because the audit exemption test looks back across **three** financial years,
moving the date mid-stream can disturb years you have already closed.

Nobody joins those dots, so this page does.

## What the law actually constrains

Very little, which is the surprise.

Section 2 of the Companies Act 2016 defines a financial year as "the period in
respect of which any financial statements of a corporation is made up **whether
that period is a year or not**". There is no twelve-month requirement, no
prescribed date, and no approval needed to pick one.

The real constraints are three:

**The first set has an outer limit.** Section 248(1)(a) requires the directors of
every company to prepare financial statements within **eighteen months from the
date of incorporation**. Thereafter, within six months of each financial year end
under s.248(1)(b). A director who contravenes faces up to RM500,000 or a year's
imprisonment under s.248(3).

**Groups must align.** Section 247(1) requires directors of a holding company to
take the necessary steps so that within **two years** of a corporation becoming a
subsidiary, the subsidiary's financial year coincides with the holding company's.
Section 247(2) then prohibits altering any year end so they cease to coincide
**without the Registrar's consent**.

Where there is a good reason, s.247(3) allows an application in writing to the
Registrar **not less than thirty days before circulation** of the holding
company's financial statements, supported by a statement of the directors'
reasons. The Registrar may grant, refuse, or attach conditions, and may commission
an approved company auditor to investigate at the holding company's expense. An
appeal to the Minister runs for two months under s.247(8). If refused,
s.247(13) bars a similar application for **three years** unless there has been a
substantial change in the relevant facts.

**The reporting clocks follow the date.** Circulation within six months of year
end under s.258(1)(a), then lodgement within thirty days of circulation under
s.259(1)(a). Sequential, not parallel — circulating early shortens your total
runway rather than extending it.

## Lever 1: the audit exemption three-year lookback

This is the interaction that surprises people, and it is entirely a creature of
Practice Directive 10/2024.

Paragraph 5 exempts a private company that meets **at least two of three**
criteria — revenue, total assets, employee count — for the **current financial
year and the immediate past two financial years**.

Paragraph 9 then phases the thresholds by the date the financial period
commences:

| Financial period commencing | Revenue | Assets | Employees |
| --- | --- | --- | --- |
| On or after 1 Jan 2025, to 31 Dec 2025 | RM1,000,000 | RM1,000,000 | 10 |
| On or after 1 Jan 2026, to 31 Dec 2026 | RM2,000,000 | RM2,000,000 | 20 |
| On or after 1 Jan 2027 | RM3,000,000 | RM3,000,000 | 30 |

The directive's own note is the crucial part: the figures for the immediate past
two financial years must not exceed the maximum threshold specified **for the
respective corresponding phase**.

Two consequences follow for anyone contemplating a year end change.

**A transitional short period is still a financial year.** If you change from a
31 December year end to 30 June by making up a six-month set of accounts, that
six-month period is a financial year for the purposes of the three-year count. It
does not merge with its neighbours and it does not drop out.

**Moving a period's commencement date across a calendar boundary moves the
threshold that applies to it.** A period commencing 1 December 2026 sits in the
RM2 million phase. Shift it to commence 1 January 2027 and it sits in the RM3
million phase. For a company hovering near a threshold, that is the whole ball
game — in either direction.

Paragraph 13 adds the asymmetry that makes this worth planning: where a company
ceases to qualify it ceases to be exempt from that point, **but remains exempt in
relation to the accounts for the financial years in which it qualified**. You
cannot retrospectively lose an exemption you validly took. You can, however,
construct a transitional period that fails the test and thereby drags the next
two years' assessments with it.

Paragraph 21 is the instruction most companies skip: a company that meets the
criteria must **first assess its audit-exempt financial period commencing after
the exemption takes effect** to see whether it fulfils the requirements for the
current and immediate past periods. The test is prospective work, not a year-end
discovery.

## Lever 2: the LHDN basis period

Section 21A of the Income Tax Act 1967 ties the basis period for a company to its
accounting period. Change the accounting date and you have created what Public
Ruling 8/2014 calls a **failure year** — the year in which the entity fails to
close its accounts on the same date as the previous year.

In a failure year, the **Director General determines** the basis periods for the
failure year and for the year following. Public Ruling 8/2014 states that the
accounting period the taxpayer actually made up will generally be accepted,
provided:

- there is **no missing year of assessment**; and
- there are **no two or more accounts closed in the same year of assessment**.

Those two conditions are the design brief for any change. A change that creates a
year of assessment with no basis period, or that crams two closings into one year
of assessment, is a change the DGIR will re-cut for you.

The downstream deadlines move with the date. Form C is due seven months from the
day following the close of the accounting period under s.77A(1), with a
one-month e-Filing grace that also extends the s.103(1) balance-of-tax payment.
CP204 is due thirty days before the beginning of the basis period, with the
separate three-month rule for a new company whose first basis period is at least
six months.

## Lever 3: the e-Invoice phase you already landed in

This one is worth stating precisely because the anxiety around it is misplaced.

Your implementation phase was determined from the **audited financial statements
for the financial year 2022, or the year of assessment 2022 tax return**,
pro-rated where the accounting year end changed in that period — and it is
**permanently fixed thereafter**. Phase 4, covering annual turnover up to RM5
million, began 1 January 2026.

So changing your year end today does not move your phase. What it does affect is
the mechanics: your consolidated e-Invoice cycle, your reconciliation between
validated documents and the ledger, and where the transition period falls
relative to a short accounting period.

The relevant planning point is the reverse of what people assume. The phase is
fixed; the accounts are what move.

## Choosing a first year end

For a new company, four considerations, in the order they usually matter:

**Group alignment.** If the company is or will be a subsidiary, s.247 will push
you to the holding company's date within two years anyway. Start there.

**The eighteen-month outer limit.** A long first period defers the first set of
accounts, which is attractive for cash. But it produces a first financial year
that is a full financial year for the audit exemption count and it may distort
the tax basis period on commencement.

**Seasonality.** A year end shortly after the trading peak means the accounts are
prepared while receivables are at their highest and stock at its lowest, which is
usually the worst combination for both audit effort and the balance sheet you
present to a bank.

**Threshold proximity.** If you expect to sit near the audit exemption thresholds,
the date on which a period commences decides which phase's numbers apply to it.

## How to change one, in order

1. **Check s.247 first.** If there is a holding company, either the change keeps the dates coinciding, or you need the Registrar's consent, applied for at least thirty days before circulation of the holding company's accounts.
2. **Model the audit exemption count** across the transitional period and the two years either side, applying the phase thresholds by each period's commencement date.
3. **Model the basis periods** against the two Public Ruling 8/2014 conditions — no missing year of assessment, no two closings in one year of assessment.
4. **Resolve by board resolution and minute the reason.** The reason matters if the Registrar or the DGIR asks.
5. **Recalculate the s.258 and s.259 dates** from the new year end, and the Form C and CP204 dates from the new basis period.
6. **Tell your auditor, your tax agent and your lodger** before the change, not after. The MBRS filing information carries the financial year end, and a mismatch there is a rectification under s.602.

## Common mistakes

- **Assuming a financial year must be twelve months.** Section 2 says otherwise; the constraints are elsewhere.
- **Treating a short transitional period as not counting** towards the audit exemption three-year lookback. It counts.
- **Ignoring which phase a period's commencement date falls into.** RM1 million, RM2 million and RM3 million are different tests.
- **Moving a subsidiary's year end without the Registrar's consent** under s.247(2), and discovering the three-year bar in s.247(13) only after a refusal.
- **Creating a year of assessment with no basis period**, or two closings in one year of assessment, and having the DGIR determine the periods instead.
- **Believing a year end change moves your e-Invoice phase.** It was fixed on 2022 figures.
- **Forgetting that the lodgement clock starts at circulation**, so an earlier circulation date shortens the total runway rather than lengthening it.
- **Changing the year end without updating the MBRS filing information**, which then requires a filing information rectification under s.602.

## What's next

Before you change anything, write out four columns for the three financial years
around the proposed change: period start, period end, the audit exemption
threshold phase that applies, and the year of assessment. If any row is blank or
duplicated, the change needs redesigning — not because it is prohibited, but
because someone else will redesign it for you afterwards.

## Sources

- Companies Act 2016 (Act 777), updated text as at 1 August 2022 — https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf (SSM)
- Practice Directive No. 10/2024 — Qualifying Criteria for Audit Exemption for Certain Private Companies in Malaysia — https://www.ssm.com.my/Pages/Legal_Framework/Document/PD10-2024-Qualifying-Criteria-for-Audit-Exemption-for-Certain-Categories-of-Private-Companies.pdf (SSM)
- Public Ruling No. 8/2014 — Basis Period of a Company, Limited Liability Partnership, Trust Body and Co-operative Society — https://phl.hasil.gov.my/pdf/pdfam/PR_8_2014.pdf (LHDN)
- Income Tax Act 1967 (Act 53), reprint as at 21 May 2024 — https://www.hasil.gov.my/wp-content/uploads/20240521-akta-cukai-pendapatan-1967-akta-53.pdf (LHDN)
- IRBM e-Invoice Guideline — https://www.hasil.gov.my/wp-content/uploads/IRBM-e-Invoice-Guideline.pdf (LHDN)

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