# Dormant Companies and Audit Exemption in Malaysia

> How the dormancy route to audit exemption works under Practice Directive 10/2024, why it is not the same as the threshold test, and what actually breaks dormancy.

- Category: audit
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/audit/dormant-company-audit-exemption

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A shelf company holding a name and nothing else does not need to pass the revenue
test, the asset test or the employee test. Paragraph 10 of Practice Directive
10/2024 gives dormant companies their own route to audit exemption, and most
guides bury it in a single line under the thresholds — which is where readers
miss the difference in the lookback period.

## Two limbs, not one

The directive exempts:

1. companies **dormant since the time of incorporation**; and
2. companies **dormant during the current and immediate past financial year**.

Limb 2 asks for **two** years — the current one and the one before it. The
threshold route asks for **three** — the current year and the immediate past two.
A company that traded until FY2024 and went quiet in FY2025 is exempt for FY2026
under the dormancy route, while a company relying on the numbers would still be
counting FY2024 against the limits.

Limb 1 has no lookback at all. A company incorporated three years ago that never
opened a bank account has been exempt every year since.

## What dormancy means

Paragraph 11 defines it in two parts, and **both** must hold in the financial
year:

- the company **does not carry on business**; and
- **no accounting transaction occurs**.

An *accounting transaction* is a transaction for which accounting or other
records must be kept under **s.245(1) of the Companies Act 2016** — the records
that sufficiently explain the transactions and financial position of the company
and enable true and fair accounts to be prepared.

## What does not break dormancy

The directive carves out one class of movement: a transaction arising from **any
obligation the company is required by law to pay, and its related costs to
comply**.

That covers the unavoidable cost of staying registered — SSM lodgement fees,
the annual return fee, the statutory penalties and the compliance costs attached
to them. A company can pay those and stay dormant.

## What does break dormancy

Anything that is a real transaction and is not legally compelled. In practice the
things that catch dormant companies are small and recurring:

- **bank charges, service fees and interest credited** on a company account
- **a movement on the director's account** — a director paying an expense on the
  company's behalf and booking it as owing
- **paying rent, a licence renewal that is not statutory, or a subscription**
- **any invoice issued**, however small, including a one-off recharge to a
  related company
- **buying or disposing of an asset**, including writing one off
- **secretarial or accounting fees paid from the company's own account**, where
  they are a commercial engagement rather than a statutory payment

The bank account is the usual culprit. A dormant company with a live account
accruing a monthly maintenance fee generates twelve accounting transactions a
year. The clean structures either hold no bank account at all, or have charges
waived, or settle them personally without booking them through the company.

## Dormancy removes the audit, not the file

A dormant company still prepares and circulates financial statements, still
lodges them with the Registrar within 30 days of circulation under s.259, still
lodges the annual return, and still keeps a company secretary and a registered
office. The unaudited statements go in through MBRS in XBRL format with the audit
exemption certificate attached, exactly as for a trading company using the
threshold route.

## Common mistakes

- **Treating dormancy as the same three-year test as the thresholds.** It is two
  years, or none at all if dormant since incorporation.
- **Reading dormant as no revenue.** No business *and* no accounting transaction.
  A company with zero sales but active bank charges is not dormant.
- **Assuming compliance costs break dormancy.** They are expressly excluded.
- **Assuming everything the company must pay is excluded.** The carve-out is for
  obligations imposed by law, not for anything the company has contracted to pay.
- **Letting dormancy lapse for one transaction and not noticing.** Limb 2 needs
  the current *and* preceding year, so a single stray entry costs two years of
  exemption, not one.
- **Thinking a dormant company can stop filing.** It cannot.

## What's next

Whichever route gets you the exemption — dormancy or the thresholds — the filing,
record-keeping and directors' duties on the other side are identical, and they are
where the supposed saving quietly gets spent.

## Sources

- 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)
- FAQs on Companies Act 2016 and Transitional Issues — Part Q, Audit Exemption — https://www.ssm.com.my/Pages/Legal_Framework/Document/FAQ-AUDIT-EXEMPTION.pdf (SSM)
- Companies Act 2016 (Act 777), reprint 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)

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