Dormant Companies and Audit Exemption in Malaysia

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.