Introduction
Understanding the basis period accounting period malaysia is essential for companies, LLPs and businesses when preparing financial statements and filing tax. This article explains the difference between “Basis Year”, “Basis Period” and “Accounting Period” under the Income Tax Act 1967 (latest consolidated), and how your choice of financial year-end may impact your Year of Assessment (YA), tax obligations and compliance timing.
How the “Calendars” Work under Malaysia Tax Law
Basis Year vs. Basis Period vs. Accounting Period
Basis Year refers to the calendar year. Under Section 20 of the Income Tax Act 1967, income earned during a calendar year (e.g. 1 Jan – 31 Dec) is generally taxed in the same YA. For individuals and businesses without special accounting period, the basis period ends on 31 December by default. (Act 53)
Basis Period means the period used to determine chargeable income for a given YA. For entities preparing accounts on a calendar year-end, basis period = calendar year. For entities using a non-calendar financial year-end, their accounting period becomes the basis period for the corresponding YA, as defined under Section 21A(2). (IRBM — Basis Period for Company/LLP/Trust/Co-op)
Accounting Period (AP) refers to the financial year of a company, LLP, trust or co-op. If the AP ends on a date other than 31 December, that AP becomes the basis period for tax assessment. This mechanism allows flexibility in choosing a year-end other than calendar year-end.
Why Choosing the Right Accounting Date Matters
Impact of Tax Rate Changes & Year of Assessment (YA)
Because corporate tax rates may change over time, the year when your financial year-end falls determines which YA applies — and that may affect your tax cost. For example: a company ending financial year on 31 Dec 2020 will be assessed under YA 2020; another company ending 31 Jan 2021 (accounting period 1 Feb 2020–31 Jan 2021) will fall under YA 2021. If the tax rate for YA 2021 is lower, this could influence total tax — though actual savings depend on profit amounts and other factors (i.e. this is just a conceptual illustration).
Practical & Compliance Considerations
- If financial year-end is 31 Dec, reconciling employer obligations (e.g. Form E) is simpler.
- A non-31 Dec year-end may give more time to finalise accounts and financial statements.
- For newly incorporated companies, first financial period length and year-end selection determine when first YA begins will affect the estimated-tax (CP204) / instalment obligations。
- For multi-entity groups or multinational corporations (MNCs), having a standardised year-end across all entities helps simplify the preparation of consolidated audited financial statements and streamlines group-level tax compliance.
How Basis Period Is Determined for New Companies or When Changing Accounting Period
According to Public Ruling No. 8/2014 (effective from YA 2014), special rules apply:
- If first accounting period is less than 12 months and ends within the same calendar year, that period becomes the first basis period for that YA.
- If first accounting period ends in the following calendar year, then that accounting period becomes the basis period for the second YA; the first YA may have no basis period.
- If the accounting period exceeds 12 months (e.g. extended period), that period may be treated as the basis period for the third YA, earlier YAs may have no basis period.
Changing Accounting Period: Notification & Estimated Tax Obligations
If a company, LLP, trust or co-op changes its financial year-end, it must notify to Inland Revenue Board (“IRBM”) by submitting Form CP204B. (IRBM – Change in Accounting Period)
Also, if the change affects estimated tax or instalment schedule, a revised estimate via Form CP204A may be required. Failure to comply may result in adjustments or penalties.
Deadlines & Tax-Filing / Instalment Schedule
Tax returns for companies/LLPs/co-ops/trust bodies are generally due within 7 months after the end of the basis period. (IRBM Sample Form C / CPE)
Estimated tax (e-CP204) should be submitted — for new companies — usually within 3 months from commencement. For subsequent years, estimates are due not later than 30 days before the start of next basis period. Revised estimates (CP204A) are needed if there’s a change in accounting period or expected income. (IRBM – Tax Estimation Guidelines)
Key Takeaways
- For individuals/sole proprietors, basis period normally runs to 31 Dec — calendar year = YA.
- For companies/LLPs/trusts/co-ops, financial year-end (accounting period) may differ — that determines basis period and YA.
- Your choice of accounting date affects which YA applies, potentially influencing tax rate, compliance timing, and cashflow.
- When starting a new company or changing accounting period, follow IRBM’s rules and submit required forms (CP204, CP204A, CP204B) in time.
- Using non-31-Dec year-end offers flexibility — but requires careful compliance to avoid penalties and ensure smooth tax filing.
Note: This article reflects the Income Tax Act 1967 and relevant IRBM Public Rulings as at the latest IRBM publications. Always refer to the official IRBM website and consult a qualified tax professional for your specific situation.
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