Compliance Requirement for Company (Sdn Bhd) in Malaysia

Compliance Requirement for Company (Sdn Bhd) in Malaysia

A Private Limited Company (Sdn Bhd) is commonly the preferred form of business for new start-ups and SMEs to conduct business in Malaysia, mainly because of the ability to conduct equity fundraising and its limited liability features.

The main reason for this article is to highlight WHAT is the basic annual compliance requirement for a Private Limited Company (Sdn Bhd) in Malaysia and HOW a business owner or start-up founder can prepare for it. Although it is an annual requirement, it will definitely save you a lot of time and cost if the preparation is done from day one.

Related reading:

• Is It Important To Have A Shareholders Agreement?
• What is Paid-up Capital in Malaysia?
• 3 Types of Business Set Up in Malaysia

1) Annual Return

Every Private Limited Company (Sdn Bhd) must lodge its annual return for each calendar year with the Companies Commission of Malaysia (“CCM a.k.a SSM”) no later than thirty (30) days from the anniversary of its incorporation date.

What is an Annual Return?
It is basically a form to notify SSM of any material changes of information pertaining to the Company or to notify SSM that there are no changes in particulars. This is something your Company Secretary will prepare and lodge for the Company (provided that you pay their fees and don’t owe them any money).

What do you need to do to comply?
Use your smartphone/diary/calendar/alarm clock/significant other to set a reminder on the anniversary of incorporation to instruct your Company Secretary to prepare the annual return and lodge it with SSM within thirty (30) days. Although most (if not all) Company Secretaries will send you a reminder, my advice is to not rely on them because at the end of the day the onus is on you to ensure that the requirement is complied with.

WARNING: Failure to comply with this requirement is an offense punishable with a fine not exceeding RM5,000.00 and a further fine not exceeding RM1,000.00 for each day the offense continues.

2) Submission of Tax Estimates

In Malaysia, all registered companies, regardless of their business type, must estimate and submit their annual tax liability (known as “estimated tax payable”) one month before the start of their financial year. This applies to both established companies and those commencing operations.

Newly incorporated companies have three months from their operating start date to submit their initial estimated corporate tax payable. They will then pay this tax in installments throughout the year.

While small and medium-sized enterprises (SMEs) were exempted from submitting estimated tax payments in 2014, they are still advised to file Form CP204 to update the tax authorities of their status and avoid potential penalties. This form also helps track their financial progress and facilitates future tax assessment.

When to get it done?

• Within 3 months of operation (for new companies)
• 30 days before the start of each financial year (for all companies)

The estimated tax payable will be calculated based on your estimated annual business income. Your company will make monthly installments based on this estimate. You can submit this tax estimate yourself or engage an accountant or tax agent for assistance. Remember, the estimates can be revised if needed. It is recommended to seek professional advice on this matter, especially for new companies.

Note: SMEs are exempted from submitting estimated tax payable for the first two years of assessments from their commencement date.

SST Rates, Registration, and Filing Information in Malaysia

This information is intended to provide a concise overview of Sales & Service Tax (SST) rates, registration requirements, and filing deadlines in Malaysia.

Mandatory Registration — Sales Tax: Total sales exceeding RM500,000 within the past 12 months OR expected to exceed in the next 12 months; or sub-contractor wages/charges exceeding RM500,000 within the past 12 months.

Mandatory Registration — Service Tax: Total turnover exceeding RM500,000 within the past 12 months OR expected to exceed in the next 12 months, except: F&B businesses (threshold of RM1.5 million); Bank Negara-regulated credit card providers (no threshold); and FSPs exceeding RM500,000 in digital services to Malaysian consumers.

Exempt from Registration: Manufacturers of non-taxable goods (not eligible for voluntary registration); manufacturers/sub-contractors below the threshold; exempt manufacturing activities (e.g., tailoring, building installations, jewellers, opticians).

Voluntary Registration: Allowed for manufacturers of taxable goods and persons offering taxable services.

Filing & Payment of SST Return: Taxable period is bimonthly. The submission and payment deadline is the last day of the following month after the taxable period. For further details and specific regulations, please refer to the official MySST website.

3) Audited Financial Statement

It is the responsibility of all the director(s) of every company to prepare their audited financial statements within eighteen (18) months from the date of its incorporation and subsequently, within six (6) months of its financial year end (the deadline).

Next, the audited financial statement must be circulated to all Shareholder(s) within six (6) months of its financial year end. Thereafter, lodge the audited financial statement to SSM within thirty (30) days from when the said statement is circulated to all Shareholder(s).

What is an Audited Financial Statement?
Financial statements of a company reflect the true and fair view of the financial position and performance of a company. To keep it simple, get an auditor to prepare for you (Important Note: auditor of the company must be appointed at least thirty (30) days before the end of the period for the submission of the audited financial statements).

How to Prepare an Audited Financial Statement?
Extremely Important Note: Before an auditor can prepare an audited financial statement, they will need to see your management account and the bookkeeping record (General Ledger, Payment Voucher, Invoice, Receipts, etc.). You can either learn to do this yourself, use an accounting software, and/or hire a bookkeeper.

Common Mistake: Business owners fail to maintain proper records of all these documents. Therefore, the auditor will not be able to prepare an audited financial statement due to lack of records. Worst case scenario, although I discourage this practice and advise you against it, if you are just too lazy, get a shoe box and keep all your documents in the said box.

(Please read another article HERE to know the difference between an Accountant and a Bookkeeper.)

What do you need to do to comply?
Again, use your smartphone/diary/calendar/alarm clock/significant other to set a reminder at the end of the financial year to instruct the auditor to prepare the audited financial statement. But before you can do that, during the said financial year, you MUST keep all the relevant documents as mentioned above. It is advisable to start the process early and allow sufficient time to your auditor.

Common Mistake: Giving the instruction at the very last minute i.e. 1-2 months before the deadline. Ideally give the instruction as soon as the financial year end.

WARNING: Failure to comply with this requirement is an offence punishable with a fine not exceeding RM5,000.00 or imprisonment for a term not exceeding one year or both.

4) Director’s Report

The directors’ report shall be prepared by the director(s) for each financial year and must be attached to the financial statements (so the timeline is similar to audited financial statement).

What is a Director’s Report?
It is a document to notify SSM of any material changes of information pertaining to:

• The name of every past and existing director(s);
• The principal activities of the company;
• The net amount of profit or loss;
• Any shares or debentures; and/or
• Any other information required under the Companies Act 2016.

What do you need to do to comply?
Again, use your smartphone/diary/calendar/alarm clock/mother/wife to set a reminder to instruct your Company Secretary to prepare the said document for you. The timeline is similar to audited financial statement.

WARNING: Failure to prepare the directors’ report is an offence for the director(s) and punishable with a fine not exceeding RM500,000.00 or imprisonment for a term not exceeding one year or both. Failure to comply with this requirement is an offence for the company and every officer and punishable with a fine not exceeding RM20,000.00.

5) Submission of Tax Return

Every company in Malaysia must file Form e-C, their tax return, within 7 months of their financial year end. This form reports your company’s earnings and the taxes owed to the government.

7 Must-Knows for Your Company’s Tax Return: Form e-C, Deadlines & Penalties

• Chargeable Income: This is your company’s profit after deducting allowable expenses.
• Tax Payable: This is the amount of tax you owe based on your chargeable income.
• Information required: Form e-C needs information from your audited accounts, so ensure they’re finalized within the 7-month timeframe.
• Due date: Submit Form e-C within 7 months of your financial year end. Late filing can result in penalties.
• Estimated vs. Actual Tax: During the year, you pay taxes based on estimates. After filing your return, the actual tax owed is calculated.
• Surplus Payment: If you underpaid, you’ll need to settle the balance through e-filing.
• Tax Refund: If you overpaid, you can claim a refund through e-filing.

For simple cases, you can file Form e-C yourself using the e-filing portal. For complex situations, consider seeking help from an accountant or tax agent. Get started early and stay informed! Visit the LHDN website for more details and resources.

6) Employment Related Compliance

Employer’s Obligation for Staff Employment in Malaysia

1. Employees Provident Fund (EPF)

As an employer, your duties involve making EPF contributions for individuals engaged in a Contract of Service or Apprenticeship. It is crucial to guarantee the precise deduction of monthly contributions from your employees’ salaries and their timely remittance to EPF.

When and What to Contribute? Employer must make monthly payment on or before the 15th of the month. For example, salary for January 2018 has a Contribution Month of February 2018, and the payment must be made on or before 15 February 2018. The employer is responsible for remitting both the employees’ and the employer’s shares to the EPF. Employers have the option to deduct the employee’s share directly from their salary.

Note: Employers must refrain from calculating the employer’s and employee’s shares using an exact percentage, except for salaries exceeding RM20,000.00. The total contribution, including cents, should be rounded up to the next ringgit. This rule applies for salaries and wages from July 2022 onwards, affecting the contribution month of August 2022. EPF Contributions must be paid in only ringgit denominations and without any cent value.

Employers are mandated by the EPF Act 1991 and KWSP 1991 Rules and Regulations to make EPF contributions. Non-compliance may result in the imposition of penalties as outlined below.

2. Social Security Organisation (SOCSO)

Inclusion under the Workers Social Security Act 1969: Employers are obligated to remit monthly contributions for every eligible employee based on the prescribed rate outlined in the Employees’ Social Security Act, 1969. These contributions are categorized into two (2) types:

Contributions of the First Category: For employees who are less than 60 years of age, contributions payable by employers and employees are for the Employment Injury Scheme and the Invalidity Scheme. The rate of contribution under this category comprises 1.75% of employer’s share and 0.5% of employees’ monthly wages according to the contribution schedule.

Contributions of the Second Category: The rate of contribution under this category is 1.25% of employees’ monthly wages, payable by the employer, based on the contribution schedule. All employees who have reached the age of 60 must be covered under this category for the Employment Injury Scheme only. Note: For eligible new employees who are 55 years of age, they must be covered under the Second Category.

Inclusion within the Employment Insurance System Act 2017: The Employment Insurance System Act 2017 was enacted and became effective on 1st January 2018.

Coverage: All employers in the private sector are required to pay monthly contributions on behalf of each employee (Government employees, domestic workers and the self-employed are exempt). An employee is defined as a person who is employed for wages under a contract of service or apprenticeship with an employer, whether expressed or implied, oral or in writing. All employees aged 18 to 60 are required to contribute. However, employees aged 57 and above who have no prior contributions before the age of 57 are exempt. Contribution rates are capped at an assumed monthly salary of RM5,000.

Contribution Rates: Contributions to the Employment Insurance System (EIS) are set at 0.4% of the employee’s assumed monthly salary. 0.2% will be paid by the employer while 0.2% will be deducted from the employee’s monthly salary. Contribution rates are set out in the Second Schedule and subject to the rules in Section 18 of the Employment Insurance System Act 2017.

Eligibility to Claim Benefits: All employees covered under the Act, referred to as Insured Persons, who have experienced job loss are eligible for benefits, except in the following circumstances:

• Voluntary resignation by the Insured Person
• Expiry of the Insured Person’s fixed-term contract
• Unconditional termination of a contract of service based on an agreement between the Insured Person and their employer
• Completion of a project specified in a contract of service
• Retirement of the Insured Person
• Dismissal due to misconduct by the Insured Person

3. Monthly Tax Deduction (MTD)

The employer is obligated to deduct Monthly Tax Deduction (MTD) from the employee’s monthly remuneration and remit it to the Director General by the 15th day of the following month. Additionally, the employer is required to make supplementary deductions from the employee’s remuneration in accordance with the directives issued by the Director General under Rule 4 of MTD Rules.

To determine the precise amount of MTD, you can utilize the MTD calculator available on the Inland Revenue Board Malaysia (IRBM) website, accessible through the following link: MTD CALCULATION YEAR.

4. Human Resource Development Corporation (HRDCORP)

Expansion of the Pembangunan Sumber Manusia Berhad Act 2001 (effective from 1 March 2021): The enhancement of the PSMB Act 2001, which came into effect on 1 March 2021, was mandated by the Government of Malaysia as part of its 11th Malaysia Plan (11MP) under Strategic Thrust 5 – Focus Area C: Strengthening Lifelong Learning for Skills Enhancements. This initiative involves broadening access to HRD Corp’s funds, programs, and services to encompass all industries.

In alignment with the goals outlined in the 11MP, the government recognizes high-quality human capital as an essential element for driving the country’s future economic development. To this end, the plan has established a target to ensure that 35% of the Malaysian workforce consists of skilled workers. You could refer to the following link for the full list of industries covered under PSMB Act 2001: Perintah Pembangunan Sumber Manusia Berhad (Pindaan Jadual Pertama) 2021.

7) Benefits of Sustaining Statutory Compliance Requirements

Ensuring statutory compliance requirements is not only a regulatory necessity but also a strategic imperative for businesses. Companies that successfully meet these obligations often experience improved overall performance, enhanced control over procedures and processes, and minimized risks. While the secretarial function may not be viewed as a core business activity, its role in mitigating risks, preventing non-compliance consequences such as fines or reputational damage, and maintaining director qualifications is paramount.

By prioritizing statutory compliance, companies gain peace of mind, enabling them to focus on core duties, business strategy, and overall growth and profitability. Proactive compliance management ensures resilience against legal repercussions, fostering a conducive environment for sustainable business operations.

Challenges and Effects of Non-Compliance:

• Complex Online Submission Requirements: Navigating intricate online submission processes can be daunting, especially for businesses unfamiliar with the intricacies of local legislations.
• Resource Constraints: Companies often lack a dedicated resource to oversee time-consuming compliance tasks, leading to potential oversight or delays.
• Lack of Knowledge and Best Practices: Insufficient understanding of stringent procedures and best practices may expose companies to compliance gaps and errors.
• Risk of Missing Deadlines: The risk of overlooking important deadlines or milestones increases when compliance is not diligently managed.

Consequences of Non-Compliance: Failure to comply with statutory requirements and the Companies Act 2016 can result in significant financial and legal implications for companies and their directors:

• Financial and Legal Implications: Non-compliance may lead to fines, prosecutions, reputational damage, or director disqualifications.
• Increased Regulatory Enforcement: The Companies Act 2016 is subject to heightened enforcement by regulatory bodies like the SSM, resulting in increased issuances of compounds for breaches.
• Forceful Entity Shutdown: Extreme cases of non-compliance may lead to the forceful shutdown of the entity by regulators, especially for repeat or serious offenders, necessitating a costly and lengthy reinstatement process.
• Adaptation to Changing Regulations: Companies must remain vigilant to evolving regulations, business practices, and global market trends to avoid falling afoul of compliance requirements.

Frequently Asked Questions (FAQ)

1. How soon after incorporation must I lodge my company’s annual return?

Every Private Limited Company (Sdn Bhd) must lodge its annual return for each calendar year with SSM no later than thirty (30) days from the anniversary of its incorporation date. Failure to comply is punishable with a fine not exceeding RM5,000.00 and a further fine not exceeding RM1,000.00 for each day the offence continues.

2. What is the deadline for preparing and lodging audited financial statements?

Directors must prepare audited financial statements within eighteen (18) months from incorporation and, subsequently, within six (6) months of each financial year end. The statement must then be circulated to all shareholders within that same six-month window, and lodged with SSM within thirty (30) days of circulation.

3. What happens if the directors’ report isn’t prepared?

Failure to prepare the directors’ report is an offence for the director(s), punishable with a fine not exceeding RM500,000.00 or imprisonment for a term not exceeding one year or both. It is also an offence for the company and every officer, punishable with a fine not exceeding RM20,000.00.

4. Within how many months of the financial year end must a company file its tax return (Form e-C)?

Every company in Malaysia must file Form e-C, their tax return, within 7 months of their financial year end. Late filing can result in penalties, and Form e-C requires information from the company’s audited accounts.

5. By what date each month must EPF contributions be paid?

The employer must make the monthly EPF payment on or before the 15th of the month. For example, salary for January has a contribution month of February, with payment due on or before 15 February.

6. What is the penalty for failing to register an employee with EPF on time?

An employer who fails to register with EPF within 7 days from the date they employ an employee can face imprisonment not exceeding 3 years or a fine not exceeding RM10,000, or both, under Section 41(1) of the EPF Act 1991.

Other Related Articles:

• Is It Important To Have A Shareholders Agreement?
• What is Paid-up Capital in Malaysia?
• 3 Types of Business Set Up in Malaysia
• Letter of Demand (LOD) Malaysia Law – What we need to do?
• Company Registration