Tax Investigation

1. What is tax investigation?
Tax investigation normally begins with a surprise visit to the taxpayer's business premises, personal residences, agent/representatives and various third parties' premises to take possession of the required documents and books of accounts for investigation purposes.

2. What is the aim of tax investigations?
The aim of tax investigations is to investigate taxpayers who are suspected to be involved in fraud, willful defraud or negligence in reporting their income.

3. What is the difference between tax audit and tax investigation?

Tax audit is just a normal routine inspection on a taxpayer's operation, financial records and other supporting documents which substantiate the position taken in the tax return without any suspicion. Tax investigation is an investigation carried out on a taxpayer suspected to be involved in fraud, willful defraud or negligence in reporting their income and there are certain proofs to prove it.

4. What happens if IRB finds out if there is fraud, willful defraud or negligence in reporting my business's income?

In cases where fraud, willful defraud or negligence is detected, the IRB is empowered to revise the tax computations, taking into account tax lost beyond the 6 years of investigation notwithstanding that the taxpayer may not have records for those periods. Additional assessment will be issued to recover the tax lost, coupled with penalties, which can be up to 300%. In serious cases, or for repeated offenders, the taxpayer may be prosecuted and if he is found guilty, imprisonment of up to 3 years can be imposed.

5. What is considered willful evasion of tax?

Willful evasion of tax means any action or deed deliberately performed or done with the purpose or intention of evading or assisting any other person to evade tax and would include any of the following:

• Deliberate omission of any income from a return;
• Making a false statement or entry in a return;
• Giving a false answer(orally or in writing) to a question asked or to a request for information made for the purpose of the Act;
• Preparing or maintaining false books of account or other records, or authorizing the preparation or maintenance of false books of accounts or other records;
• Falsifying books of accounts or other records, or authorizing the falsification of books of accounts or other records; and
• Making use of any fraud, art or contrivance, or authorizing the use of any fraud, art, or contrivance.

6. Where can I obtain more information on tax investigation?

The IRB has issued a framework for tax investigation to ensure that the tax investigation is carried out in a fair, transparent and impartial manner. This framework outlines the rights and responsibilities of the taxpayers, tax agents and investigation officers. For more information, please read the "Framework for Tax Investigation" published in the IRBM website ( http://www.hasil.org.my/ ) or consult a tax consultant.

Please contact me at comsecretarial@gmail.com if you need professional assistance on this topic. I am more than willing to assist you.

Tax Audit

1. What is tax audit?Tax audits involve a visit by the Inland Revenue Board (IRB) officer to business owners ("tax payer") corporate premises to review tax payer's operation, financial records and other supporting documents which substantiate the position taken in the tax return.

2. What is the aim of tax audit?

Tax audit is required to ensure that tax payers report the correct amount of income and pay the right amount of tax which is computed in accordance with the tax laws and regulations. For the government, it works as an enforcement tool ensuring that the Self Assessment System is strictly complied with to prevent any loss of revenue of the government.

3. What is the Self Assessment System?

The Self Assessment System is a process requiring tax payers to compute, report and pay the right amount of tax by themselves or with the help of a tax consultant.

4. What if IRB finds out that I understated or omitted my company's income?

If that happens, you are subjected to a penalty equal to the amount of tax undercharged (100%) or equal to triple the amount of tax payable (300%).

5. How to avoid the penalty?

There is actually no way to avoid the penalty but Director General of Inland Revenue (DGIR) has the discretionary power to abate the penalty. It is recommended to keep a full set of records and accounts to avoid any misunderstanding in the tax audit process.

6. Where can I obtain information on tax audit?

You can obtain further information by reading the "Framework for Tax audit" published in the IRBM website ( http://www.hasil.org.my/ ), or consult a tax consultant.

7. What is included in the guide?

The main areas covered in the guideline are as follows:

(i) The main objectives of audit.

(ii) The basic procedures involved in a tax audit.

(iii) The rights and responsibilities of IRBM, taxpayers and tax agents.

(iv) Complaints and appeal procedures.

(v) Penalty and offence.

Please contact me at comsecretarial@gmail.com if you need professional assistance on this topic. I am more than willing to assist you.

Corporate Meetings for Private Limited Companies (Sdn Bhd)

Companies in Malaysia are required to hold corporate meetings which is the shareholders and directors meetings. Minutes should be maintained for each of these meetings. The Company Secretary of the company is normally responsible to document these meetings.

It is important that key decision making process of the company is documented. There is no need to document small routine decisions made by the company BUT there should be written minutes or consent resolutions for decisions or events that require formal approval by the board of directors or shareholders.

What are directors' meetings?

The directors are elected to run and manage the affairs of the company. It is important that major decisions made by directors are documented at meetings. In some cases, one of the directors may be delegated to transact certain businesses and this should be done by way of convening a board meeting or by directors' circular resolution.

What are matters discussed at directors' meetings?

The Articles of Association regulates the proceedings of directors meetings. There should be at least two directors present for the meeting to proceed.

The following are common matters discussed at directors' meetings:

1. Recommending dividends
2. Transfer of shares
3. Appointment or resignation of directors
4. Direction of company such as developing a new product or additional capital required
5. Performance of company
6. Others

What are shareholders meeting?

There are three types of shareholders meetings:

1. Annual General Meeting (AGM)
2. Extraordinary General Meeting (EGM)
3. Class Meeting

What is an annual general meeting?

Shareholders are required to have at least an annual general meeting.

The Companies Act, 1965 requires the following:

1. The first AGM of the company must be held within 18 months of its incorporation
2. An AGM must be held in each calendar year
3. An must not be held more than 15 months after the last AGM

However, as the financial statements of the company needs to be presented within a period of 6 months before the AGM, the company would have to hold its AGM within 6 months from its financial year.

The authority to convene an AGM is usually with the board of directors. Shareholders must receive written notification of this meeting and 14 clear days notice is sufficient unless the M&A (byelaws) of the company require a longer period. However, if there are any special resolutions (special business) to be passed, then 21 clear days notice must be given.

What is the purpose of an AGM?

The Companies Act, 1965 prescribes certain matters to be conducted at the AGM. This include:

1. The audited accounts of the company must be laid before the company at the AGM. The Companies Act does not require the members to approve or adopt the accounts BUT to consider the accounts. The purpose for the audited accounts to be laid before the AGM is to enable shareholders to seek clarification from directors on any questions regarding the performance and affairs of the company.
2. Consider the report of directors.
3. The appointment of auditors and fixing of auditors fees. The shareholders may allow the directors of the company to fix the auditors fees.
4. Election of directors in place of those retiring.
5. Declaration of a final dividend (if any) recommended by the directors.

Other matters can also be discussed at the AGM, however prior notice needs to be given and these other businesses are normally classified as special businesses.

What is an EGM?

An extraordinary general meeting is convened to transact special business that is too urgent to wait until the next AGM.

The Memorandum and Articles of a company may allow the directors to convene an EGM. The members of the company may also convene an EGM on requisition provided that the member calling for the EGM holds not less than 10% of the paid-up capital that has the right to vote at the general meeting. The directors of the company upon receiving the requisition should give notice to convene the EGM. However, if the board fails to convene the EGM, the members themselves representing more than half of the total voting rights may themselves convene the EGM.

What is a class meeting?

Class meetings are meetings held for holders of a class of shares for companies that issues different classes of shares. Class meetings may be held for situations concerning variation of rights and privileges attached to the class of shares.

Appointment Of Auditor

Under the Companies Act Malaysia, companies that are doing business in Malaysia and registered under the Companies Commissioner of Malaysia are required to appoint an approved auditor to audit the accounts of the company.

In another words, all public listed companies, private limited companies and branch offices in Malaysia are required to appoint an approved auditor to audit the accounts. The directors are required to present an audited set of accounts at the annual general meeting once in every calendar year.

Who is an approved auditor?

An approved auditor is a person approved as an auditor by the Minister of Finance. Normally the appointment of auditors is in the name of the firm. The directors of the company must ensure that the proposed auditor that they are appointing is an approved auditor.

What are the duties of auditors?

Auditors' main duties are as follows:

- To examine and form an opinion as to whether the financial statements have been drawn up in accordance with the financial reporting standards of Malaysia and the Companies Act 1965.

- To examine and form an opinion as to whether the financial statements give a true and fair view of the financial position of the Company as of the financial year end and of its financial performance and cash flows of the year end.

- To obtain reasonable assurance that the financial statements are free from material misstatements.

- To report that the accounting and other records and the registers required by the Companies Act to be kept by the company have been properly kept in accordance with the provisions of the Act.

Who are the auditors to report to?

The duties of the auditors are to report to the members (shareholders) of a company.

Are auditors responsible for the preparation and fair presentation of financial statements of a company?

No. The responsibility of preparation and fair presentation of financial statements of a company lies with directors of a company. Auditors are responsible to express an opinion on the financial statements.

What is the process of appointing an auditor?

If your company is newly incorporated, the directors of a company must at any time before the first AGM appoint the first auditors. Shareholders may appoint the first auditors at a general meeting if directors fail to make the appointment.

The proposed auditor must give consent to act as auditor before the appointment.

What is the term of office of an auditor?

The term of office of an auditor is until the conclusion of the next AGM. The Company must at every AGM appoint or reappoint an auditor until the conclusion of the next AGM.

How can we appoint another auditor if our company's existing auditor resigns?

An auditor can resign at a general meeting of the company. Normally the auditor gives notice in writing to the directors that he desires to resign. The directors of the company must call for a general meeting for the purpose of appointing an auditor in place of the resigning auditor. The resignation of the existing auditor is only effective on the appointment of another auditor. Notice of nomination of new auditor must be sent out to the auditor and all persons entitled to receive notice at the prescribed number of days before the AGM.

Do the auditors have the rights to access the company records?

Your appointed company auditor has the right of access at all reasonable times to the accounting records or books, vouchers and other records such as agreements or registers of the company.

What are the other rights of the auditors?

Your appointed company auditor has the right to require information from any officer of the company as he desires for the purpose of carrying out his duty.

Your auditor is entitled to attend any annual general meeting and to speak on any part of the business of the meeting that concerns him as his capacity as auditor.

If your company is a holding company, your auditor has the right to require any officer or auditor of the subsidiary to provide information and explanation to him for the purpose of reporting on the consolidated accounts.

Your auditor has the right to receive any notices or communication relating to any general meeting which a member is entitled to receive.

Accounts and Bookkeeping

Accounts and bookkeeping is one aspect of businesses that so many people dread. Many people do not understand the importance of accounts and think that they must keep books because the government requires them to. Indeed, in Malaysia, it is a government requirement that books are kept but more importantly, the financial information captured in the accounts is essential for decision-making purposes.

Why keep records?

Good records help directors of a business understand the business such as which products are selling the best, which items cost the business the most, what products are most profitable. Without accurate financial information it is hard to know exactly how the business is doing. Decisions such as, should the company purchase a new equipment to increase the manufacturing capacity of the company or should a new marketing campaign be launched to improve sales should be considered after reviewing the financial information available.

Who is responsible for producing accounts?

Under the Companies Act (Malaysia) the directors and managers of every company are responsible to ensure that accounting and other relevant records relating to the transactions and financial position of the company are properly kept. The books of accounts must give a true and fair view of the state of affairs of the company and the accounting entries must be made to the books of the company within 60 days of the completion of the transaction.

Any director of the company who fails to take all reasonable steps to ensure compliance of the company with the above requirements will be liable upon conviction to an imprisonment for a term of 3 years or RM10,000.

When must accounts be presented?

The directors are required to present an audited set of accounts at the annual general meeting once in every calendar year. The audited set of accounts is to be made up to a date not later than 6 months from the date of the meeting.

How long must we retain the accounting records for?

According to the Companies Act (Malaysia), every company and its directors and managers must keep sufficient accounting and other records to explain transactions, and the financial position for 7 years after the completion of the transactions or operations.

Getting help from an accountant?

For directors who are already so tied up with the operational aspects of the business, they would need the help of bookkeepers to enter the transactions into the accounts and accountants to help them interpret the data captured in the accounts.

Lets start with accountants. Accounting services may vary from hiring a full-time accountant or to meet with an outside accountant once a year to discuss accounts prior to audit and submission for tax. The amount a company use an accountant would depend on the size of the business and the extent of the directors' accounting knowledge.

For larger companies, accountants are mostly employed on a full-time basis. Their roles may include:

• To oversee accounts that is updated by the bookkeeper
• To prepare budgets and forecasts for the company
• To assist directors on by giving proper advise
• To oversee the financial and cash position of the company
• To plan and implement systems and controls for the company
• To give advises on tax issues

Salaries of accountants in Malaysia: may range from RM4,000-RM7,000 per month (depending on the level of experience)

Smaller companies may choose to either employ a full-time bookkeeper or to hire a part time bookkeeper to enter the transactions of the company into accounting software. Some accounting firms in Malaysia also provide bookkeeping services to their customers.

Salaries of bookkeepers in Malaysia : may range from RM2,000-3,000 per month.

Appointing Company Secretary in Malaysia

Every company is required by statute to have at least one company secretary in Malaysia. The company secretary must be of full age (18 years old) with his principal or only place of residence in Malaysia.

The secretary is to be appointed by the board of directors and either himself or his agent or clerk is required to be present at the registered office of the company on the days and at the hours which the registered office is to be accessible to the public.

In most cases it is not practical for most small medium enterprises to engage full time secretaries. Instead, the service of an external secretary of a professional secretarial firm is engaged.

What are the general duties and responsibilities of company secretaries?

The duties and responsibilities of company secretaries depend mainly on the expectations of the board of directors. In most cases, the company secretary is responsible to ensure compliance with the disclosure and information requirements of the Companies Act.

These are some of the main duties of a company secretary:

1. Organise meetings
2. Send out notices for meetings
3. Take down minutes of board and general meetings
4. File statutory returns (in the prescribed forms) required by the Companies Act 1965 with the Companies Commision of Malaysia
5. Keep and maintain the various registers at the registered office of the company.

What are the qualifications of company secretaries?

The company secretary must be a member of a professional body or licensed by the Companies Commission of Malaysia pursuant to section 139 of the Companies Act.

The Minister has approved the following professional bodies as the prescribed professional bodies:

1. The Malaysian Association of The Institute of Chartered Secretaries and Administrators (MAICSA)
2. Malaysian Association of Company Secretaries
3. The Malaysian Bar
4. The Malaysian Institute of Accountants (MIA)
5. Malaysian Association of Certified Public Accountants (MACPA)
6. The Sabah Law Association
7. The Advocates' Association of Sarawak

Duties Of Directors For Private Limited Companies

A company is a separate legal entity, separate and distinct from its individual members/shareholders. Members of the company will appoint directors who will be entrusted with the power and authority to make decisions for the running of the company and manage the company's affairs.

For many small businesses, members of the company who have come up with their own capital to fund their businesses are often involved in the day-to-day management of the company. These members usually appoint themselves to be the directors of the company.

For larger businesses such as public listed companies, it is practically impossible for the shareholders to manage the company's affairs and therefore directors are empowered to operate the company.

What are the requirements of directors of a company?

There must be at least 2 directors who each have his/her principal or only place of residence within Malaysia. To qualify to become a director of a company, he must be:

1. A natural person
2. Of full age (18 years old and above)
3. Of sound mind
4. Not disqualified under the Companies Act 1965

Directors are not required by law to have special knowledge, or experience to act in that capacity.

How to appoint directors?

For a newly incorporated company, the shareholders of the company have before or upon incorporation of the company decided who they want to be the directors of the company to manage the affairs of the company. The first directors are named in the Memorandum of Association or Articles of Association (the incorporation documents) and they will hold office until the first annual general meeting where they will retire. A first director must lodge with the Companies Commissioner of Malaysia a Form 48A, which is a statutory declaration the director is not an undischarged bankrupt and has not been convicted of an offence.

Rules governing the subsequent appointment of directors are stated in the Articles of Association of a company. The Table A of the Companies Act provides that directors may appoint directors to fill casual vacancies as well as to appoint additional directors, as long as the number of directors does not exceed the number fixed by members and as stated in the Articles of Association of the company. For any changes in directors, the company must submit a Form 49 to the Companies Commission of Malaysia.

Who has the power to remove directors?

The removal of directors is also governed by the Articles of Association of a company. Usually, the removal of directors requires only an ordinary resolution. If there is no such provision, a director can be 'removed' by not re-electing him at the Annual General Meeting when he retires by rotation, provided that the articles require directors to retire by rotation.

What is the difference between executive and non-executive director?

An executive director is a salaried director who is full-time working and delegated with managerial or executive powers by the board to carry out day-to day management of the company's business.

Non-executive director is a director who does not work for the company on a full time capacity and receive a relatively smaller director's fees. The function of a non-executive director is to determine the overall policy of the company.

What is a managing director?

The managing director is the chief executive officer of the company. He is appointed by the board and is an executive director.

What are the duties and responsibilities of directors?

Directors who act as agents of a company have fiduciary duties towards the company. Their fiduciary duties include:

1. Act bona fine in the interest for the company.
2. Not to place himself/herself in a position where there is a conflict between their duty to the company and his personal interest or duties of others.
3. Not to make any secret profit out of the position as director.

The statutory duties of the directors include:

1. Act honestly at all times and use reasonable diligence in the discharge of duties.
2. Not to make improper use of information obtained by virtue of office to gain advantage personally or to cause detriment to company.
3. Not to make improper use of unpublished price-sensitive information to gain personal benefit.
4. Seek approval of the company in general meeting before dispose of or execute any transaction for the disposal of a substantial portion of the company's undertaking or property.
5. Disclose/give notice to the company disclosing his shareholdings and any changes thereof.
6. Disclose interest in any contract or proposed contract made by the company.
7. Make sure registers and statutory books are kept updated.

The directors are also responsible to ensure the following requirements are complied with:

1. Holding of Corporate Meetings (you may refer to corporate meetings for private limimted companies)
2. Registration of certain resolutions and agreements
3. Recording minutes of all meetings
4. Making the annual return and lodgement with the Companies Commissioner of Malaysia
5. Keeping proper accounting records
6. Tabling accounts, balance sheet and directors' report at AGM
7. Circulation of accounts, balance sheet, directors report etc to members
8. Appointment of first auditors
9. Comply with restriction, limitation or prohibition of private company
10. Appointment of qualified persons as secretaries
11. Maintaining registered office
12. Registration of transfer of shares
13. Making declaration of solvency in the case of voluntary winding up by member
14. Ensuring that payment of dividends is from profits only
15. Registration of charges