An offshore company must keep proper accounts and other records which can sufficiently explain the financial position and the transactions undertaken by the company.[1] This would mean keeping accounts up to trial balance at the least. Appropriate entries are to be made in the accounts and other records of the company within sixty days of the completion of the transactions to which they relate.[2] The records must be kept at the registered office or elsewhere if so directed by the directors. The records must be made available for inspection and kept in such a manner as to enable them to be conveniently and properly audited. An auditor must give written undertaking of non-disclosure before inspecting the records. Failure to keep proper accounting records is an offence under the OCA 1990.

Accounts to be presented before meeting

The directors of an offshore company must lay forth the accounts, audited or otherwise, before the company at a meeting of members not more than nine months after the date the accounts are made up.[3] A copy of every account to be presented must be sent to all members not less than seven days before the date of the meeting. A copy of the accounts so presented must be lodged with the Registrar within one month after presentation.

Appointment of auditor

Within ninety days after its incorporation, the directors of an offshore company must appoint a person or persons to be the auditor or auditors of the company.[4] Within thirty days of such appointment, a notice together with a written consent from the auditor should be lodged with the Registrar.

An offshore company is not required to appoint an auditor[5] under the following circumstances:

a) it is not a licensed company;[6]

b) the company does not issue an invitation to the public to subscribe its debenture;

c) the company does not issue an invitation to the public to deposit or lend money to it and;

d) the members of the company resolve at a meeting of members that the company need not make an appointment in respect of a particular financial year.

However, it is worth repeating that an offshore company electing to pay tax at the 3% rate will need to have its accounts audited. The accounts must be submitted to the Inland Revenue Board of Malaysia, Labuan Offshore Unit, because the 3% rate is calculated based on the chargeable profits[7] of an offshore company carrying on an offshore trading activity. The chargeable profit of an offshore company shall be the net profits as reflected in the audited accounts in respect of a particular year of assessment.[8]

The same applies to an offshore company that elects to be taxed under the ITA 1967. Such election requires the offshore company to have its accounts audited and to submit the audited accounts to the Inland Revenue Board.

However, an offshore company which carries on an offshore business activity which is an offshore non-trading activity is not required to have its accounts audited. The bulk of the offshore companies in Labuan may come under this category and thus do not need their accounts audited.

Taxation, accounts and audits summary