ARTICLE
7 October 2020

A Guide To Labuan Companies 2020

LI
Labuan IBFC Inc

Contributor

Labuan International Business and Financial Centre (Labuan IBFC), Malaysia, through our internationally recognised yet business-friendly legal framework, is the preferred international business and financial centre in Asia. Labuan IBFC is a midshore jurisdiction regulated by the Labuan Financial Services Authority (Labuan FSA), statutory Regulator under the purview of the Ministry of Finance, Malaysia
A Labuan company is a company incorporated or registered under the Labuan Companies Act 1990 (LCA 1990).
Malaysia Corporate/Commercial Law
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WHAT IS A LABUAN COMPANY?

A Labuan company is a company incorporated or registered under the Labuan Companies Act 1990 (LCA 1990). Residents and non-residents of Malaysia are allowed to establish Labuan companies. Companies incorporated under this Act and which meet certain conditions, including substance requirements would be taxed at preferential rates. A Labuan company may have these shares structures:

  • company limited by shares
  • company limited by guarantee
  • an unlimited company

Types of company:

  • Labuan Company
  • Labuan Foreign Company
  • Labuan Protected Cell Company

WHY USE A LABUAN COMPANY?

A Labuan company may enjoy:

  • Access to more than 70 Double Taxation Agreements that Malaysia has signed.1 (Appendix 1)
  • A competitive tax regime, Labuan business activities as defined in the Labuan Business Activity Tax 1990 (LBATA 1990) provides:
    • Taxation of 3% of net audited profits, if the company is undertaking Labuan trading activity and meets certain conditions including substance requirements
    • Companies carrying out only Labuan non-trading activity is not charged tax i.e. 0%
    • A Labuan company may make an irrevocable election to be subjected to tax pursuant to Malaysian Income Tax Act (MITA 1967) where the prevailing income tax rate is generally 24%
    • A summary of the description of Labuan business activities and its tax treatment is shown in the following table:
    • DESCRIPTION OF LABUAN ACTIVITIES TAX TREATMENT
      Labuan non-trading activity
      Holding of investments in securities, stock, shares, loans, deposits or any other properties situated in Labuan by a Labuan company
      Not subject to tax
      Labuan trading activity
      Includes banking, insurance, trading, management, shipping operations, licensing or any other activity which is not a Labuan non-trading activity
      3% of net profits per audited accounts
      Carrying out both Labuan trading and non-trading activities
      - Deemed to be Labuan trading activity
      Same tax treatment as Labuan trading activity (3% of net profits per audited accounts)
      Non-Labuan business activities or where an irrevocable election is made to be taxed under the MITA 1967 Taxed pursuant to the MITA 1967 at the prevailing income tax rate of 24%
  • A convenient location within the Asia Pacific region
  • Ease of doing business:
    • Availability of banking and trade finance services locally
    • A highly developed legal structure
    • Established business ecosystem including technology, skilled workforce and resources
    • Access to English and Chinese speaking talent
    • Competitive operating costs
  • There are no indirect taxes in Labuan, including sales and services tax, import duties and excise duties*
  • No foreign exchange controls
  • Labuan companies (including companies licensed under the laws relating to financial services in Labuan IBFC) may set up a marketing office anywhere in Malaysia

*Note: Services provided by a person from outside Labuan may be subject to service tax.

WHAT ARE THE REQUIREMENTS TO SET UP A LABUAN COMPANY?

Share capital

  • In any currency
  • Minimum one share with no minimum share par value

Number of directors

  • A Labuan company must have at least one director who may be a resident director

Company secretary

  • A Labuan company must have at least one secretary which is a Labuan Trust Company

Registered office

  • Must have a registered office which is the principal office of a Labuan Trust Company

Accounting requirements

  • Labuan companies are required to submit audited accounts as part of tax filing requirements
  • Under LCA 1990, there are no publicly accessible records

Labuan companies economic substance requirements

Labuan companies must have:

  • A prescribed number of minimum employees in Labuan; and
  • A prescribed number of annual operating expenditure in Labuan, based on the specific activity carried on by the relevant Labuan companies

WHAT ARE THE FEES FOR SETTING UP A LABUAN COMPANY?

The following fees payable to the Labuan Financial Services Authority:

(Note: The fees quoted exclude the cost of engaging a Labuan trust company which will essentially act as a company secretary to the Labuan company)

Reservation of company Name USD 15
Incorporation of a Labuan company
a) Registration fee for a Labuan company with paid-up capital of
i. Less than MYR50,000
ii. MYR50,000 but less than MYR1 million
iii. Exceeding MYR1 million
USD 300
USD 600
USD 1,500
b) Registration fee for a foreign Labuan company USD 2,000
Annual Fees
i. Labuan company
ii. Foreign Labuan company
USD 800
USD 1,500

Appendix 1

List of countries that have Double Tax Agreements with Malaysia

Albania
Argentina
Australia *
Austria
Bahrain
Bangladesh
Belgium
Bosnia Herzegovina
Brunei
Canada
Chile *
China
Croatia
Czech Republic
Denmark
Egypt
Fiji
Finland
France
Germany *
Hong Kong
Hungary
India*
Indonesia *
Iran
Ireland
Italy
Japan *
Jordan
Kazakhstan
South Korea *
Kuwait
Kyrgyzstan
Laos
Lebanon
Luxembourg *
Malta
Mauritius
Mongolia
Morocco
Myanmar
Namibia
Netherlands *
New Zealand
Norway
Pakistan
Papua New Guinea
Philippines
Poland
Qatar
Romania
Russia
San Marino
Saudi Arabia
Seychelles *
Singapore
Slovak Republic
South Africa *
Spain *
Sri Lanka
Sudan
Sweden *
Syria
Switzerland *
Thailand
Turkey
Turkmenistan
United Arab Emirates
United Kingdom *
United States of America
Uzbekistan
Venezuela
Vietnam
Zimbabwe

* Labuan companies may not qualify for treaty protection.

Footnote

1. Labuan companies have been excluded from the benefits of some of Malaysia's tax treaties. Where the Labuan company makes an election to be taxed under the MITA 1967 instead of the LBATA, generally full treaty access may be restored.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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