The Labuan International Business and Financial Centre (Labuan IBFC) was established more than 25 years ago to complement:
- The activities of the domestic financial market in Kuala Lumpur; and
- The development of economic activities in Labuan, a federal territory in Malaysia.
The Labuan Financial Services Authority (Labuan FSA) is the one-stop regulator for the jurisdiction while its wholly-owned subsidiary, Labuan IBFC Inc Sdn Bhd, promotes and markets Labuan IBFC as the preferred international business and financial centre in Asia Pacific.
Labuan IBFC offers a wide range of structures and solutions. The diagram below illustrates the main areas of focus:
THE LABUAN LEGISLATION
Four Acts were enacted in 2010 by the Malaysian Parliament and comprehensive amendments were made to four existing Acts during the same year.
As a result, Labuan IBFC is now governed by the following legislations:
- Labuan Companies Act 1990
- Labuan Business Activity Tax Act 1990
- Labuan Trusts Act 1996
- Labuan Foundations Act 2010
- Labuan Limited Partnerships and Limited Liability Partnerships Act 2010
- Labuan Financial Services and Securities Act 2010
- Labuan Islamic Financial Services and Securities Act 2010
- Labuan Financial Services Authority Act 1996
THE LABUAN TAX FRAMEWORK
The tax laws relating to Labuan entities are set out in the Labuan Business Activity Tax Act 1990 (LBATA).
According to Section 4(1) of LBATA, tax shall be charged at a rate of 3% a year on the net audited profits of a Labuan entity carrying on a trading activity.
In the instance of a Labuan entity carrying on a non-trading activity, no tax will be applied for that assessment year. A Labuan non-trading activity is defined as activity relating to the holding of investments in securities, stocks, shares, loans, deposits or any other properties situated in Labuan and held by a Labuan entity on its own behalf while a Labuan trading activity includes banking, insurance, trading, management, licensing, shipping operations or any other activity.
The concessionary tax treatment offered by LBATA is also complemented by Statutory Orders exempting Labuan companies from taxation, withholding taxes and stamp duty as well as partial exemption from salary taxes in certain cases.
Foreign exchange control rules, foreign ownership limitations, capital gains tax, estate or inheritance taxes and indirect taxes which may apply in Malaysia, do not apply to Labuan companies or structures.
Should a Labuan company or structure prefer not to be taxed under LBATA, it may make an irrevocable election to be taxed under the Income Tax Act 1967 (ITA). The Malaysian Inland Revenue Board has issued guidelines on the tax treatment (including compliance requirements) for Labuan entities that elect to be taxed under the ITA.
The advance ruling provisions provided by the Inland Revenue Board is also available to Labuan entities under LBATA.
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