A small island, Labuan is strategically located in East Malaysia near Asia’s main financial and business hubs including Hong Kong and Singapore. While there are a number of reasons why Labuan is a preferred choice for many companies, here are the main reasons why it makes the perfect place for growth-oriented companies to set up in:
Progressive tax policies; Labuan forms part of Malaysia and so benefits from many Double Taxation Agreements (DTAs) Malaysia has signed with over 70 countries around the world. In addition, the jurisdiction offers a separate tax legislation under the Labuan IBFC, further lowering the tax burden for certain entities.
Labuan has a preferential tax regime and no foreign exchange controls among other benefits. Corporate tax ranges from 3% (for international revenue sourced outside of Malaysia) to 24% (for local Malaysian revenue). The jurisdiction has an exemption for “non-trading” activities, such as holding companies and certain investment vehicles. There are no taxes on capital gains, no withholding taxes
on dividends, interest, management fees, royalties and technical fees, Sales and Service Tax is not applicable for transactions within Labuan and between Labuan and abroad.
Pragmatic regulations; Labuan’s laws and regulations are robust, pragmatic and transparent, adhering to all international laws and standards (it is on the Organisation for Economic Cooperation and Development’s (OECD) ‘white list’) and is a member of several multilateral organisations focused on the development and regulation of international financial centres.
Where new regulations do come, Labuan often seeks a business-friendly approach. For instance, following increased substance requirements, many offshore jurisdictions have imposed requirements, even on licensed entities. Labuan, while still adhering to international rules, has taken a more flexible
approach by allowing an alternative, which is to be taxed under the ordinary domestic Income Tax Act (ITA).
Flexible legal framework; The legal framework of Labuan IBFC allows for a wide range of companies and entities to be formed in order to cater to a variety of regional and international needs. Entities that can be created include companies limited by shares or by guarantee, protected cell companies, limited liability partnerships, private and charitable foundations, special purpose trusts, private trust companies and more.
