a) Introduction
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.
Characteristic of a Labuan Company Limited by Shares
Shares Capital | |
Permitted Currencies | In any foreign currency except Ringgit Malaysia |
Minimum share issue | One share in any denomination in foreign currency |
Directors | |
Minimum number | One (either individual or corporate entity) |
Residency requirements | Optional |
Meetings/frequency | Per Articles of Association |
Shareholders | |
Minimum number | One (either individual or corporate entity) |
Public share registry | There are no public records of Labuan companies |
Meetings/frequency | Yes, at least one annually |
Accounts | |
Annual return | Filed annually not later than 30 days from the anniversary of the date of the incorporation of the Labuan company. |
Audit requirements | Please see substance requirements. |
Other | |
Registered office | Yes, must be in Labuan, which shall be the principal office of a Labuan trust company |
Domicile | Domicile is permitted |
b) Annual Filing
Corporate tax
Labuan Entity under Labuan Business Tax Act shall submit its tax return within 3 months in each of year of assessment, with an exception approval from Inland Revenue Board, Labuan, then such submission could be submitted later than prescribed date.
Employer tax
All Labuan companies (include dormant company) shall submit its employer tax before every 31 of March.
c) Tax Regime in Labuan
Labuan was declared as tax free zone and International Financial Center in 1990 and has established Financial Services Authority (LFSA) to support Labuan Entity incorporations and various applications in financial related licenses. Thus, Labuan jurisdiction is known as Mid- shore where Labuan entity has two different tax implication such as Income Tax Act 1967 (onshore tax) and Labuan Business Act 1990 (offshore tax) depending on nature of transaction (i.e transaction with domestic company or international business transaction).
Labuan Trading Company
Labuan trading company are tax under Malaysia Income Tax Act 1967, which the tax ranging 17%-24% of its profit except for Labuan licensed company.
Tax for Labuan licensed company is 3% of its audited net profit with fulfilled its substance requirements.
Labuan Non-Trading Company
Labuan Non-Trading Company is also an investment holding company. A Labuan investment holding company is divided to two category which is pure and non-pure equity holding.
A Labuan Non-Trading Companies are not subjected to tax (0% tax) with the submission of yearly management account and fulfilled substance requirement.
d) Substance Requirement for Labuan Non-Trading Company
Type | Tax | Audit Required | Substance Requirements | Remarks | |
Dormant Company | 0% | No | No | Dormant company means no bank transaction (or no transaction) and no business operation. | |
Investment Holding | Non Pure Equity Holding Company | 0% | Optional |
| Companies that hold a variety of assets and earn different types of income (e.g., rent, royalties, bond, sukuk, debt instrument, properties, securities) |
Investment Holding | Pure Equity Holding Company | 0% | Optional |
| Company that hold equity participations and earn only dividends and capital gains. |
Note: For investment holding company fail to fulfil substance requirement, you are required to submit an audit account and pay 24% tax on audited profit.
SUMMARY
NAMING
You may incorporate your new Labuan Company’s name with its ending as following:
- the word “Corporation” or the word “Incorporated” or the abbreviation “Corp.” or “Inc.”
- the word “Limited” or the abbreviation “Ltd.”
- the words “Public Limited Company” or the abbreviation “P.L.C.”
- the words “Societe Anonyme” or “Sociedad Anonima” or the abbreviation“S.A.”
- the words “Aktiengesellschaft” or the abbreviation “A.G.”
- the words “Naamloze Vennootschap” or the abbreviation “N.V.”
- the words “Perseroan Terbatas”
ADVANTAGES OF LABUAN
- NO withholding tax on payments of dividend or interest made to non- Resident.
- NO stamp duty on all instruments executed by Labuan entity in connection with Labuan business activity.
- NO foreign exchange controls.
- NO capital gain tax / inheritance tax.
- NO goods and services tax (GST) / sales and service tax (SST) / value added tax (VAT).
- Fully tax exemption for director’s fee receives by a foreigner.
- Enjoy DTA (Double Tax Avoidance) tax treaties with more than 70 countries.
[NOTE: A few countries have excluded Labuan]
Document required for company incorporation.
Individual (shareholder/director)
- Passport (foreigner) / NRIC (Malaysian)
- Proof of address (such as the most recent utility bill, which does not exceed 3 months)
For corporate’s shareholder/director
- Company registration certificate
- Memorandum and Articles of Association.
- Latest annual return