An offshore company refers to a business which is incorporated outside the country where the investors reside. Labuan (officially referred to as the Federal Territory of Labuan) is a region of Malaysia, where foreign investors are welcomed to register their businesses set up as offshore companies. This particular location is one of the most important offshore locations available in Malaysia. Businessmen interested in company formation in Labuan can receive assistance on this matter from our team of company formation experts.
| Quick Facts | |
|---|---|
| Types of companies |
International company (IBC) Private company limited by shares Public company limited by shares Private company limited by guarantee Offshore limited partnership Trust |
|
Minimum share capital for IBC |
$1 |
|
Minimum number of shareholders for IBC |
1 |
| Time frame for the incorporation (approx.) |
1-2 days |
| Corporate tax rate |
– 0% pentru non-trading companies, – 3% on the audited net profit up to a maximum tax of RM 20,000 per year (about 4,700 USD) for trading companies |
| Dividend tax rate |
exempted |
| VAT rate |
not applicable |
| Number of double taxation treaties (approx.) | 92 |
| Do you supply a registered address? | Yes |
| Local director required | No |
| Annual meeting required | Yes |
| Redomiciliation permitted | Yes |
| Electronic signature | Yes |
| Is accounting/annual return required? | Yes |
| Foreign-ownership allowed | Yes. Offshore companies require only a single director and shareholder who can be the same person or corporate body. |
| Any tax exemptions available? |
– no indirect taxes; – for dividends received by a Labuan company; – distributions received from a Labuan trust by the beneficiaries; – interest received from a Labuan company by a resident person. |
| Tax incentives |
– 100% exemption on director fees paid to non-Malaysian directors; – 50% exemption on gross employment income of non-Malaysian professionals and managerial staff, including traders; – Exemption on dividends received by or from the LITC. |
Our team provides complete incorporation services based on the investor’s needs and after receiving a proposal for setting up a company in Labuan. You can send us the details for the desires business and we will reply with an offer that will include details about the selected business form, the fees for incorporation, the Government fees as well as the proposed shareholding structure and other details about the company. Our in-house experts are able to offer professional advice based on the nature of the business: trading or non-trading. This is an important distinction between companies in this jurisdiction, as further detailed in this article by our agents.
Offshore companies in Labuan
The process of incorporating a Labuan company is simple and foreign investors can have full foreign ownership over the legal entity they register here. The most commonly used business form is the Labuan international company – the legal entity that allows for 100% foreign ownership and benefits from all of the tax advantages practiced in Labuan.
The tax requirements will depend on the business activities performed by the company. For example, the requirements for tax and audit are necessary only in some cases. The offshore company in Labuan may be used for trading purposes. In general, for these types of companies, a corporate income tax will apply either with the percentage of 3% or within the limit of RM 20,000. Non-trading companies and dormant companies are taxes in a different manner.
Our local lawyers in Labuan can help you choose between the most popular business forms in order to set up a company in Labuan. We can also help you understand the different taxes that apply to companies.
What are the main advantages of setting up an offshore Labuan company?
Since the region developed as a main center for the domiciliation of offshore businesses, Labuan provides an attractive taxation system, alongside with a simpler incorporation procedure. We list some of these key advantages for Labuan company formation below:
- Full ownership: the local legislation allows full foreign ownership; the company can be formed by only one person, who can act as a shareholder and as a director.
- No corporate tax: this only applies to a select group of companies known as non-trading companies, such as holding companies.
- Lack of other taxes: there is no sales tax, no VAT, no customs duties and no stamp duty.
- No personal income tax: for a Labuan offshore company, a non-resident director is not required to pay personal income tax on director fees.
The registration procedure can be completed in a period of two weeks and the investor is not required to be physically present in the country, as it would be the case for other types of companies available here. Although most of the companies operating on the Malaysian market require a business permit or license to conduct their activities, in the case of a Labuan offshore company, the investor will not need a permit for the following domains:
- trading;
- e-commerce;
- import and export activities;
- consultancy services.
Please note that the four main advantages listed above are the general ones that apply in most cases. Investors may also be interested in other tax-related advantages such as the lack of withholding taxes and benefit from Malaysia’s double tax treaties (mentioned below).
Businessmen who need advice on Labuan company formation can receive assistance from our team of company incorporation agents in Labuan. We can help you set up a company in Labuan as soon as possible.
Can I open a branch or a subsidiary in Labuan?
Yes, companies from abroad can decide on establishing branches or subsidiaries in Labuan in respect to the rules of the Companies Commission in Malaysia. In both cases, the documents of such entities need to contain information about the parent company and about the board of managers controlling the branch or the subsidiary in Labuan, Malaysia.
In general, some types of foreign legal entities will prefer the subsidiary over the branch because of one key difference between the two business forms: the branch is dependent on the parent company abroad and it is this foreign company that is liable for its branch’s debts and liabilities in Labuan. Conversely, the parent company is not liable for its subsidiary which will be incorporated as a Labuan resident company.
In practice, the fact that one has a legal personality (the subsidiary) and the other does not translates into different incorporation steps. One of our agents who specialize in Labuan company formation can help foreign investors open a branch or a subsidiary, whichever suits their business needs the most.
Can I set up a trust in Labuan?
Yes, investors from abroad can set up trusts in Labuan, in respect to the Labuan Trusts Act 1996 and the following conditions:
- a legal entity or a natural person can represent a trust in Labuan;
- the assets of a trust can be handled by a representative in the name of a specific beneficiary;
- there is no need for a minimum share capital for setting up a trust in Labuan;
- the 3% tax rate is imposed for trusts with trading activities in Labuan.
Feel free to talk to our team of advisors for guidance in opening a trust in Labuan or for any other kind of business, including a Labuan offshore company.
What are the steps for Labuan company formation?
The general steps for opening a Labuan company are the following:
- Choose the company name: it is advisable to propose at least three company names that will be checked for availability.
- Determine the shareholder ownership: for those companies with more than one shareholder, the ownership proportion should be established during this early stage.
- Register the company: the application for registration generally includes the Articles of Association for the company, the filled in forms as well as statutory declarations.
- Apply for a Labuan business visa: this is a necessary step and investors can decide if they wish to include ant dependents on their visa application.
- Open the bank account: a Labuan company is required to have a bank account in its name.
Certain limitations may apply to the currency of the corporate bank account (for example, it may not open a Malaysian Ringgit corporate account). One of our agents can provide more details on these requirements.
Investors should remember that there is a differentiation between companies in Labuan, as previously mentioned, based on the core business activities, divided into trading and non-trading. This means that businesses in some fields will need to maintain its minimum number of shareholders/directors as well as staff and handle the operating expenditure (which differ according to field).
Companies that do need to obtain a license for functioning, such as the financial license, will need to observe the regulations for renewal and will need to comply with the applicable fees.
The Federal Territory of Labuan is represented by Victoria, the capital of the offshore jurisdiction, a preferred business destination for many investors from abroad. Having a company in Victoria, Labuan means developing important business operations not only in the capital but also with significant connections on an international scale.
Please feel free to reach out to one of our Labuan company formation experts for in-depth information about these issues as well as answers to any other incorporation questions you may have fro setting up a company in Labuan.
Company formation costs in Labuan
Investors who open a company in Labuan will often be interested in the fees for the various procedures before starting the incorporation. The Labuan incorporation cost is comprised of the fees owed to the authorities and the regulators with which certain registrations are mandatory, as well as nay additional fees and costs for services requested specifically by foreign investors from a team of incorporation experts, such as our own.
Overall, the Labuan company formation cost is not prohibitive for foreign investors and the welcoming business climate, along with the low tax regime, are string attributes for starting a business in this special financial center, compared to Mainland Malaysia, for example.
The Labuan company cost can be divided into several distinct categories:
- General fees: included here is the name reservation fee, 50 RM or 15 USD;
- Capital fees: these differ according to the company’s capital; the lowest applies when the Labuan company has the capital at or below 50,000 RM – then the fee is 1,000 RM or 300 USD;
- Registration fees: only applicable for the registration of a foreign company in Labuan, 6,000 RMN or 2,000 USD:
- Others: included here are any fees for additional documents, for specialized incorporation assistance, as well as fees for translations or notarized documents, as may be required in each particular case; teh costs for opening a bank account in Labuan are also included here; they cannot be clearly estimated as they differ from one provider to another.
The Labuan company formation cost does not include special fees for registering the Articles of Association or for submitting the statutory declaration of compliance or the consent to act as company director.
The cost associated with the company name reservation is mandatory, given the fact that the name needs to be checked and approved before the company can be registered. During this stage, we recommend that entrepreneurs prepare more than one name. Once approved, the chosen name is reserved for three months (in most cases, the Registrar issues the name approval within 24 hours).
Please keep in mind that these fees were valid at the time this article was last updated. We recommend reaching out to our Labuan company formation agents for complete information on the latest fees, any additional costs, as well as an estimate provided by our experts.
Can I pay the Labuan company formation cost through a proxy?
when foreign investors cannot be present in Labuan for the entire company formation procedure, one of our Labuan company formation specialists can act as a representative, prepare and submit the documents, along with making the relevant payments.
Our company formation packages include several services, tailored to the needs of our clients, so that the company can be duly registered, following all of the incorporation and registration procedures, including the payment of the relevant Labuan incorporation cost, expressed in the fees presented earlier.
Is there a post-incorporation Labuan company cost?
Companies in Labuan are expected to comply with the payment of the annual fees. These differ according to whether or not the company is a local or a foreign one:
- 2,600 RM or 800 USD for a Labuan company;
- 5,300 RM or 1,500 USD for a foreign Labuan company.
No form is filles in when making the annual payment. Our team can give you more details on the time limits for paying this Labuan company cost.
The company formation process in Labuan is a straightforward one. Once all of the documents have been prepared and submitted and the fees have been received by the authorities, the Labuan Financial Services Authority commences a verification process.
Depending on the sector in which they activate, companies in Labuan are subject to additional license fees. According to 2020 data on these fees provided by the Financial Services Authority, the fee for Labuan companies in involved in insurance was 15,000 USD.
Companies in Labuan are, apart from the relevant fees, subject to a tax according to their profile, for trading or non-trading activities. Companies that are subject to taxation are charged at a rate of 3% in their net profits derived from Labuan activities. For the purpose of taxation, a legal entity is a Labuan entity if, durin
Shelf companies in Labuan
Ready-made companies are at the disposal of entrepreneurs looking for a fast implementation of the businesses in Labuan without having to wait for all the incorporation procedures involved. Therefore, a shelf company can be a suitable option for foreigners who can benefit from a series of advantages like no liabilities as there are no activities in the firm. The identification documents plus the incorporation papers are mandatory for transferring the company ownership.
The shelf company will provide a professional business image due to the fact that it has longevity and no debts. For investors looking to do business with certain clients, it can be important to use this type of company.
Investors who wish to open a company in Labuan can rely on our shelf company services. We can provide complete assistance for purchasing a ready-made company as well as perform a comprehensive check of the future owned legal entity so as to rule out any possible business risks.
Virtual office services in Labuan
If you do not want to set up a traditional office connected to your activities, it is best to direct your attention to virtual office packages in Labuan. Such services come with a prestigious business address in Labuan, a local phone number, a fax number and also a virtual assistant who can handle the faxes, the emails and the phone calls in the company, in accordance to the clients’ needs and business requirements.
We mention that virtual office packages are at a fraction of expenses compared to the ones for a traditional office in Labuan. If you are planning marketing strategies for your future operations, then a virtual office package in Labuan might be the appropriate solution. Also, complete communication between the business owner and potential clients or collaborators can be sustained by the virtual assistant.
Taxation applicable to a Labuan offshore company
The taxation system applicable in Labuan is very attractive, as it does not impose the withholding tax on:
- dividends;
- interest;
- royalties.
The taxation on the profits of the company (registered as a trading company) is at a rate of 3%, while the paid-up capital is generally 1USD, however it can differ depending on the type of company as well as the activities of that company (for example, it will be larger for a Forex company).
Labuan is a jurisdiction that offers important business advantages, from a well-regulated business field to a wide range of business structures tailored to the needs of those who are interested in international business dealings. What’s more, a favorable geographic position makes this jurisdiction ideal for those interested in entering the Asian market.
Investors who open a company here benefit from a tax neutral environment and a modern legal framework. Also, entrepreneurs can also find options that are Shariah-compliant.
The figures below provide an image of the existing business environment, as per the year 2018:
- there are more than 14,000 companies incorporated in Labuan;
- more than 50 banks and more than 200 foundations operate here;
- there are approximately 400 leasing companies and more than 50 International Commodity Trading Companies;
- more than 2,000 students from the University of Malaysia, the Labuan Campus, will finish studies and will enter the market, providing a valuable resource for selecting valuable, talented workers.
5 tax benefits of setting up a company in Labuan
Our team of lawyers in Labuan highlights the main 5 tax benefits of starting a company in Labuan in the list below.
1. Very low paid-up capital
The incorporation of a Labuan company is a fast process and foreign investors not only benefit from 100% foreign ownership, but the taxes associated with this step are very low. For example, the required paid-up capital for a company is as low as 1 USD. This, combined with other tax exemptions, is an important advantage when opening a Labuan International Company.
2. Free port regime
Labuan is a territory where the free port regime applies so there are no special tariffs on trading and import/export activities. Because of its good geographical position and this free port regime, Labuan is a preferred location for many international trading companies. One of our attorneys in Labuan can give you complete information about the tax exemptions and the applicable taxes for companies.
3. No GST tax
Another important advantage is that companies in Labuan are exempt from a major type of tax. The Goods and Services Tax is an indirect tax in Malaysia and the equivalent of the Value Added Tax. However, it does not apply in the Labuan special region. In all other areas, the standard GST rate in Malaysia is 6 percent.
4. No withholding taxes
A Labuan company is not subject to withholding taxes on dividends, interest, and royalties. Moreover, the provisions of the double tax treaties extend to this federal territory. Malaysia has signed a significant number of treaties with other countries that allow for double taxation relief, an important advantage for foreign investors. One of our lawyers in Labuan can give you more details.
5. No mandatory special permits and licenses
Investors will also save any taxes that might have been associated with applying for special permits and licenses in Labuan. The Labuan special regime does not require special licenses for trading, import, and export, e-commerce or businesses involved in consultancy. In other areas, such as Kuala Lumpur, investors will be required to observe this step when they open a company.
Here is a video with complete information about how to open a company in Labuan with assistance offered by our Labuan team of company formation agents:
What laws regulate the financial operations of foreign companies in Labuan?
Labuan Financial Services and Securities Act of 2010, Labuan Trusts Act of 1996, Labuan Business Activity Tax Act of 1990, and Labuan Limited Partnership and Limited Liability Partnership Act of 2010 are few of the legislation that observes how business is done by foreign investors. We remind that each type of company in Labuan needs to be registered in respect with the Labuan Companies Act 1990.
Who can set up companies in Labuan?
According to the investment legislation related to foreign investors in Malaysia, including in Labuan, a company can be incorporated by at least one shareholder who has complete ownership in the company. One should attentively select the business name as there are several requirements imposed by the government in Labuan.
Entrepreneurs who need assistance to open a company in Labuan can contact our team of company formation consultants.