The procedure for Labuan company formation allows the registration of a holding company. Investors interested in this company type must know that the holding company does not represent a commercial company, and this implies that the legal entity is not allowed to enter commercial activities.
In this article, investors can find out relevant information with regards to the functioning of the Labuan holding company. For in-depth advice on this company type, its advantages, disadvantages and the benefits for foreign investors, we invite you to request in-depth information from our consultants, who can also advise on Labuan offshore company registration.
| Quick Facts | |
|---|---|
| Legal entities used | Public or private limited company by shares (holdings can operate as pure equity holding or non-pure equity holding) |
|
Incorporation method |
Registered according to the Companies Act |
|
Incorporation time |
1-2 days to maximum 4 weeks |
| Advantages |
– good options for business activities (investment in real estate, stocks, securities, loans), – no residency requirements for the company’s director, – tax exemptions on the distributions of dividends, withholding tax exemptions, etc. |
| Precautions |
Some holdings must have a minimum number of employees/ operating expenditure requirements of RM 20,000 per year |
| Shareholding structure |
Minimum one shareholder (no residency requirements) |
| Minimum Capital |
no capital requirements |
| Taxation | Numerous tax exemptions (withholding taxes, stamp duty, capital gains tax, goods and services tax, director’s fee), double tax agreements regime applies |
| Control | Management and control are done following the rules of the Labuan Financial Services Authority Act 1996 |
| Accounting and Reporting |
– prepare and keep records in Labuan, – audit requirements applicable based on the activities developed |
| Number of double taxation treaties | over 70 |
What activities can the Labuan holding company develop?
As presented above, the holding company can develop only certain types of operations. The holding company is regulated under the Labuan Companies Act 1990. This Act prescribes the types of operations that the Labuan investment holding company can carry and the manner in which it can develop such operations.
For instance, the company is required to obtain a license in order to have the right to establish its operations in Labuan. The license has to be issued before starting any activity. According to the law, the holding company can enter business activities with companies that are not residents of Malaysia, but this is not mandatory.
Also, the transactions between the Labuan holding company and other companies that are permitted to develop business operations with the holding must be carried out in foreign currency. Exemptions from this rule can apply in accordance with the provisions of the Exchange Control Act. The above mentioned rules are applicable for a Labuan holding company that can set up its office in Kuala Lumpur, a rule which is enacted as a way to liberalize the financial sector.
As a general rule, the Labuan investment holding set up allows the company to enter the following types of operations: investment holding in other companies or the own companies of the investor located in other jurisdictions or in Malaysia, holdings in newly acquired businesses in this country or overseas; the company is also allowed to invest in bonds, securities, deposits, equities, loans, deposits concluded with offshore banks and others.
Just like in other jurisdictions, the holding can also enter real estate investments. In this sense, investors must be aware of the fact that the Labuan investment holding company can invest in real estate, immovable property and land, located in any part of the world. If you need advice on the procedures applicable for each type of investment operations, our consultants can help you. Our team can also assist foreign investors in registering a Labuan trust company.
What are the tax benefits of a Labuan holding company?
When starting the process of Labuan company formation, investors can obtain a set of financial benefits regardless of the company type they have selected for incorporation. For the holding company, the law prescribes a set of tax advantages, in the form of tax deductions or complete tax exemptions. Below, you can find some of the main tax advantages and other benefits applicable to this legal entity:
- the company enjoys from a liberal ownership system – the investor can own 100% of the company’s shares;
- it can be founded by 1 shareholder and it benefits from a 0% personal income tax applied to the directors of the company, as long as they are not residents in Labuan;
- the company can hire foreign workforce and the personal income tax charged on the salaries of such employees is charged at a very low rate, of only 5%;
- for the Labuan holding company that will enter business activities with Malaysian companies, a corporate tax will be applied, charged at a rate of 24%;
- in the case of holdings that qualify as pure holding Labuan companies, there is an exemption on the minimum employees number, in accordance with the rules of the Labuan Investment Committee and the Labuan Business Activity Tax (Exemption) Order 2020.
Besides these, the company has additional advantages, such as: it is not required to conclude an audit, the inheritance tax does not apply, the withholding tax charged on royalties, interest or management fees is not charged; the procedure for Labuan company formation can be completed in a matter of a week. The time frame for incorporation is similar to other countries, such as China, where you can open a company in up to 8 days.
With regards to immigration matters, foreigners can apply for designated visas; the Labuan region also offers work visas for foreign employees and if you want to relocate here for business purposes, we invite to contact our team of specialists, who can advise you on all the procedures and documents you must prepare for the registration of this legal entity.