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Income Tax for Companies in Labuan

Income Tax for Companies in Labuan

Labuan is the official federal territory of Malaysia and the taxation of companies in Labuan is regulated under the Income Tax Act 1967. Malaysia has introduced some changes in the Labuan Business Activity Tax Act (LBATA), 1990. The amendments in the LBATA came into action since January 1st, 2019.

Taxation could be complicated if any entity does not comply with the substance requirements. But do not worry; the services of our specialists in Labuan company formation can help you out about the complete process of Labuan income taximplications.

Income tax in Labuan for an offshore company

According to the amendments introduced in LBATA (Business Activity Tax Act) and the regulations of BEPS (Base Erosion and Profit Shifting), an offshore company in Labuan can also do business in Malaysia, although it is a non-resident Malaysian entity that is used by international businessmen as a tax optimized trading. Offshore companies in Labuan can transact in any currency and are allowed to offer services in non-regulated industries. Such entities in Labuan are taxed 3% on their annual net income. 

Our company formation specialists can help you with the incorporation of Labuan offshore companies along with the financial statements necessary for an audit. 

Income tax in Labuan for a trading company

A trading company of Labuan carries out the activities of banking, financing, wholesale, insurance, management, advisory, consultancy, import and export etc. Labuan trading companies pay 3% corporate tax on their net income after doing an audit at the end of the year which is commonly observed on December, 31st under the LBATA. The 3% Labuan company tax is for international dealings, while the companies who deal in Malaysia pay 24% corporate tax on their net profit after an audit under the local Malaysia Income Tax Law 1967. If a trading entity that deals in Malaysia reaches to annual revenue of more than RM500,000, then 6% Goods and Services Tax (GST) will apply to that company. In Labuan’s business activities, there is 0% stamp duty on the transfer of shares. The Labuan offshore banks impose 0% tax on deposit placements and the interest earned.

Income tax in Labuan for an investment holding company

The investment holding companies are also called non-trading companies and such companies control the activities of immovable properties inside and outside Malaysia, holding of investments in securities, deposits, loans, shares, and stocks etc. The income tax in Labuan for holding companies used to be 0% with no audit report required, but now the holding companies are divided into two categories: pure equity and non-pure equity Labuan holding company.

Pure equity holding company receives interest from dividends and pays a 3% corporate tax in Labuan on net profit. Such a holding company must have a minimum annual operating expenditure (OPEX) of RM 20,000 in Labuan; otherwise, the corporate tax applied will be 24%. On the other hand, the non-pure holding company earns incomes from royalties, interests, and rents etc. The 3% corporate tax rate is also imposed on this entity only if it has a minimum annual operating expenditure (OPEX) of RM20,000 and full-time employees in Labuan. If this entity fails to fulfill these requirements, the company tax in Labuan rate will rise to 24%. 

Companies that pay taxes under Onshore Malaysian Tax Law

Labuan companies that decide to pay taxes under Onshore Malaysia Tax Law will be imposed with 17% corporate tax rate on the first RM 600,000. This Labuan corporate tax rate will be followed by 24% rate on extra chargeable income. 

Income tax in Labuan for a dormant company

A dormant company is an inactive company and until it is completely removed from the Trade Register of Labuan, it must submit relevant tax files every year. 

All these companies have different structures and they face taxes accordingly. You do not need to get confused in this whole process of Labuan company taxes because our local expertsin Labuan company formation are here to help you out about taxation details.

GDP of Labuan (2016-2019) 

This federal territory of Malaysia has been showing consistent growth in its GDP and Labuan is a tax haven because its tax rates are very low in comparison to the other countries. Here is a list showing the GDP of Labuan from 2015-2019:

  • · In 2015, Labuan had a gross domestic product of 5,119 RM million;
  • · In the year 2016, Labuan had a GDP of 5,984 RM million;
  • · In 2017, the GDP of Labuan was 6,349 RM million which is higher than the previous two years;
  • · In 2018, Labuan marked a GDP of 6,748 RM million;
  • · In 2019, the GDP of Labuan was 7,725 RM million, which is an evidence of economic growth of Labuan each year.

For any corporate taxation assistance, you can contact our team of tax specialists atLabuan company formation.