A Labuan trading company is one that is engaged in a number of activities, including trading and also several others such as management, licensing, shipping or banking and insurance.
The distinction between trading and non-trading companies is important in Labuan and it is the basis for taxation and several other issues regarding the treatment of companies in this Malaysian financial center.
Labuan, a federal territory of Malaysia comprising the homonymous Island and six smaller islands is known as a financial center and a favorable location to base an offshore company or an international Labuan trading company. This type of company benefits from notable advantages, such as a low corporate tax as well as investment protection and a satisfactory level of confidentiality for the company founders.
Below, our team of Labuan company formation specialists describes the main steps needed to open a Labuan trading company, its most important features and how it is different from a non-trading company.
What are the activities of a Labuan trading company?
The trading company and the non-trading company in Labuan are used for different business purposes, as each one is only allowed to engage in specific types of activities.
The Labuan trading company can perform the following:
- – Banking and insurance;
- – Trading;
- – Shipping;
- – Management and licensing;
- – Any other activities that are not included in the non-trading company list.
For comparison, the non-trading company will engage only in activities that are related to holding investments, no effective commercial activities. For example, a non-trading company in Labuan can be incorporated for the purpose of holding investments in securities, stocks, shares, loans, deposits or property located in Labuan.
How is the trading company taxed in Labuan?
The taxation principles are another important difference between the trading and non-trading company. The following tax principles are relevant:
- – 3% is the tax on net profits applicable to a trading company in Labuan; the profits are audited;
- – 24% is the tax applicable on royalty and intellectual property income;
- – 45,000 US$ is the minimum annual operating expenditure in Labuan for this type of company; also, the company is required to have a minimum number of employees.
Some of the main advantages of opening an offshore company in Labuan for trading purposes include the following, based on the unique local taxation regime:
- – few filing obligations for companies;
- – tax exemptions;
- – benefits under the double tax agreements signed with other jurisdictions by Malaysia;
- – no bi-monthly deductions and no requirements for the estimation of income.
A key feature for investors is that a trading company set up in Labuan may invest in a domestic company whilst still benefiting from the taxation regime and exemptions under the regime in place in the Labuan International Business and Financial Centre.
Our team of agents who specialize in Labuan company formation can give you more details about the tax regime applicable to the trading company as well as the other substance requirements. All of these are relevant when discussing the formation of a trading company.
How is the Labuan trading company incorporated?
A Labuan company is incorporated by means of submitting the Memorandum and the Articles of Association with the Labuan International Business and Financial Center. Other documents that are required for this purpose include the director’s consent letter and the statutory declaration of compliance. Moreover, the company founders do need to comply with the registration fees that differ according to the paid-up capital for the company.
Opening a Labuan trading company is a simplified process, and the minimum requirements are quire advantageous, meaning that compliance is facile for many investors. We list these below:
- – US1$ share capital; there is no minimum capital requirement and the company can have different classes of shares (no bearer shares are permitted through);
- – One shareholder and one director, both of whom are not required to be Malaysian residents; in essence, foreign entrepreneurs can open an offshore company in Labuan irrespective of their nationality.
It is important to note that a Labuan trading company will be used solely for trading outside of Malaysia. Offering services within Malaysia, such as banking or insurance, makes it mandatory for any such company to receive the prior mandatory approvals from the Malaysian Central Bank as well as other Malaysian regulatory agencies.
Contact us for more information on how to open a Labuan trading company and for more in-depth information about trading and non-trading activities.