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Why Labuan is a Tax Haven

Why Labuan is a Tax Haven

Labuan is an important offshore jurisdiction in Malaysia that offers the necessary support, stability, and confidence for that kind of investors looking to cut the taxes and protect their wealth. This is often a great business destination in terms of competitiveness, efficiency and for a better control over finances. We invite you to talk to our company formation specialists in Labuan and ask for assistance at the time you wish to register an offshore in Malaysia.

What are the taxes you need to pay in Labuan?

Investors from abroad interested in starting a company in Labuan should bear in mind the annual corporate tax of 3% rate which is applicable to firms having trading activities. There is no tax for non-trading companies with establishments in Labuan. The following aspects are among the reasons why Labuan tax haven has earned its name and why this destination is chosen for business:

  • •    there is no sales tax applicable in Labuan, Malaysia;
  • •    registered incomes of more than RM 500,000 are levied with the goods and services tax or GST as it is known;
  • •    there is no withholding tax imposed for capital gains, dividends, interests, and royalties;
  • •    trading companies in Labuan can choose to pay the 3% corporate tax or the flat tax of RM 20,000;
  • •    there are no taxes imposed for non-trading companies in Labuan.  

You may solicit information about the tax structure in Malaysia from our team of company formation agents in Labuan who can also help you incorporate an offshore company in this jurisdiction.

Can I benefit from the protection of DTTs in Malaysia?

Yes, Malaysia signed a series of double taxation treaties with many countries in order to protect investors from paying taxes twice. There are also reduced taxes which come in the attention of foreign entrepreneurs with businesses in Labuan, Malaysia.

Are the investment holding companies taxed in Labuan?

No, there is no tax imposed for investment holding companies in Labuan. However, it is important to know the regulations that stand at the base of forming holding companies in Malaysia.

What are some of the business opportunities in Labuan?

As companies are divided into trading and non-trading ones for tax purposes, investors in Labuan can choose between the same two types of activities. Those who wish to take advantage of the Labuan tax haven can choose to incorporate the following:

  1. Non trading companies: those that are limited only to holding activities, they do not engage in effective commercial activities; examples can include opening a company as a holding structure to hold shares, loans, deposits or properties; the company thus incorporated can hold the assets on its own behalf.
  2. Trading companies: included here are all other types of activities; because the Labuan tax haven is also an important financial hub, many of the types of activities companies undertake here are related to offering financial services; examples other than banking and insurance are shipping companies, management companies, consultancy services, and many more.

Besides the multitude of business possibilities in Labuan, foreigners can benefit from many advantages like a short period of time for company incorporation, no taxes imposed on transactions for trading and providing services in Malaysia, the possibility of opening a bank account in varied currencies and complete ownership in the company.

Recent developments to the Labuan law

In recent years, the Malaysian government introduces new laws aimed at reforming the Labuan tax system. The goal was not to reduce the tax benefits, rather than set clear indications on the fact that companies willing to do business here are to have legitimate commercial interest in operating in the jurisdiction. The new Substance Regulations introduced in Labuan tax haven in 2019 made it mandatory for entities incorporated in this jurisdiction to observe new rules regarding the annual operating expenditure and for having employees.

Some of the most important current conditions for Labuan companies are the following:

  • – have at least one director and a resident secretary;
  • – treasury shares are allowed, however, bearer shares are nor permitted;
  • – merging two or more companies into a single legal entity is not allowed (amalgamation);
  • – the company must have a registered office located in Labuan; this will also serve as the office of the secretary who is a resident;
  • – the company benefits from a certain level of confidentiality: no individual is permitted to divulge information on the management of the company, its shareholding, the financial transactions of a Labuan company;
  • – the company must have an adequate number of employees (between two to four in most cases, depending on the particular business activities);
  • – the company must have a minimum annual operating expenditure, also depending on the types of business activities, however, generally this is between RM50,000 to RM 3 million;
  • there are no minimum capital/no authorized share capital requirements.

For the purpose of the mandatory employment requirements, a full-time employee is an individual who is employed by a Labuan tax haven company to serve for that entity in Labuan. There are no mandatory minimum qualification requirements for staffing a company.

Please keep in mind that this is only a brief description of the company rules as well as the recent laws that have reformed the manner in which companies in Labuan can conduct business. Our team can provide essential, personalized information depending on the type of company (trading or non-trading) as well as other particulars.

Malaysia has also committed to the BEPS Inclusive Framework. Our Labuan company formation agents can give you more information on how this affects companies incorporated the Federal Territory.

Interesting facts about Labuan

The island we are referring to now as a financial center did not start as Labuan tax haven. In fact, it is officially known as the Federal Territory of Labuan, belonging to Malaysia and it includes Labuan Island as well as six smaller islands located off the East Malaysian cost, off the state of Sabah.

Victoria is Labuan’s capital, known as an offshore financial center, where the Labuan International Business and Financial Centre is in operation since 1990.

Apart from its distinction as Labuan tax haven, the island can also be a tourist destination. Those who venture not for the business opportunities but for the scenery can enjoy shipwreck diving, simply pending the day at the beach, shopping or visiting the botanical garden or the marine museum.

Because Labuan entities are treated differently compared to Malaysian companies, foreign investors may find it worth while to explore how they can conduct specific business activities in the Labuan tax haven. While the territory does not allow for abuse of its preferential regime (companies are still subject to certain requirements, as have been outlined herein), investors can reach out to our Labuan company formation agents to find out how they may benefit from company formation in this location, rather than opening a company in Malaysia.

Besides the multitude of business possibilities in Labuan, foreigners can benefit from many advantages like a short period of time for company incorporation, no taxes imposed on transactions for trading and providing services in Malaysia, the possibility of opening a bank account in varied currencies and complete ownership in the company.

You are invited to contact our team of company incorporation agents in Labuan and ask for assistance in opening a company in Malaysia.