Malaysia: A Guide To Labuan Companies 2020

WHAT IS A LABUAN COMPANY?

A Labuan company is a company incorporated or registered under the Labuan Companies Act 1990 (LCA 1990). Residents and non-residents of Malaysia are allowed to establish Labuan companies. Companies incorporated under this Act and which meet certain conditions, including substance requirements would be taxed at preferential rates. A Labuan company may have these shares structures:

• company limited by shares
• company limited by guarantee
• an unlimited company

Types of company:

• Labuan Company
• Labuan Foreign Company
• Labuan Protected Cell Company

WHY USE A LABUAN COMPANY?

A Labuan company may enjoy:

• Access to more than 70 Double Taxation Agreements that Malaysia has signed.¹ (Appendix 1)
• A competitive tax regime, Labuan business activities as defined in the Labuan Business Activity Tax 1990 (LBATA 1990) provides:
• • Taxation of 3% of net audited profits, if the company is undertaking Labuan trading activity and meets certain conditions including substance requirements
  • Companies carrying out only Labuan non-trading activity is not charged tax i.e. 0%
  • A Labuan company may make an irrevocable election to be subjected to tax pursuant to Malaysian Income Tax Act (MITA 1967) where the prevailing income tax rate is generally 24%
  • A summary of the description of Labuan business activities and its tax treatment is shown in the following table:

  • DESCRIPTION OF LABUAN ACTIVITIES	TAX TREATMENT
    Labuan non-trading activity Holding of investments in securities, stock, shares, loans, deposits or any other properties situated in Labuan by a Labuan company	Not subject to tax
    Labuan trading activity Includes banking, insurance, trading, management, shipping operations, licensing or any other activity which is not a Labuan non-trading activity	3% of net profits per audited accounts
    Carrying out both Labuan trading and non-trading activities - Deemed to be Labuan trading activity	Same tax treatment as Labuan trading activity (3% of net profits per audited accounts)
    Non-Labuan business activities or where an irrevocable election is made to be taxed under the MITA 1967	Taxed pursuant to the MITA 1967 at the prevailing income tax rate of 24%

• A convenient location within the Asia Pacific region
• Ease of doing business:
• • Availability of banking and trade finance services locally
  • A highly developed legal structure
  • Established business ecosystem including technology, skilled workforce and resources
  • Access to English and Chinese speaking talent
  • Competitive operating costs
• There are no indirect taxes in Labuan, including sales and services tax, import duties and excise duties*
• No foreign exchange controls
• Labuan companies (including companies licensed under the laws relating to financial services in Labuan IBFC) may set up a marketing office anywhere in Malaysia

*Note: Services provided by a person from outside Labuan may be subject to service tax.

WHAT ARE THE REQUIREMENTS TO SET UP A LABUAN COMPANY?

Share capital

• In any currency
• Minimum one share with no minimum share par value

Number of directors

• A Labuan company must have at least one director who may be a resident director

Company secretary

• A Labuan company must have at least one secretary which is a Labuan Trust Company

Registered office

• Must have a registered office which is the principal office of a Labuan Trust Company

Accounting requirements

• Labuan companies are required to submit audited accounts as part of tax filing requirements
• Under LCA 1990, there are no publicly accessible records

Labuan companies economic substance requirements

Labuan companies must have:

• A prescribed number of minimum employees in Labuan; and
• A prescribed number of annual operating expenditure in Labuan, based on the specific activity carried on by the relevant Labuan companies

WHAT ARE THE FEES FOR SETTING UP A LABUAN COMPANY?

The following fees payable to the Labuan Financial Services Authority:

(Note: The fees quoted exclude the cost of engaging a Labuan trust company which will essentially act as a company secretary to the Labuan company)

Appendix 1

List of countries that have Double Tax Agreements with Malaysia

* Labuan companies may not qualify for treaty protection.

Footnote

1. Labuan companies have been excluded from the benefits of some of Malaysia's tax treaties. Where the Labuan company makes an election to be taxed under the MITA 1967 instead of the LBATA, generally full treaty access may be restored.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.