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Doing Business in Labuan

About Labuan

Summary of Quick Facts

Location 8km off the coast from the state of Sabah, East

Malaysia, on the island of Borneo.

Land Area

92 sq. km.

Time Zone

GMT + 8 Hours.

Climate Tropical weather with an average 30℃. Population 95,500 comprising of a mix of Malays (50%),Chinese

(40%), Indians and the indigenous people of Sabah &

Sarawak, East Malaysia.

Language Malay is the national language but English is commonly spoken. Currency Malaysian Ringgit (MYR). Legal System English Common law, British Legal System. Constitution Parliamentary democracy. Economic Sector Oil and Gas, Business and Financial Services. Accessibility Several daily flights to Kuala Lumpur and Kota Kinabalu with connection to USA, Europe, Asia and Australia.

Labuan Companies

Businesses in Labuan are regulated by modern Acts. These Acts enhance its competitiveness in the offering of financial product and services.

Labuan IBFC also adheres to international standards and best practices including anti money laundering and exchange information set by the

Organisation of Economic Cooperation and Development. Acts which govern the businesses in Labuan as follows:-

  1. Labuan Business Activity Tax Act 1990 (“LBATA”)
  2. Amendment to the Labuan Business Activity Tax Act (Finance Bill 2018)
  3. Labuan Companies Act 1990
  4. Labuan Trusts Act 1996
  5. Labuan Financial Services Authority Act 1996
  6. Labuan Financial Services and Securities Act 2010
  7. Labuan Islamic Financial Services and Securities Act 2010
  8. Labuan Foundation Act 2010
  9. Labuan Limited Partnerships and Limited Liability partnerships Act 2010

Labuan companies can trade in any currencies with any countries.

Labuan Companies Characteristics

Company Name

I. Under the Labuan Companies Act 1990, the name of the company may have the word “ (L) “ as part of its name and shall also have the word:

  1. “Bhd” or “Berhad”, where the company name shall in addition have the word “(L)” or “(Labuan)”;
  2. “Corporation” or “Corp”;
  3. “Incorporated” or “Inc”;
  4. “Limited” or “Ltd”;
  5. “Public Limited Company” or “PLC”;
  6. “Societe Anonyme” or “Sociedad Anonima” or “S.A”;
  7. “Aktiengesellschaft” or the abbreviation “A.G”;
  8. “Naamloze Vennootscap” or the abbreviation “N.V”;
  9. “Perseroan Terbatas” or the abbreviation “P.T”.

II. The words “Royal”, “Bank”, “Finance”, “Fund” or “Trust” shall be avoided, except for specific business activities which required the corresponding licence(s).

Share Capital

  1. Share capital can be held in any currencies.
  2. No par value and treasury shares are allowed.

Shareholder

At least one (1) shareholder who can be either individual or corporate.

Director(s)

  1. At least one (1) Director who can be either individual or corporate.
  2. The Director(s) can be either a non-resident or resident of Malaysia.

Company Secretary

The company must have a resident secretary which can be either individual or corporate.

Registered Office

The company must have a registered office in Labuan.

Annual Return

An annual must be filed not later than 30 days from the anniversary of the date of its incorporation.

Maintain Proper Accounting Records

Yes.

Audit

The Labuan company is subject to audit.

Tax Return

Tax return must be filed within a periods of three (3) months.

Business Registration

An annual government fee is payable within 30 days immediate after the anniversary date of its incorporation.

Labuan Taxable Activities

Taxation

With effect from 1 Jan 2019, under Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulation 2018, a Labuan company carrying on a Labuan business activity is only subject to tax at the rate of 3% of net profit PROVIDED that it has fulfilled the requirement of the number of full time employees and an amount of annual operating expenditures as specified in the Schedule below:

Labuan Company Carrying on a Labuan Business Activity Minimum Number of Full Time Employees in Labuan Minimum Amount of Annual Operating Expenditure in Labuan RM
Labuan Insurer, Labuan reinsurer, Labuan takaful operator or Labuan retakaful operator 4 150,000
Labuan underwriting manager or Labuan underwriting takaful manager 4 100,000
Labuan insurance manager or Labuan takaful manager 4 100,000
Labuan insurance broker or Labuan takaful broker 4 100,000
Labuan captive insurer or Labuan captive takaful 4 100,000
Labuan International Commodity Trading Company 3 3,000,000
Labuan bank, Labuan investment bank, Labuan Islamic bank or Labuan Islamic investment bank 3 180,000
Labuan trust company 3 120,000
Labuan leasing company or Labuan Islamic leasing company 2 100,000
Labuan credit token company or Labuan Islamic credit token company 2 100,000
Labuan development finance company or Labuan Islamic development finance company 2 100,000
Labuan building credit company or Labuan Islamic factoring company 2 100,000
Labuan factoring company or Labuan Islamic factoring company 2 100,000
Labuan money broker or Labuan Islamic factoring company 2 100,000
Labuan fund manager 2 100,000
Labuan securities licensee or Labuan Islamic securities license 2 100,000
Labuan fund administrator 2 100,000
Labuan company management 2 100,000
Labuan International Financial Exchange 2 120,000
Self-regulatory organisation or Islamic self-regulation organisation 2 120,000
Holding company 2 50,000

Income derived from intellectual property rights is subject to tax at the rate of 24% under the Income Tax Acts (“ITA”).

With effect from 1 Jan 2019, under Income Tax (Deductions Not Allowed for Payment Made to Labuan Company by Resident) Rules 2018, the following type of payments made to a Labuan company by a company resident in Malaysia are not entitled to a tax deduction:

  Type of payment Amount not allowed for deduction
1. Interest payment 33%
2. Lease rental 33%
3. Other payments 97%

Tax Exemption

The source of income is exempted from income tax as follows:-

  1. Dividend paid out of the income derived from the Labuan Business Activities is not subject to tax.
  2. Interest or technical and management fee paid by a Labuan company to a non-resident person or a resident person or another Labuan company is not subject to withholding tax.

Tax Incentives (until to Year of Assessment 2020)

  1. Tax exemption on Director fees received by a non-citizen individual in his capacity as a Director of a Labuan company.
  2. Tax exemption on 50% of gross income received by a non-citizen individual from exercising employment in Labuan with Labuan company in managerial function in Labuan or at its marketing or co-located offices approved by Labuan Financial Services Authority.
  3. Tax exemption on 50% of gross housing and Labuan territory allowances received by Malaysian citizen from exercising employment in Labuan with a Labuan company.

Stamp Duty Exemption

The following activities are exempted from stamp duty:-

  1. All Memorandum and Articles of Association of a Labuan company.
  2. All instrument executed by a Labuan company in connection with a Labuan business activities, including transfer of shares in a Labuan company.

Double Taxation Agreements

Malaysia has entered into Double Taxation Agreements with various countries as follows:-

Albania, Republic Germany Mongolia South Africa
Argentina ^ Hong Kong Morocco Spain
Australia Hungary Myanmar Slovak Republic
Austria India Namibia Sri Lanka
Bahrain Indonesia Netherlands Sudan
Bangladesh Ireland New Zealand Sweden
Belgium Islamic Republic of Iran Norway Switzerland
Bosnia & Herzegovina * Italy Pakistan Syria
Brunei Japan Papua New Guinea Taiwan #
Canada Jordan Philippines Thailand
Chile Kazakhstan Poland Turkey
China, People’s Republic Korea, Republic Qatar Turkmenistan
Croatia Kuwait Romania United Arab Emirates
Czech Republic Kyrgyz, Republic Russia United Kingdom
Denmark Laos San Marino United States of America ^
Egypt Lebanon Saudi Arabia Uzbekistan
Fiji Luxemburg Senegal * Venezuela
Finland Malta Seychelles Vietnam
France Mauritius Singapore Zimbabwe*

* Gazette Double Taxation Agreements

^ Limited Agreements

# Income Tax Exemption Order

Currently, Labuan has been specifically excluded from Double Taxation Agreement with the countries as follows:-

Australia Japan South Africa Seychelles
Chile Luxembourg Spain United Kingdom
Indonesia Netherlands Sweden  

 

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