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Why Labuan?

TAX BENEFITS

  1. Corporate Tax 3%
    1. With effect from 1 Jan 2019, under Labuan Business Activity Tax (Requirement 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 expenditure 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

      1. Labuan Insurer, Labuan reinsurer, Labuan takaful operator or Labuan retakaful operator 4 150,000
      2. Labuan underwriting  manager or Labuan underwriting takaful manager 4 100,000
      3. Labuan insurance manager or Labuan takaful manager 4 100,000
      4. Labuan insurance broker or Labuan takaful broker 4 100,000
      5. Labuan captive insurer or Labuan captive takaful 4 100,000
      6. Labuan International Commodity Trading Company 3 3,000,000
      7. Labuan bank, Labuan investment bank, Labuan Islamic bank or Labuan Islamic investment bank 3 180,000
      8. Labuan trust company 3 120,000
      9. Labuan leasing company or Labuan Islamic leasing company 2 100,000
      10. Labuan credit token company or Labuan Islamic credit token company 2 100,000
      11. Labuan development finance company or Labuan Islamic development finance company 2 100,000
      12. Labuan building credit company or Labuan Islamic factoring company 2 100,000
      13. Labuan factoring company or Labuan Islamic factoring company 2 100,000
      14. Labuan money broker or Labuan Islamic factoring company 2 100,000
      15. Labuan fund manager 2 100,000
      16. Labuan securities license or Labuan Islamic securities license 2 100,000
      17. Labuan fund administrator 2 100,000
      18. Labuan company management 2 100,000
      19. Labuan International Financial Exchange 2 120,000
      20. Self-regulatory organisation or Islamic self-regulation organisation 2 120,000
      21. Holding company 2 50,000
    2. Income derived from intellectual property rights is subject to tax at the rate of 24% under Income Tax Acts.(“ITA”)With effect from 1 Jan 2019, under Income Tax (Deductions Not Allowed for Payment Made to Labuan Company to 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:
      No. Type of payment Amount not allowed for deduction
      1. Interest payment 33%
      2. Lease rental 33%
      3. Other payments 97%
  2. 0% on Indirect Tax This may include but not limited to Estate Taxes, Inheritance Taxes, Goods and Services Tax (GST), Value Added Tax (VAT), Service tax, Sales tax, custom duty, etc.
  3. 0% on Withholding Tax There is no withholding tax on dividends paid by a Labuan Company in respect of dividends distributed out of income derived from Labuan business activities or income exempt from income tax. Interest, royalties, lease rental, technical fee and management fees paid to a non-resident are not subject to withholding tax.
  4. 0% on Stamp Duty This may include but not limited to transfer of share, etc.
  5. 0% on Director fees and 50% exemption on gross income received by for non-citizen individual
  6. Double Taxation Agreement (DTA) with more than 70 Countries Labuan Company enjoys the benefits of more double taxation treaties than any other offshore company as it almost enjoys same full double taxation benefit as Malaysia company except for eleven (11) of those 74 countries, and it can enjoy full treaty benefit even with those eleven (11) countries by incorporating a Malaysian domestic subsidiary company.
  7. Liberal Labuan Exchange Control Environment – Free Flow of Funds
  8. Investment Protection Agreement (IGA) with more than 50 Countries
  9. The Confidentiality of Company, Shareholder and Directors’ Information is ensured
  10. Labuan Company VS BVI Company
Labuan Company BVI Company
1) Labuan is low-tax jurisdiction country. BVI is tax-free jurisdiction country.

Certain home country may impose the income tax law on incomes deriving from offshore, if they have not been taxed offshore, particularly, when they are remitted back, this may appy to BVI Co but not Labuan Co as it pays minimum tax.

2) Labuan Co enjoys more than 70 countries’ double tax treaties (DTAs). BVI enjoys only 2 countries’ (Japan and Switzerland) double tax treaties (DTAs), and these treaties are not used in practise.
3) Dividend declared from Labuan Co to Malaysia is free of tax. Dividend declared from BVI co may subject to income tax.
Note: If the company is Non-Malaysian Co, the tax exemption will depend on each home country’s law jurisdiction and its double tax treaties with Malaysia.
4) No withholding tax on interest payment. BVI has applied the European Union (EU) Savings Directive since 1 July 2005. A withholding tax (initially 15%, rising to 20% from 1 July 2008) has been applied to interest payments to natural persons resident within the EU.
5) Labuan has its registered auditor under its jurisdiction. The income tax payable is allowed to base on the audited profit, the source of income is cleared for reinvestment or dividend purpose, once it is paid. BVI has no registered auditor under its jurisdiction.

ILLUSTRATIONS ON LABUAN COMPANY STRUCTURE

1) Labuan Leasing Company or Labuan Islamic Leasing Company

Suitable Industries

  • Vessel, aircraft, shipping, oil & gas, high value assets co.

Tax Advantages

  • Income tax is only 3% of net profit
  • Dividend income received by Labuan Co is exempted from tax.
  • No withholding tax on dividend declared And lease rental made by Malaysian subsidiaries or 3rd Party Malaysian Co.

2) Investment Holding Company

Suitable Industries :

  • Investment holding or offshore investment.

Tax Advantages

  • Dividend income received by Malaysian Parent Co(1)  or Labuan Co is exempted from tax.
  • No withholding tax on dividend declared by Labuan Co to either Malaysian or Foreign Parent Co.
  • No withholding tax on interest charged by Malaysian or Foreign Parent Co to Labuan Co.
  • No Capital Gain Tax and stamp duty for the transfer of shares in Labuan Co, e.g. dispose the investment in Foreign Manufacturing Co by selling Labuan Co.
  • Enjoys double tax treaties with more than 70 countries via a Labuan Co.

3) Captive Insurance

Suitable Industries :

  • Captive Insurance

Tax Advantages

Income tax is only 3% of net profit

  • Dividend income received by Malaysian Parent Co(1) is exempted from tax.
  • No withholding tax on dividend declared by Labuan Captive Insurance Co.
  • Enjoys double tax treaties with more than 70 countries via a Labuan Co.

4) Offshore Financing

  • Fund managers

Tax Advantages

  • Income from investment is exempted from tax for Labuan Co.
  • Dividend from Labuan Co is exempted from tax.
  • No withholding tax either on dividend declared by or interest charged from Labuan Co to Labuan Funds.
  • Distribution from Labuan Funds to investors is not subject to withholding tax.
  • Enjoys double tax treaties with more than 70 countries via a Labuan Co.

Other Advantages

  • Lower cost of funds.
  • Liberal Labuan exchange control environment.
  • Debt instruments of Labuan Co may be listed.

Investment Funds 投资基金

Islamic Financing 伊斯兰融资