Why Labuan?
TAX BENEFITS
1. Corporate Tax 3%
A. The Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulation 2021 has been gazetted on 22 November 2021 and are deemed to have come into operation on 1 January 2019, 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)
Labuan Insurer, Labuan reinsurer, Labuan takaful operator or Labuan retakaful operator
3
200,000
Labuan underwriting manager or Labuan underwriting takaful manage
100,000
Labuan insurance manager or Labuan takaful manager
Labuan insurance broker or Labuan takaful broker
2
100,000
- Labuan first party captive insurer or Labuan first party captive takaful; or
- Labuan third party captive insurer or Labuan third party captive takaful.
100,000
100,000
Labuan bank, Labuan investment bank, Labuan Islamic bank or Labuan Islamic investment bank
3
200,000
Labuan trust company
3
Labuan leasing company or Labuan Islamic leasing company
- 10 or less related Labuan leasing companies or Labuan Islamic leasing companies;
- 11 to 20 related Labuan leasing companies or Labuan Islamic leasing companies;
- 21 to 30 related leasing companies or Labuan Islamic leasing companies;
4 per group
- More than 30 related Labuan leasing companies or Labuan Islamic leasing companies
Labuan credit token company or Labuan Islamic credit token company
2
Labuan development finance company or Labuan Islamic development finance company
2
100,000
Labuan building credit company or Labuan Islamic factoring company
2
Labuan factoring company or Labuan Islamic factoring company
2
100,000
Labuan money broker or Labuan Islamic factoring company
2
Labuan fund manager
2
100,000
Labuan securities license or Labuan Islamic securities license
2
Labuan fund administrator
2
100,000
Labuan company management
2
100,000
2
120,000
Self-regulatory organisation or Islamic self-regulation organisation
2
- Administrative services
- Services pertaining to employee management, payroll management, property management, human resource management, financial planning, contract or subcontract management, facilities management or proposal management.*
- Accounting services
- Services pertaining to recording, analysing, summarizing or classifying financial, commercial and business transactions and information of a person or business.*
- Legal services
- conveyancing services ;*
- legal advisory services ;*
- litigation or legal representation services in any proceedings before any court, tribunal or other authority ;or *
- legal dispute resolution services including alternative dispute resolution. *
- Backroom processing services
- services relating to settlements of receivables and payables, clearance, record maintenance, regulatory compliance or information technology (IT) related services which are usually performed by administration and support personnel who do not deal directly with client. *
- Payroll services
- services relating to:- processing, calculation, payment and deduction of remuneration, benefits, tax and statutory payment ; or
- issuance of payslip and tax statement *
- Talent management services;
- services relating to the provision of human resource services to attract, onboard, develop, motivate, and retain employees.*
- Agency services ;
- services relating to the provision of specific services on behalf of another group, business, or person pursuant to an agency agreement between the agent and its client.*
- Insolvency related services;
- services related to administering company liquidations or winding up or personal bankruptcy.*
- Management services other than Labuan company management under item 17
- organization and coordination of activities of a business in order to provide services to the clients and usually consist of organizing, supervising, monitoring, planning, controlling and directing business’s resources such as human, financial and technology*
50,000
20,000
20,000
B. Management And Control Requirement For Labuan Entity That Undertakes Pure Equity Holding Activities
Regulation 3, The Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulation 2021 which is deemed to have come into operation on 1 January 2021, requires the above mentioned company to comply with the following:
- meeting of the board of directors is convened in Labuan at least once a year;
- the registered office of the Labuan entity shall be situated in Labuan;
- the secretary of the Labuan entity appointed under the Labuan Companies Act 1990 shall be resident in Labuan; and
- the accounting and business records including the minutes of meeting of the Labuan entity’s board of directors shall be kept in Labuan.
C. Income derived from intellectual property rights is subject to tax at the rate of 17% or 24% under Income Tax Acts 1967(“ITA”) .
With effect from 1 Jan 2019, under Income Tax (Deductions Not Allowed for Payment Made to Labuan Company by Resident) Rules 2018 (Amendment) 2020, the following type of payments made to a Labuan Entity by a company resident in Malaysia are not entitled to a tax deduction:
Type of payment
Amount not allowed for deduction
Interest payment
Lease rental
Other payments
2) 0% ON SERVICE TAX AND 6 % ON IMPORTED SERVICE
3) 0% ON WITHHOLDING TAX
4) 0% ON STAMP DUTY
5) 100% EXEMPTION OF DIRECTOR’S FEE RECEIVED BY NON-CITIZENS INDIVIDUAL
6) DOUBLE TAXATION AGREEMENT (DTA) WITH MORE THAN 70 COUNTRIES
Malaysia has entered into Double Taxation Agreements with various countries as follows:-
# Income Tax Exemption Order
@ Synthesized text
7) LIBERAL LABUAN EXCHANGE CONTROL ENVIRONMENT – FREE FLOW OF FUNDS
8) INVESTMENT PROTECTION AGREEMENT (IGA) WITH MORE THAN 60 COUNTRIES
9) THE CONFIDENTIALITY OF COMPANY, SHAREHOLDER AND DIRECTORS’ INFORMATION IS ENSURED
10) LABUAN COMPANY VS BVI COMPANY
Labuan Company
BVI Company
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.
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.
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.
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.
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.
ILLUSTRATIONS ON LABUAN COMPANY STRUCTURE
1) Labuan Leasing Company or Labuan Islamic Leasing Company
- Vessel, aircraft, shipping, oil & gas, high value assets co.
- 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)
(2) 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.
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
Suitable Industries :
- 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.
