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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

4

100,000

Labuan insurance manager or Labuan takaful manager

4
100,000

Labuan insurance broker or Labuan takaful broker

2

100,000

Labuan captive insurer or Labuan captive takaful –
  1. Labuan first party captive insurer or Labuan first party captive takaful; or
  2. Labuan third party captive insurer or Labuan third party captive takaful.
2
2

100,000

100,000

Labuan bank, Labuan investment bank, Labuan Islamic bank or Labuan Islamic investment bank

3

200,000

Labuan trust company

3

120,000

Labuan leasing company or Labuan Islamic leasing company

  1. 10 or less related Labuan leasing companies or Labuan Islamic leasing companies;
2 per group
100,000 for each Labuan leasing company or Labuan Islamic leasing companies;
  1. 11 to 20 related Labuan leasing companies or Labuan Islamic leasing companies;
3 per group
100,000 for each Labuan leasing company or Labuan Islamic leasing companies;
  1. 21 to 30 related leasing companies or Labuan Islamic leasing companies;

4 per group

100,000 for each Labuan leasing company or Labuan Islamic leasing companies;
  1. More than 30 related Labuan leasing companies or Labuan Islamic leasing companies
Increase of 1 employee for every additional 10 related companies or Labuan Islamic leasing companies;
100,000 for each Labuan leasing company or Labuan Islamic leasing companies;

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 license or Labuan Islamic securities license

2

100,000

Labuan fund administrator

2

100,000

Labuan company management

Provision of treasury processing services and such other services as defined in Section 129 of the Labuan Financial Services and Securities Act 2010.

2

100,000

Labuan International Financial Exchange

2

120,000

Self-regulatory organisation or Islamic self-regulation organisation

2

120,000
Labuan entity that carries on any one or more of the following business activity:
  1. 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.*
  2. Accounting services
    • Services pertaining to recording, analysing, summarizing or classifying financial, commercial and business transactions and information of a person or business.*
  3. 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. *
  4. 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. *
  5. Payroll services
    • services relating to:- processing, calculation, payment and deduction of remuneration, benefits, tax and statutory payment ; or
    • issuance of payslip and tax statement *
  6. Talent management services;
    • services relating to the provision of human resource services to attract, onboard, develop, motivate, and retain employees.*
  7. 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.*
  8. Insolvency related services;
    • services related to administering company liquidations or winding up or personal bankruptcy.*
  9. 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*
*As per Frequently-Asked Questions (FAQ) on Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2021 [P.U. (A) 423/2021] issued by Labuan Financial Services Authority (LOFSA) dated 14 December 2021.*
2

50,000

Labuan entity that undertakes investment holding activities other than pure equity holding activities
1

20,000

Labuan entity that undertakes pure equity holding activities
Exempted under the Labuan Business Activity Tax (Exemption) Order 2020 [P.U (A) 177/2020]

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:

  1. meeting of the board of directors is convened in Labuan at least once a year;
  2. the registered office of the Labuan entity shall be situated in Labuan;
  3. the secretary of the Labuan entity appointed under the Labuan Companies Act 1990 shall be resident in Labuan; and
  4. 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

25%

Lease rental

25%

Other payments

97%

2) 0% ON SERVICE TAX AND 6 % ON IMPORTED SERVICE

No service tax shall be charged on any taxable service provided within or between Special Areas and Designated Areas unless on the taxable services prescribed in the Service Tax (Imposition of Tax for Taxable Service in Respect of Designated Areas and Special Areas) Order 2018.

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) 100% EXEMPTION OF DIRECTOR’S FEE RECEIVED BY NON-CITIZENS 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 fourteen (14) of those 78 countries, and it can enjoy full treaty benefit even with those fourteen (14) countries by incorporating a Malaysian domestic subsidiary company.

Malaysia has entered into Double Taxation Agreements with various countries as follows:-
Double Taxation Agreements
^ Limited Agreements
# Income Tax Exemption Order
@ Synthesized text
Currently, Labuan has been specifically excluded from Double Taxation Agreement with the countries as follows:-

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.

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)
(1) A licence fee of RM60,000 (USD15,000) per year is only applicable in respect of leasing arrangements with Malaysian residents; no licence fee is payable if the Labuan Company is only carrying out leasing activities with non-Malaysian residents.

(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.
(1) 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.

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.
(1) 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) 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.
Investment Funds 投资基金
Islamic Financing 伊斯兰融资
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