All Labuan companies are governed by the Labuan Companies Act 1990 (“LCA”) and companies incorporated in Labuan, may carry out either trading or non-trading activity in, from or through Labuan. The LCA requires the engagement of services of a Labuan IBFC registered trust company to act as its incorporation agent.
Kensington Trust Labuan Limited is a licensed trust company in Labuan and may act as your incorporation agent.
WHY LABUAN INTERNATIONAL BUSINESS AND FINANCIAL CENTRE (IBFC)
- Strategically located in Malaysia, sharing common time zone with major Asian cities, complementing financial centres of Hong Kong, Singapore & Shanghai.
- A leading business and financial centre in Asia Pacific with growing reputation and track record.
- Vision to be Asia Pacific’s leading midshore international business and financial centre.
- Striking an ideal balance between client confidentiality and compliance with international best standards.
- Robust and well-balanced legal and regulatory framework.
- A tax-efficient jurisdiction to facilitate businesses.
- Access to Malaysia’s double taxation treaty network with more than 70 countries.
- A complete range of solutions for business and investment structures for cross border transactions, business dealings and wealth management needs.
- Dividends received from Labuan entities.
- Distributions received from Labuan trusts and foundations by the beneficiaries.
- Distributions of profits by Labuan partnerships.
- Interest received from a Labuan entity by another Labuan entity, resident or non-resident person (other than interest accruing to a business carried on by a non-resident person in Malaysia where that non-resident person is licensed to carry on business under the Malaysian Banking and Financial Institutions Act 1989, Islamic Banking Act 1983, Insurance Act 1996 or Takaful Act 1984).
OTHER ATTRACTIONS OF LABUAN IBFC
- NO Withholding Tax
- NO Capital Gains Tax
- NO Inheritance Tax
- NO Indirect Tax
- NO VAT / / goods and services tax (GST)
- NO import duty / sales tax
- NO exchange control
- Tax system simple and clear
LABUAN IBFC TAX SYSTEM
Labuan Business Activity Tax Act 1990 (“LBATA”) governs the imposition, assessment and collection of tax on a Labuan business activity carried on by a Labuan entity in, from or through Labuan.
Labuan entities that carry on a non-Labuan business activity are subject to the provisions of the Malaysian Income Tax Act, 1967 (ITA).
“Labuan business activity” means:
- a Labuan trading or a Labuan non-trading activity carried on in, from or through Labuan
- excluding any activity which is an offence under any written law
SUBSTANCE REQUIREMENT UNDER LBATA (with effect from 1st January 2019)
> Pursuant to section 2B(1) (b) of LBATA, the Labuan entities shall, for the purpose of the Labuan business activity, have :-
- an adequate number of full time employees in Labuan; and
- an adequate amount of annual operating expenditure in Labuan, as prescribed by the Minister by regulations made under this Act.
> Section 2B (1A) of LBATA provides that a Labuan entity carrying on a Labuan business activity which fails to comply with the substance requirement for a basis period for a year of assessment shall be charged to tax at the rate of twenty four per cent (24%) upon its chargeable profits for that year of assessment.
DEALINGS WITH RESIDENT
All Labuan entities are allowed to conduct transactions with Residents of Malaysia in Ringgit Malaysia subject to the filing of a notification to Labuan FSA within 10 days from the transaction effective date. “Resident” here means:
- in relation to a natural person, a citizen or permanent resident of Malaysia; or
- in relation to any other person, a person who has established a place of business, and is operating in Malaysia.
- and includes person who is declared to be a resident pursuant to s.43 of the Malaysian Exchange Control Act 1953.
The amount of deductions allowed in respect of payments made by Residents to Labuan entities are as follows:-
|> Interest expense||75% deductible|
|> Lease rental||75% deductible|
|> General reinsurance premiums||100% deductible|
|> Other type of payments||3% deductible|
KEY CORPORATE FEATURES OF LABUAN COMPANIES
|Permitted Currencies||Any foreign currency except Ringgit Malaysia|
|Minimum issued capital||One (1) in any denomination in foreign currency|
|Par / Nominal value||N/A|
|Local directors requirements||Optional|
|Publicly accessible records||No|
|Local shareholders requirements||No|
|Publicly accessible records||No|
|Requirements||A resident secretary who must be a Trust Officer of a trust company OR a Labuan / Malaysian domestic company wholly-owned by the Labuan trust company|
|Requirements||Principal office of a trust company in Labuan|
|Records||Kept in Labuan|
|Preparation of accounts||Yes|
|Audit requirements and filing||Required for Labuan companies which carry on Labuan Business Activities and licensed companies|
|Publicly accessible records||No|
|Annual Return||Not later than thirty (30) days from the anniversary date of incorporation of the Labuan company|
|Annual Government Fee||On or before the anniversary date of incorporation of the Labuan company|
|Tax Filing||Annual tax return needs to be filed with the Malaysian Director General of Inland Revenue by 31 March of that year of assessment. Normally, an extension of time for filing is allowed by the Inland Revenue|
|Trading Activities||3% of net audited profits|
|Trading & Non-trading Activities||3% of net audited profits|
|Others||No withholding tax, no capital gain tax, no stamp duty on offshore instruments|
|Labuan Company undertaking Pure Equity Holding||To comply with management and control requirement and minimum annual operating expenditure of RM20,000 in Labuan|
|Labuan Company undertaking Non Pure Equity Holding||1 full time employee in Labuan and minimum annual operating expenditure of RM20,000 in Labuan|
|Other Trading Activities||2 full time employees in Labuan and minimum annual operating expenditure of RM50,000 in Labuan|
|Legal System||Common Law|
|Double Taxation Treaty Access||Yes|
The information in this document is not advice of any kind but general information only and should not be relied on as legal advice. Kensington Trust Group recommends seeking professional advice on legal or tax issues affecting you before relying on it. While Kensington Trust Group tries to ensure that the content of this document is accurate, adequate or complete, it does not represent or warrant, express or implied, its accuracy, correctness, completeness or use of any of the information. Kensington Trust Group does not assume legal liability for any loss suffered as a result of or in relation to the use of this document. To the extent permitted by law, Kensington Trust Group excludes any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this document.