Labuan Partnerships

The Labuan Limited Partnerships and Limited Liability Partnerships Act, 2010 (“LLPA”) provides the business and operations of Labuan Partnerships.  The legislation provides a flexible partnership vehicle to entrepreneurs and businessmen with the benefit of limited liability.

All registration documentation must be submitted to the Labuan Financial Services Authority (“Labuan FSA”) through a registered trust company.

Kensington Trust Labuan Limited is a licensed trust company in Labuan and is able to assist you with establishment and administration of your Labuan PCC.

Common forms of partnerships in Labuan:

  • Labuan Limited Partnership
  • Labuan Limited Liability Partnership

LABUAN LIMITED PARTNERSHIP (“Labuan LP”)

ADVANTAGES

  • Excellent choice for individuals who lack the time or expertise to run a business but who would like to participate in the profits.
  • Commonly used for joint venture. Liability for limited partners merely is capital which they invest in the business. Added benefit, they are also personally shielded from the partnership’s debts and other liabilities.
  • Limited partners may leave or be replaced without the Limited Partnership being dissolved.
  • Commonly used for private equity fund.

ANNUAL OBLIGATIONS

  • Annual Government Fee: Pay annual fee on or before its anniversary date of registration.
  • Annual 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.

LABUAN LIMITED LIABILITY PARTNERSHIP (“Labuan LLP”)

Labuan LLP may be considered a hybrid vehicle which consist the elements of a limited liability company and a partnership. It has legal personality separate from the partners, which means it can sue and be sued, acquire, own, hold and develop or dispose its property.

Notes:

  • Every partner of a Labuan LLP is the agent of the Labuan LLP and accordingly, the acts of a partner in the partner’s capacity as a partner shall bind the Labuan LLP.
  • Liability of the partners are only limited to the agreed contribution in the Labuan LLP. Its liabilities shall be met out of the property of the Labuan LLP.

ADVANTAGES

  • Commonly used for joint venture business. The liability of each interested party involved in the joint venture business is only limited to the amount of capital invested and terms in the partnership agreement.
  • Suitable for professionals as it protects the partners from personal liability for claims arises from the other partners’ incompetency, error and omission.
  • Limited liability of partners.
  • Perpetual succession.
  • Powers of a natural person.
  • Any change in the partners of a Labuan LLP shall not affect the existence, rights or liabilities of the Labuan LLP.

ANNUAL OBLIGATIONS

  • Annual Government Fee: Pay annual fee on or before its anniversary date of registration.
  • Annual Solvency Certificate: File with Labuan FSA an annual solvency certificate on or before its anniversary date of registration.
  • Annual 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.

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. Only Labuan entities carrying on a Labuan business activity are chargeable to tax under the LBATA.

Labuan entities that carry on a non-Labuan business activity are subject to the provisions of the Malaysian Income Tax Act, 1967 (ITA).

“Entity” in LBATA also includes Labuan Limited Partnership registered under the Labuan Limited Partnerships and Limited Liability Partnerships Act, 2010

Labuan non-trading activity” means an activity relating to the holding of investments in securities, stock, shares, loans, deposits or any other properties by a Labuan entity on its own behalf. Such activity is not subject to tax under LBATA.

Labuan trading activity” includes banking, insurance, trading, management, licensing, shipping operations or any other activity which is not a Labuan non-trading activity. The Labuan entity shall pay either 3% of net profits as per audited accounts OR RM20,000/- upon election annually.

Labuan entity carrying on both Labuan trading and non-trading activities will be deemed to be carrying on Labuan trading activities. Hence, it will have the same tax treatment as those undertaking Labuan trading activity mentioned above.