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 may assist you with establishment and administration of your Labuan Limited Partnership and Labuan Limited Liability Partnership.

 

LABUAN LIMITED PARTNERSHIP (“Labuan LP”)

Common forms of partnerships in Labuan:

  • Labuan Limited Partnership
  • Labuan Limited Liability Partnership

 

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 TAXATION SYSTEM

Labuan Business Activity Tax Act 1990 (“LBATA”) governs the imposition, assessment and collection of tax on a Labuan business activity carried on in, from or through Labuan.

“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.

As the activities of this type of entity is generally involved in either Pure Equity Holding or Non Pure Equity Holding or Other Trading Activities, the Substance Requirements are as follows:

Pure Equity Holding     

To comply with management and control requirement in Labuan, the entity is to hold at least a minimum of one board meeting in Labuan for each calendar year and incur minimum annual operating expenditure of RM20,000 per annum in Labuan.

Non Pure Equity Holding

To comply with minimum of one (1) full time employee in Labuan and minimum annual operating expenditure of RM20,000 per annum  in Labuan.

Other Trading Activities

To comply with minimum of two (2) full time employees in Labuan and minimum annual operating expenditure of RM50,000 per annum in Labuan.

 

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 expense75% deductible
>  Lease rental75% deductible
>  General reinsurance premiums100% deductible
>  Other type of payments3% deductible