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 PCC.

 

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

    1. 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.
    2. “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.
    1. “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 3% of net profits as per audited accounts.
    2. “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.
    3. Labuan companies 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.
    4. Labuan entities that carry on a non-Labuan business activity are subject to the provisions of the Malaysian Income Tax Act, 1967 (ITA).

 

DEALINGS WITH RESIDENT

All Labuan entities are allowed to conduct transactions with residents of Malaysia in Ringgit Malaysia. “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 expense67% deductible
>  Lease rental67% deductible
>  General reinsurance premiums100% deductible
>  Other type of payments3% deductible