Labuan Shipping Operations and International Ships Registration

Malaysia International Ship Registry (“MISR”) is a body for the registering of international ships.  The MISR was introduced to attract individual and foreign shipping companies to register their ships through Labuan IBFC. This would enable placing of Malaysia on the international maritime map and also, further enhance the jurisdiction’s shipping operations.

 

SHIPPING OPERATIONS

Shipping operations include the transportation of passengers or cargo by sea or the letting or charter of ships on a voyage or time charter basis.

REGISTRATION OF INTERNATIONAL SHIPS IN LABUAN IBFC

Port of Registry for Malaysia International Ships
Labuan

Eligibility
May register a ship as a Malaysian International Ship if it is owned by a corporation that satisfies the following requirements:

  • Incorporated in Malaysia
    To qualify under LBATA, the shipping company must be incorporated or registered under the Labuan Companies Act 1990.
  • An office established in Malaysia.
  • Ownership :
    Foreigners are allowed to hold 100% equity in line with the government's effort to encourage foreign investments in the country.
  • Paid-up capital of corporate ownership :
    The company must have a minimum paid-up capital of 10% of the value of the ship or RM1million, whichever is higher. This shall apply only to the first ship registered by the company.

 

APPOINTMENT OF SHIP MANAGER

The owner of a ship shall, before applying for a ship to be registered, appoint a ship manager whom shall be:

  • A Malaysian citizen having his permanent residence in Malaysia; or
  • A company incorporated in Malaysia and having its principal place of business in Malaysia.

 

ADVANTAGES & KEY BENEFITS OF LABUAN IBFC

  • ZERO withholding tax on payments of dividend and interest to non-residents.
  • No stamp duty on all instruments relating to offshore business activities including share transfer.
  • No import duty / sales tax.
  • No foreign exchange controls.
  • No capital gain tax / inheritance tax.
  • Double Tax Agreements between Malaysia and over 70 countries.
  • 50% tax abatement for expatriate professionals and managers employed under Labuan companies.
  • 100% exemption for director’s fees received by non-citizen directors of Labuan companies.

 

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).
    5. Based on the above, shipping operations is considered as “Labuan trading activity”. The Labuan company shall pay tax at 3% of net profits as per audited accounts.
    6. As shipping operations is a Labuan trading activity, it is recommended that substance requirements in Labuan will be needed, such as the following:-
    • Maintain physical business office in Labuan.
    • Board meetings held in Labuan from time to time where key business decisions are being made.
    • Principal bank account maintained in Labuan.
    • Accounting, secretarial and other compliance activities of the Labuan Company are carried out in the island.
    • Operational substance – Employees, directors or management team performing various core functions are being carried out from the Labuan office.
    • Labuan company to incur relevant costs eg. payroll, rental etc.

 

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