Category: Tax

Green Investment Tax Allowance (GITA) For Own Comsumption

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Post date October 16, 2024
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MALAYSIA GREEN INVESTMENT TAX ALLOWANCE (GITA) FOR OWN COMSUMPTION

Companies undertake in green technology project for own consumption may enjoy up to 100% Green Investment Tax Allowance (“GITA”) to be offset against 70% of statutory income. Promoted activities such as green building, renewable energy system, energy efficiency, battery energy storage system, electric vehicles etc.

In 2024 Budget, the green technology tax incentives have been revised to the following categories:

Green Investment Tax Allowance (GITA) Project for Business Purposes;
Green Investment Tax Allowance (GITA) Asset for Own Consumption; and
Green Income Tax Exemption (GITE) Solar Leasing

The Malaysian Green Technology and Climate Change Corporation (MGTC) has issued a new guideline for GITA for own consumption project as below:

(i) Investment Tax Allowance :

Tier 1

Tier 2

Qualifying Activities

Qualifying asset as approved by Minister of Finance, Battery Energy Storage System (BESS) and Green Building.

Qualifying asset as approved by Minister of Finance (Appendix 11), Renewable Energy System and Energy Efficiency (Appendix 2).

Percentage of GITA

100%

60%

Percentage (%) of Statutory Income to be Set-Off

70%

Qualifying CAPEX

The qualifying capital expenditure must be an approved asset by MOF that have been verified by MGTC and is listed under the MyHIJAU Directory;
For Green Building, the qualifying CAPEX must be verified by the locally Green Building Rating Tools/ Certification Body approved by Government;
The asset must be new and owned by the Company;
The asset must be used in the business carried out by the company in Malaysia for own consumption and not for income generation.

Qualifying Asset

Electric vehicles (for commercial / industrial used only);
EV Infrastructure;
Green Building;
Energy Storage

Energy Efficiency;
Renewable Energy System;
Waste Composter or waste recycling;
Wastewater recycling or rainwater harvesting

Incentive Period

Qualifying Capital Expenditure incurred starting from 1 January 2024 until 31 December 2026.

Application Period

The application made under the GITA Asset Guidelines must be received by the Malaysian Green Technology and Climate Change Corporation [“MGTC”] from 1st January 2024 until 31st December 2026.

(ii) Eligibility Criteria:

a) New or existing Company:

A newly established company that incurred qualifying capital expenditure under GITA Asset; OR
Existing Company operating in Malaysia but has not incurred qualifying capital under GITA Asset and has not been approved for Green Technology Incentive.

b) Companies within the same group incurring the qualifying capital expenditure:

The project carried out in building/location separately from activities carried out by holding company or related companies;
The plant, machinery and equipment used shall be separately used and shall not be transferred from holding company or related companies;
Not shares the same employees as per holding company or related companies except for the management staff and directors of the Company;
This project must not result in a reduction in the investment of holding company or related companies.

c) To comply all the following criteria:

Minimize the degradation of the environment or reduce greenhouse emission;
Promotes health and improvement of environment; and
Conserves the use of energy, water and/or other forms of natural resources or promote the use of renewable energy or able to recycle waste material resources.

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Malaysia Cold Chain Facilities

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Post date March 18, 2024
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Malaysia Cold Chain Facilities

Investment in cold chain facilities or providing services for perishable agricultural produce such as fruits, vegetables, flowers, ferns, meat and aquatic products eligible for tax exemption up to 70% of statutory income or Investment Tax Allowance of 60% up to 5 years.

Companies providing cold chain facilities and services for perishable agricultural products i.e. fruits, vegetables, flowers, ferns,
meat and aquatic products are eligible for:

Type of Company

Incentive

New Company

Pioneer Status with tax exemption of 70% of statutory income for a period of
5 years;
Unabsorbed pioneer losses after the end of pioneer period are allowed to be
carried forward for 7 consecutive year of assessments;

OR
Investment Tax Allowance (ITA) of 60% on the qualifying capital expenditure
incurred for 5 years;
Unutilised allowances can be carried forward until fully absorbed.

Existing Company
(Company intend to reinvest in cold chain facilities for perishable agricultural produce)

Pioneer Status with tax exemption of 70% of increased statutory income for
a period of 5 years;
Unabsorbed pioneer losses after the end of pioneer period are allowed to be
carried forward for 7 consecutive year of assessments;
OR
Investment Tax Allowance (ITA) of 60% on the additional qualifying capital
expenditure for 5 years;
Unutilised allowances can be carried forward until fully absorbed.

Eligible Company

Eligible Activities

Must be Independent Service Provider (i.e the company conducts all of the cold chain activities on its own);
At least 60% of the company’s revenue must be derived from the provision of cold room facilities, refrigerated transportation and other related services for local agriculture produce.

Provision of cold room facilities or refrigerated transportation for local agricultural produce with or without other post-harvest activities including cleaning, washing, grading, freezing/chilling and packing;
Provision of cold room facilities or refrigerated transportation for local processed food products.

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Malaysia Global Services Hub Tax Incentive

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Post date February 8, 2024
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MALAYSIA GLOBAL SERVICES HUB TAX INCENTIVE

With Global Services Hub tax incentive, the companies will benefit from corporate income tax rates of 5% or 10% based on outcome for a period of up to ten (10) years. This incentive aims to establish Malaysia as a competitive hub in the global service sector in the region.

Global Services Hub tax incentive is an outcom-based incentives which uses a tiered rate in the provision of incentives on service income, or service and trading income achieved.

1. Overview Of The Incentive

An approved Global Services Hub company is eligible to enjoy the following concessionary corporate income tax rates:

2. Qualifying Services and Additional Services

Regional P&L / Business Management Unit;
Strategic Business Planning;
Corporate Development;

AND

Any 2 qualifying activities under the services category as follows:
Strategic services;
Business services;
Shared services;
Other services.

3. Outcome-based conditions

Annual operating expenditure;
High value full time employees;
C-suite with minimum salary of RM35,000;
Locally ancillary services;
Collaboration with higher education institution/TVET;
Training for Malaysian students/citizen;
Environmental. Social and Governance (ESG) elements; or
Other conditions as determined by the Minister of Finance.

Application received by Malaysian Investment Development Authority (MIDA) from 14 October 2023 to 31 December 2027.

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Why Dubai

The UAE’s 0% corporate tax policy transcends numbers; it’s an invitation to transform your business aspirations into reality. With a robust infrastructure, a strategic location, and a welcoming environment, the UAE beckons entrepreneurs and visionaries to harness its potential.

One of the LOWEST TAX RATES in the world, embracing 0% Corporate Tax in the UAE

The United Arab Emirates (UAE) stands as a global beacon of business innovation and prosperity. In the heart of this thriving economic landscape, the UAE offers an array of incentives and advantages to both local and international companies. At the core of this allure is the UAE’s corporate tax policy, a game-changer that propels businesses towards uncharted heights.

Tax Exemptions for Companies in Dubai vs Malaysia

Tax

Rate

Conditions

Value-Added Tax (VAT)

While the UAE champions business freedom, it maintains a balanced approach with a 5% VAT rate, obliging businesses with revenue exceeding AED 375,000 Yet, the UAE’s commitment to global trade is evident as exports of goods remain untaxed, fostering an environment ripe for international commerce.

Businesses with revenue > AED 375,000 (USD 102,000)

Export of goods

Value-Added Tax (VAT)

In the UAE, the benefits extend beyond corporate tax. Dividends, capital gains, intragroup transactions, and reorganizations all enjoy a tax rate of 0%, fostering an ecosystem where business can flourish without restraint.

Dividend and Capital gain, as well as intragroup transaction and reorganisations.

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Malaysia Digital Tax Incentive

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Post date July 19, 2023
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Malaysia Digital (MD) Status Incentive (formerly known as MSC Malaysia Status)

MSC Malaysia Status Service Incentive is now rebranded to Malaysia Digital (“MD”). Companies awarded with MD status shall be entitled to a set of incentives, rights and privileges from the Government of Malaysia. MD status companies have flexibility to choose benefits (either with or without tax incentives).

MALAYSIA DIGITAL (“MD”) STATUS SERVICE INCENTIVE (formerly known as MSC Malaysia Status)

On 4th July 2022, The Government of Malaysia through the Malaysia Digital Economy Corporation (“MDEC”) launched Malaysia Digital (“MD”) as the new national strategic initiative to accelerate and further develop digital economy replaces the Multimedia Super Corridor (“MSC”) Malaysia.

1. ELIGIBILITY CRITERIA

To be eligible to apply for the MD Status Company, companies are required to meet the following criteria:-

a) The company incorporated under the Companies Act 2016 and resident in Malaysia; AND
b) Proposing to carry out one or more of the MD activities (please refer Appendix A).
c) Other general conditions:-

To comply with all applicable permit/licensing requirements and to ensure that the required permit/license has been obtained from the relevant authority for the implementation of MD Approved Activities.

With effective from 25th March 2022, MD Status Company are not subjected to minimum office space requirements and are allowed to operate and undertake MD Approved Activities in any location within Malaysia.

2. BENEFITS OF MD STATUS COMPANIES

i. MD BILL OF GUARANTEES (BoGs)

A set of incentives, rights and privileges available for MD status companies;
MD status companies eligible to access or apply for, amongst others:-

Tax incentives (income tax exemption or investment tax allowance);
Foreign knowledge worker quota and passes;
Multimedia / ICT equipment import duty and sales tax exemptions;
Freedom of ownership by exempting local ownership requirements;
Flexibility to source capital and funds globally

ii. OTHER BENEFITS

MD Status companies are also eligible to access facilitation of other benefits as below, subject to certain criteria and conditions:-

Access to the local and international market and ecosystem;
Business matching and partnership;
Grant and funding facilitation; and/or
Participation in MD catalytic programs.

3. COMPANIES WITH MD STATUS COMPANY WILL HAVE TO COMPLY WITH THE FOLLOWING CONDITIONS WITHIN 12 MONTHS FROM THE DATE OF AWARD OF SUCH STATUS:

Activity

Commencement of operation and undertaking of the Malaysia Digital Approved Activities in Malaysia.

Knowledge Workers

Minimum of 2 full-time employees (comprising knowledge workers) with minimum average monthly base salary of RM5,000 employed for the MD Approved Activities.

Operating Expenditure

Minimum annual operating expenditure of RM50,000 incurred for the MD Approved Activities.

Paid-up Capital

Minimum of RM1,000.00.

As per MDEC’s announcement, the guidelines for the above tax incentives will be released by soon. Please be guide accordingly.

THE MALAYSIA DIGITAL ACTIVITIES Research, development and commercialization of solution and/or provision of services in relation to any of the following technologies or areas:

Big data analytics (BDA);
Artificial intelligence (AI);
Financial technology (FinTech);
Internet of things (IOT);
Cybersecurity (technology/software/design and support);
Data centre and cloud (technology/software/design and support);
Blockchain;
Creative media technology;
Sharing economy platform;
User interface and user experience (UI/UX);
Integrated circuit (IC) design and embedded software;
3D printing (technology/software/design and support);
Robotics (technology/software/design)
Autonomous (technology/software/design and support);
Systems/network architecture design and support;
Global business services or knowledge process outsourcing;
Virtual, augmented and/or extended reality – new/additional activity ;
Drone technology – new/additional activity ;
Advance telecommunication technology – new/additional activity ; OR
Other emerging technologies deemed significant for the digital ecosystem subject to approved by the Approval Committee – new/additional activity.

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Why Singapore?

WHY SINGAPORE

Singapore is a strategic base to implement your growth strategies and to manage and integrate your operations for the region and beyond. Being one of the lowest income tax rate countries, Singapore has further announced a full and partial tax exemption for the newly incorporated company for the first 3 years consecutively.

1) One of the LOWEST TAX RATES in the world

With effect from 2010, Singapore corporate income tax rate has further reduced from 18% to 17%, being one of the lowest tax rates in the world. Singapore Government has declared a new start-up tax exemption and partial tax exemption for newly incorporated and existing companies:

Tax Exemptions for Newly Start-up Companies in Singapore vs Malaysia

4.25% tax on first S$100K chargeable income

For a newly incorporated company (1), the corporate income tax rate is 4.25% on the first S$100k (≈RM300k) of chargeable income for the first 3 years of assessment consecutively.

8.50% tax on chargeable income of above S$100K up to S$200K

The newly incorporated companies are continued to enjoy for the partial tax exemption which effectively translates to about 8.5% tax rate on chargeable income of above S$100,000 up to S$200,000 per annum. The chargeable income above S$200,000 will be charged at the normal headline corporate tax rate of 17%.

Tax Exemptions for Existing Companies in Singapore vs Malaysia

The 4th years of assessment and onwards, the companies pay only 4.25% tax on their first S$10,000 of chargeable Income and 8.50% for the next S$190,000. The chargeable income above S$200,000 will be charged at the normal headline corporate tax rate of 17%.

1. (a) It is incorporated in Singapore and a tax resident of Singapore for that Year of Assessment. (b) It has no more than 20 shareholders throughout the basis period relating to that Year of Assessment and all its shareholders are individuals throughout the basis period relating to that Year of Assessment; or there is at least one individual shareholder with a minimum of 10% shareholding. c) Its principal activity is not related to (i) investment holding, or (ii) property developer for sales, investment, and both.

2) Engage in TRIANGULAR or TETRAGONAL trade

The companies engaged in international transactions among two or more countries, for instance, the companies purchase goods from e.g. China, and then sell them to e.g. America or trade domestically, Malaysia. This is when the companies need a lower tax trading company (2) to act as the intermediary to issue invoice and packing list in order to strengthen their competitive power in the international or local market.

2. To consider a company as resident in Singapore, the control and management of the business must be exercised in Singapore. Though the term “control and management” is not clearly defined by authorities, a generally accepted consensus is that it refers to the policy level decision making at the level of Board of Directors.

3) Government Incentives

Overview of government incentives

Depending on your company’s business plans, you may consider various tax incentives and grants as follows:

Internationalisation

Incentives available

Benefits

International Headquarters (IHQ) Award

Concessionary corporate tax rates of 5% or 10% for companies that commit to anchor substantive HQ activities in Singapore to manage, coordinate and control regional business operations. The award is accompanied with the award of Development and Expansion Incentive governed by Singapore Economic Development Board (EDB).

Mergers & Acquisitions (M&A) Scheme

The acquiring company is entitled to the following benefits:

25% of M&A allowance (capped at S$10 million) of the total acquisition value capped at S$40 million per YA.
Double Tax Deduction (DTD) on the transaction cost capped at S$100,000 incurred during the share acquisition process.

Double Tax Deduction (DTD) for Internationalisation Scheme

Enjoy up to 200% tax deduction on qualifying expenditure incurred on market expansion and investment development activities. The qualifying expenditures include:

Qualifying salary expenses incurred for employees posted overseas in an overseas entity.
Overseas business development trips and missions.
Overseas investment study trips and missions.
Overseas trade fairs.
Local trade fairs approved by Enterprise Singapore or STB.

Market Readiness Assistance (MRA) grant

Funding support of 50% of eligible costs, capped at S$100,000 per company per new market by Enterprise Singapore. The eligible costs for marketing activities including overseas market set-up, business development and market promotion.

Trading

Incentives available

Benefits

Global Trader Programme

A concessionary corporate tax rate of 5% or 10% for a renewable 3 or 5-year period on qualifying trading income granted by Enterprise Singapore, which includes income from physical trading, brokering of physical trades, derivative trading income, and income from structured commodity financing activities, treasury activities and advisory services in relation to mergers and acquisitions.

Manufacturing and services

Incentives Available

Benefits

Pioneer Incentive

Tax exemption on income from qualifying activities for a period of not exceeding 15 years, administered by Economic and Development Board (EDB).

Development & Expansion Incentive (DEI)

Reduced tax rate of 5% or 10% on incremental income from qualifying activities, limited to 5 years. The incentive is governed by Economic and Development Board (EDB).

Investment Allowance (IA)

Allowance of up to 100% (on top of normal capital allowance) on approved fixed capital expenditure. This incentive is administered by Economic and Development Board (EDB).

Integrated Investment Allowance (IIA)

Additional allowance on fixed capital expenditure incurred on qualifying productive equipment placed with an overseas company for an approved project. This scheme is administered by Economic and Development Board (EDB).

Land Intensification Allowance (LIA)

Initial allowance of 25% and annual allowance of 5% on qualifying capital expenditure incurred for the construction or renovation/extension of a qualifying building or structure. Annual allowances of 5% are granted until total allowance amounts to 100% of qualifying capital expenditure. Approvals for the incentive will be granted by the Economic Development Board (EDB).

Automation Support Package (under Enterprise Singapore)

Enterprise Development Grant (EDG)
Investment Allowance (IA)
Enhanced SME Equipment Loan

Grant support up to 70% of qualifying project costs such as equipment, training and consultancy.

Qualifying projects may be eligible for an IA of 100% on the amount of approved capital expenditure, net of grants. The approved capital expenditure is capped at S$10 million per project.

Under Enterprise Financing Scheme (EFS), qualifying SMEs may receive up to 70% government’s risk-share with participating financial institutions for qualifying projects. SMEs can apply for fixed asset loans of up to S$30 million. ことができる。

Financial and Treasury

Incentives available

Benefits

Finance & Treasury Centre (FTC) Incentive

Enjoy concessionary corporate tax rate of 8% for five years on income derived from qualifying services/ activities as well as withholding tax exemption on interest payments on loans from banks and approved network companies for FTC activities. This incentive is administered by Economic and Development Board (EDB).

Financial Sector Incentive (FSI)

Concessionary tax rate of 10% or 13.5% for licensed financial institutions, from large universal banks, fund managers to capital market players. This incentive is governed by Monetary Authority of Singapore (MAS).

Research and Development (R&D) and intellectual property (IP) management

Incentives available

Benefits

Research Incentive Scheme for Companies (RISC)

Co-funding to encourage and assist businesses companies in Singapore to conduct or expand their research and development (R&D) activities in science and technology. This scheme is administered by Economic and Development Board (EDB).

Supportable project costs include expenditure in the following:

Manpower cost (up to 50% support)
Equipment, materials, consumables and software (up to 30% support)
Singapore-based professional services (up to 30% support)
IPRs, e.g. licensing, royalties, technology acquisition (up to 30% support)

Intellectual Property Development Incentive (IDI)

Reduced tax rate of 5% or 10% on a percentage of qualifying IP income for an initial period of not exceeding 10 years, and may be further extended for a period or periods not exceeding ten years each. This incentive is administered by Economic and Development Board (EDB).

Approved Foreign Loan Incentive (AFL)

Reduced or nil withholding tax rate on interest payments on loans with minimum amount of S$20 million taken to purchase productive equipment. This incentive is administered by Economic and Development Board (EDB).

Approved royalties incentive (ARI)

Reduced or nil withholding tax rate on approved royalties, fees or contributions to research and development costs made to a non-tax resident.. This incentive is administered by Economic and Development Board (EDB).

Writing-down allowances for IP acquisition (S19B)

Automatic 5/10/15-year writing-down allowances on capital expenditure incurred for IPR acquisitions with legal and economic ownership. EDB’s approval is required if only economic ownership of IP rights is acquired.

Maritime, shipping and logistics

Incentives Available

Benefits

Maritime Sector Incentive (MSI) – Singapore Registry of Ships (MSI-SRS) and Approved International Shipping (MSI-AIS)

Tax exemption on qualifying shipping income from operating Singapore and foreign- flagged ships, provision of specified ship management services, and income from foreign exchange and risk management activities which are carried out in connection with or incidental to the operations of ships for either a 10-year renewable period; or a 5-year non-renewable period, with the option of graduating to the 10-year renewable award at the end of the 5-year period. This incentive is administered by Maritime and Port Authority of Singapore (MPA).

MSI – Shipping Related Support Services (MSI- SSS) Award

Concessionary tax rate of 10% on the incremental income derived from carrying out approved shipping-related support services for a 5-year renewable period. This incentive is administered by Maritime and Port Authority of Singapore (MPA).

Ship broking;
Forward freight agreement (FFA) trading;
Ship management;
Ship agency;
Freight forwarding and logistics services; and
Corporate services rendered to qualifying approved related parties who are carrying on business of shipping – related activities.

MSI – Maritime Leasing (MSI-ML) Award

Concessionary tax rate of 10% for up to 5 years on qualifying leasing or management income. This incentive is administered by Maritime and Port Authority of Singapore (MPA).

Maritime Innovation & Technology (MINT) Fund

To promotes and encourages upstream research, product and solution development relevant to the maritime industry in Singapore. This incentive is administered by Maritime and Port Authority of Singapore (MPA).

Grant of up to 70% of the total qualifying project costs (inclusive of input GST), comprising of manpower and equipment either engaged or acquired for the purposes of the project, and other operating expenditure incurred for the purposes of the project.

4) TAX EXEMPTION on Dividend declared from Singapore

Dividend declared out of the profit derived from Singapore Company and received in Malaysia is exempted from tax (3).

5) TAX TREATIES

Singapore has entered into Double Taxation Agreement (“DTA”) with 88 countries. Please refer to APPENDIX I.

6) AUDIT EXEMPTION of a Singapore Company

A company incorporated on or after 1 July 2015, if a private company that fulfils at least two of the following three quantitative criteria in each of the immediate past two financial years is exempted from audit (4) : (a) Total annual revenue of not more than SGD 10 million; (b) Total assets of not more than SGD 10 million; (c) Number of employee of not more than 50.

3. Section 127 (1) – Exemptions from tax. Any income specified in Part 1 of Schedule 6 shall be exempt from tax. Part 1 Schedule 6, para 28 (1), Income of any person, other than a resident company carrying on the business of banking, insurance or sea or air transport, for the basis year of assessment derived from sources outside Malaysia and received in Malaysia Part 1 schedule 6, para 28(1), exempt income of any person derive from sources outside Malaysia and received in Malaysia (See also exception).

4. Existing safeguards will however be retained, such as requiring all companies to keep proper accounting records, and empowering shareholders with at least 5% voting rights to require a company to prepare audited accounts.

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Why Labuan?

If your business models may optimise use of offshore structure, so why might an onshore investment if it carries lesser advantages as compared to offshore investment? The Labuan company is only taxed at 3% on its audited profit.

TAX BENEFITS

1. Corporate Tax 3%

The Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulation 2021 has been gazetted on 22 November 2021 and are deemed to have come into operation on 1 January 2019, a Labuan company carrying on a Labuan business activity is only subject to tax at the rate of 3% of net profit PROVIDED that it has fulfilled the requirement of the number of full time employees and an amount of annual operating expenditure as specified in the Schedule below:

Labuan Company Carrying on a Labuan Business Activity

Minimum Number of Full Time Employees in Labuan

Minimum Amount of Annual Operating Expenditure in Labuan (RM)

Labuan Insurer, Labuan reinsurer, Labuan takaful operator or Labuan retakaful operator

200,000

Labuan underwriting manager or Labuan underwriting takaful manage

100,000

Labuan insurance manager or Labuan takaful manager

100,000

Labuan insurance broker or Labuan takaful broker

100,000

Labuan captive insurer or Labuan captive takaful –

Labuan first party captive insurer or Labuan first party captive takaful; or
Labuan third party captive insurer or Labuan third party captive takaful.

100,000

Labuan bank, Labuan investment bank, Labuan Islamic bank or Labuan Islamic investment bank

200,000

Labuan trust company

120,000

Labuan leasing company or Labuan Islamic leasing company

10 or less related Labuan leasing companies or Labuan Islamic leasing companies;
11 to 20 related Labuan leasing companies or Labuan Islamic leasing companies;
21 to 30 related leasing companies or Labuan Islamic leasing companies;
More than 30 related Labuan leasing companies or Labuan Islamic leasing companies

2 per group

3 per group

4 per group

Increase of 1 employee for every additional 10 related companies or Labuan Islamic leasing companies;

100,000 for each Labuan leasing company or Labuan Islamic leasing companies;
100,000 for each Labuan leasing company or Labuan Islamic leasing companies;
100,000 for each Labuan leasing company or Labuan Islamic leasing companies;
100,000 for each Labuan leasing company or Labuan Islamic leasing companies;

Labuan credit token company or Labuan Islamic credit token company

100,000

Labuan development finance company or Labuan Islamic development finance company

100,000

Labuan building credit company or Labuan Islamic factoring company

100,000

Labuan factoring company or Labuan Islamic factoring company

100,000

Labuan money broker or Labuan Islamic factoring company

100,000

Labuan fund manager

100,000

Labuan securities license or Labuan Islamic securities license

100,000

Labuan fund administrator

100,000

Labuan company management

provision of treasury processing services and such other services as defined in Section 129 of the Labuan Financial Services and Securities Act 2010.

100,000

Labuan International Financial Exchange

120,000

Self-regulatory organisation or Islamic self-regulation organisation

120,000

Labuan entity that carries on any one or more of the following business activity:

administrative services – services pertaining to employee management, payroll management, property management, human resource management, financial planning, contract or subcontract management, facilities management or proposal management.*
accounting services – services pertaining to recording, analysing, summarizing or classifying financial, commercial and business transactions and information of a person or business.*
legal services
i. conveyancing services*
ii. legal advisory services*
iii. litigation or legal representation services in any proceedings before any court, tribunal or other authority
iv. legal dispute resolution services including alternative dispute resolution.
backroom processing services – services relating to settlements of receivables and payables, clearance, record maintenance, regulatory compliance or information technology (IT) related services which are usually performed by administration and support personnel who do not deal directly with client.
Payroll services – services relating to
i. processing, calculation, payment and deduction of remuneration, benefits, tax and statutory payment
ii. issuance of payslip and tax statement
talent management services – services relating to the provision of human resource services to attract, onboard, develop, motivate, and retain employees.*
agency services – services relating to the provision of specific services on behalf of another group, business, or person pursuant to an agency agreement between the agent and its client.*
insolvency related services – services related to administering company liquidations or winding up or personal bankruptcy.*
management services other than Labuan company management under item 17
– organization and coordination of activities of a business in order to provide services to the clients and usually consist of organizing, supervising, monitoring, planning,controlling and directing business’s resources such as human, financial and technology*

*As per Frequently-Asked Questions (FAQ) on Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2021 [P.U. (A) 423/2021] issued by Labuan Financial Services Authority (LOFSA) dated 14 December 2021.*

50,000

Labuan entity that undertakes investment holding activities other than pure equity holding activities

20,000

Labuan entity that undertakes pure equity holding activities

Exempted under the Labuan Business Activity Tax (Exemption) Order 2020 [P.U (A) 177/2020]

20,000

Management And Control Requirement For Labuan Entity That Undertakes Pure Equity Holding Activities

Regulation 3, The Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulation 2021 which is deemed to have come into operation on 1 January 2021, requires the above mentioned company to comply with the following:

meeting of the board of directors is convened in Labuan at least once a year;
the registered office of the Labuan entity shall be situated in Labuan;
the secretary of the Labuan entity appointed under the Labuan Companies Act 1990 shall be resident in Labuan;
the accounting and business records including the minutes of meeting of the Labuan entity’s board of directors shall be kept in Labuan;

Income derived from intellectual property rights is subject to tax at the rate of 17% or 24% under Income Tax Acts 1967(“ITA”)

With effect from 1 Jan 2019, under Income Tax (Deductions Not Allowed for Payment Made to Labuan Company by Resident) Rules 2018 (Amendment) 2020, the following type of payments made to a Labuan Entity by a company resident in Malaysia are not entitled to a tax deduction:

Type of payment

Minimum Amount of Annual Operating Expenditure in Labuan (RM)

Interest payment

25%

Lease rental

25%

Other payments

97%

2) 0% ON SERVICE TAX AND 6 % ON IMPORTED SERVICE

No service tax shall be charged on any taxable service provided within or between Special Areas and Designated Areas unless on the taxable services prescribed in the Service Tax (Imposition of Tax for Taxable Service in Respect of Designated Areas and Special Areas) Order 2018.

3) 0% ON WITHHOLDING TAX

There is no withholding tax on dividends paid by a Labuan Company in respect of dividends distributed out of income derived from Labuan business activities or income exempt from income tax. Interest, royalties, lease rental, technical fee and management fees paid to a non- resident are not subject to withholding tax.

4) 0% ON STAMP DUTY

This may include but not limited to transfer of share, etc.

5) 100% EXEMPTION OF DIRECTOR’S FEE RECEIVED BY NON-CITIZENS INDIVIDUAL

6) DOUBLE TAXATION AGREEMENT (DTA) WITH MORE THAN 70 COUNTRIES

Labuan Company enjoys the benefits of more double taxation treaties than any other offshore company as it almost enjoys same full double taxation benefit as Malaysia company except for fourteen (14) of those 78 countries, and it can enjoy full treaty benefit even with those fourteen (14) countries by incorporating a Malaysian domestic subsidiary company.

Malaysia has entered into Double Taxation Agreements with various countries as follows:-

^ Limited Agreements
# Income Tax Exemption Order
@ Synthesized text

Currently, Labuan has been specifically excluded from Double Taxation Agreement with the countries as follows:-

7) LIBERAL LABUAN EXCHANGE CONTROL ENVIRONMENT – FREE FLOW OF FUNDS

8) INVESTMENT PROTECTION AGREEMENT (IGA) WITH MORE THAN 50 COUNTRIES

9) THE CONFIDENTIALITY OF COMPANY, SHAREHOLDER AND DIRECTORS’ INFORMATION IS ENSURED

10) LABUAN COMPANY VS BVI COMPANY

Labuan Company

BVI Company

Labuan is low-tax jurisdiction country.

BVI is tax-free jurisdiction country.

Certain home country may impose the income tax law on incomes deriving from offshore, if they have not been taxed offshore, particularly, when they are remitted back, this may appy to BVI Co but not Labuan Co as it pays minimum tax.

Labuan Co enjoys more than 70 countries’ double tax treaties (DTAs).

BVI enjoys only 2 countries’ (Japan and Switzerland) double tax treaties (DTAs), and these treaties are not used in practise.

Dividend declared from Labuan Co to Malaysia is free of tax.

Dividend declared from BVI co may subject to income tax.

Note: If the company is Non-Malaysian Co, the tax exemption will depend on each home country’s law jurisdiction and its double tax treaties with Malaysia.

No withholding tax on interest payment.

BVI has applied the European Union (EU) Savings Directive since 1 July 2005. A withholding tax (initially 15%, rising to 20% from 1 July 2008) has been applied to interest payments to natural persons resident within the EU.

Labuan has its registered auditor under its jurisdiction. The income tax payable is allowed to base on the audited profit, the source of income is cleared for reinvestment or dividend purpose, once it is paid.

BVI has no registered auditor under its jurisdiction.

ILLUSTRATIONS ON LABUAN COMPANY STRUCTURE

1) Labuan Leasing Company or Labuan Islamic Leasing Company

Suitable Industries

Vessel, aircraft, shipping, oil & gas, high value assets co.

Tax Advantages

Income tax is only 3% of net profit
Dividend income received by Labuan Co is exempted from tax.
No withholding tax on dividend declared And lease rental made by Malaysian subsidiaries or 3^rd Party Malaysian Co.

2) Investment Holding Company

Suitable Industries :

Investment holding or offshore investment.

Tax Advantages

Dividend income received by Malaysian Parent Co⁽¹⁾or Labuan Co is exempted from tax.
No withholding tax on dividend declared by Labuan Co to either Malaysian or Foreign Parent Co.
No withholding tax on interest charged by Malaysian or Foreign Parent Co to Labuan Co.
No Capital Gain Tax and stamp duty for the transfer of shares in Labuan Co, e.g. dispose the investment in Foreign Manufacturing Co by selling Labuan Co.
Enjoys double tax treaties with more than 70 countries via a Labuan Co.

3) Captive Insurance

Suitable Industries :

Captive Insurance

Tax Advantages

Income tax is only 3% of net profit

Dividend income received by Malaysian Parent Co⁽¹⁾is exempted from tax.
No withholding tax on dividend declared by Labuan Captive Insurance Co.
Enjoys double tax treaties with more than 70 countries via a Labuan Co.

4) Offshore Financing

Suitable Industries :

Fund managers

Tax Advantages

Income from investment is exempted from tax for Labuan Co.
Dividend from Labuan Co is exempted from tax.
No withholding tax either on dividend declared by or interest charged from Labuan Co to Labuan Funds.
Distribution from Labuan Funds to investors is not subject to withholding tax.
Enjoys double tax treaties with more than 70 countries via a Labuan Co.

Other Advantages

Lower cost of funds.
Liberal Labuan exchange control environment.
Debt instruments of Labuan Co may be listed.

Investment Funds 投资基金

Islamic Financing 伊斯兰融资

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Labuan GIFT Programme for International Commodity Trading

Post author By admin
Post date January 28, 2021
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Labuan GIFT Programme for International Commodity Trading

GIFT Programme provides tax rate of 3% on qualifying income to increase its competitiveness as a centre for international trading companies.

Background

The Global Incentives for Trading (GIFT) Programme is tax incentives to encourage the traders to use Malaysia as an international base for specified types of commodities to be conducted on in, from or through Labuan, Malaysia.

Global Incentives For Trading (GIFT) Programme

Eligibility Entities

Labuan Entities licensed as a Labuan International Commodity Trading Company (LITC).
Traditional commodities such as petroleum and petroleum-related products. The specified trading of physical products and related derivative are as follows:-
- Petroleum and petroleum-related products (including liquefied natural gas (LNG);
- Mineral;
- Agricultural products;
- Refined raw materials;
- Chemicals;
- Base minerals; and
- Coal.

Incentive Commitment

Minimum annual turnover of USD 50 million;
Substantial Activity Requirements for Labuan International Commodity Trading Company (LITC) under the GIFT Programme :-

Labuan Entities	Annual operating expenditures
Labuan International Commodity Trading Company. 5 or less related LITC companies. Every incremental of 5 related LITC companies.	RM3,000,000 (USD 750,000) per entity in Malaysia (including minimum of RM100,000 (USD 25,000) in Labuan). RM3,000,000 (USD 750,000) per entity in Malaysia (including minimum of RM100,000 (USD 25,000) in Labuan). Local business spending including: Freight charges Bank charges Commissions Depreciations Entertainment Insurance costs Professional fees Rental of office space Skills development fund Telecommunications Transport and travel Utilities Warehousing and storage fees Manpower costs Office maintenance

Labuan Entities

Annual operating expenditures

Labuan International Commodity Trading Company.

5 or less related LITC companies.
Every incremental of 5 related LITC companies.

RM3,000,000 (USD 750,000) per entity in Malaysia (including minimum of RM100,000 (USD 25,000) in Labuan).

RM3,000,000 (USD 750,000) per entity in Malaysia (including minimum of RM100,000 (USD 25,000) in Labuan).

Local business spending including:

Freight charges
Bank charges
Commissions
Depreciations
Entertainment
Insurance costs
Professional fees
Rental of office space
Skills development fund
Telecommunications
Transport and travel
Utilities
Warehousing and storage fees
Manpower costs
Office maintenance

Labuan Entities	Minimum number of full time employees in Labuan
Labuan International Commodity Trading Company. 5 or less related LITC companies. Every incremental of 5 related LITC companies.	2 staff per group. Increase of 1 employee for every additional 5 LITC companies.

c. To employ at least three (3) professional traders who are tax residents of Malaysia.

Operational Requirements

LITC to have the following functions (but not limited to) in Malaysia:

Strategic management;
Banking;
Finance and treasury management;
Risk management;
Market research and product portfolio development;
Logistics management;
Global procurement;
Marketing and sales planning.

Location for consideration

Operating and/or marketing office can be based anywhere in Malaysia.

Incentives

3% on audited chargeable profits;
100% tax exemption on director fees paid to a non-Malaysian director;
50% tax exemption on gross employment income of non-Malaysian professional, managerial including traders with LITC;
Tax exemption on dividends received by or paid from the LITC;
Tax exemption on royalties received from the LITC;
Tax exemption on interest received by residents or non-residents from the LITC;
Stamp duty exemption on all instruments for Labuan business activities, M&A of Labuan entities and transfer of shares;
No sales tax and service tax;
The non-deductability rules under P.U (A) 375/2018 dated 31st December 2018 is not applicable to transactions between LITC and Malaysian resident (subject to fulfillment of the tax substantial activity requirements).

Setting up LITC Company

Apply licence with Labuan FSA*
Approval from Labuan FSA* obtained
Incorporation of LITC
Commence business

Comparision Between Labuan Gift Programme Vs Singapore Global Trader (GTP) Programme

GIFT (MALAYSIA)

GTP (SINGAPORE)

Incentives

3% on audited net profit. No renewal is required, provided that the Substances Regulations for LITC are met.

Reduced corporate rate of 5% – 10% on qualifying trading income for renewable period three (3) to five (5) years.

Qualifying commodities and products:-

Petroleum and petroleum related products, including liquefied natural gas (LNG);
Mineral;
Agricultural products;
Refined raw materials;
Chemicals;
Base minerals; and
Coal.

Electronic and electrical products;
Consumer products;
Building and Industrial materials;
Industrials products;
Energy commodities and products;
Agricultural commodities and bulk edible products;
Minerals;
Machinery components

Physical trade that qualify under GTP:

Trans-Shipment Trade;
Offshore Trade;
Re-Export Trade (only the non- value added portion of the trades qualify).

Business transactions

Allowed to have transactions with Malaysians for petroleum and petroleum-related products.

Transactions are only those with offshore parties or other GTP companies.

Operation cost

Lower cost of operation, wages and rental.

High cost of operation, wages and rental.

Location

All States in Malaysia, including Iskandar Malaysia

Singapore

Requirements

Minimum annual turnover of USD50 million;
Annual operating expenditures of RM3 million (USD 750,000) payable to Malaysian residents in Ringgit Malaysia;
Minimum 3 professional traders who are tax residents in Malaysia.

Minimum annual turnover of USD100 million;
Minimum local expenditure of SGD $3million (USD 2.3million); and
Minimum 3 trading professional employed which involved in one of the following sectors: risk management, procurement/sourcing or sales and marketing.

Who can apply

Any person who intend to establish a Labuan entity to undertake international commodity trading business.

Well-established players engaged in international physical trading on principal basis and have substantial operations in Singapore and meet stringent quantitative criteria, including employment and local expenditure.

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