Doing Business in Labuan

About Labuan

Summary of Quick Facts

Location
8km off the coast from the state of Sabah, EastMalaysia, on the island of Borneo.
Land Area

92 sq. km.

Time Zone
GMT + 8 Hours.
Climate
Tropical weather with an average 30℃.
Population

95,500 comprising of a mix of Malays (50%),Chinese (40%), Indians and the indigenous people of Sabah & Sarawak, East Malaysia.

Language

Malay is the national language but English is commonly spoken.

Currency

Malaysian Ringgit (MYR).

Legal System
English Common law, British Legal System.
Constitution

Parliamentary democracy.

Economic Sector

Oil and Gas, Business and Financial Services.

Accessibility

Several daily flights to Kuala Lumpur and Kota Kinabalu with connection to USA, Europe, Asia and Australia.

Labuan Companies

Businesses in Labuan are regulated by modern Acts. These Acts enhance its competitiveness in the offering of financial product and services.

Labuan IBFC also adheres to international standards and best practices including anti money laundering and exchange information set by the Organisation of Economic Cooperation and Development. Acts which govern the businesses in Labuan as follows:-

 

  1. Labuan Business Activity Tax Act 1990 (“LBATA”)
  2. Amendment to the Labuan Business Activity Tax Act (Finance Bill 2018)
  3. Labuan Companies Act 1990
  4. Labuan Trusts Act 1996
  5. Labuan Financial Services Authority Act 1996
  6. Labuan Financial Services and Securities Act 2010
  7. Labuan Islamic Financial Services and Securities Act 2010
  8. Labuan Foundation Act 2010
  9. Labuan Limited Partnerships and Limited Liability partnerships Act 2010

Labuan companies can trade in any currencies with any countries.

Labuan Companies Characteristics

Company Name

I. Under the Labuan Companies Act 1990, the name of the company may have the word “ (L) “ as part of its name and shall also have the word:

 

  1. “Bhd” or “Berhad”, where the company name shall in addition have the word “(L)” or “(Labuan)”;
  2. “Corporation” or “Corp”;
  3. “Incorporated” or “Inc”;
  4. “Limited” or “Ltd”;
  5. “Public Limited Company” or “PLC”;
  6. “Societe Anonyme” or “Sociedad Anonima” or “S.A”;
  7. “Aktiengesellschaft” or the abbreviation “A.G”;
  8. “Naamloze Vennootscap” or the abbreviation “N.V”;
  9. “Perseroan Terbatas” or the abbreviation “P.T”.

 

II. The words “Royal”, “Bank”, “Finance”, “Fund” or “Trust” shall be avoided, except for specific business activities which required the corresponding licence(s).

Share Capital

  1. Share capital can be held in any currencies.
  2. No par value and treasury shares are allowed.

Director(s)

  1. At least one (1) Director who can be either individual or corporate.
  2. The Director(s) can be either a non-resident or resident of Malaysia.

Company Secretary

The company must have a resident secretary which can be either individual or corporate.

Registered Office

The company must have a registered office in Labuan.

Annual Return

An annual must be filed not later than 30 days from the anniversary of the date of its incorporation.

Maintain Proper Accounting Records

Yes.

Audit

The Labuan company is subject to audit.

Tax Return

Tax return must be filed within a periods of three (3) months.

Business Registration

An annual government fee is payable within 30 days immediate after the anniversary date of its incorporation.

Labuan Taxable Activities

Taxation

With effect from 1 Jan 2019, under Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulation 2018, 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 expenditures 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
4
150,000
Labuan underwriting manager or Labuan underwriting takaful manager
4

100,000

Labuan insurance manager or Labuan takaful manager
4

100,000

Labuan underwriting manager or Labuan underwriting takaful manager
4

100,000

Labuan captive insurer or Labuan captive takaful
4

100,000

Labuan International Commodity Trading Company

3

3,000,000
Labuan bank, Labuan investment bank, Labuan Islamic bank or Labuan Islamic investment bank

3

180,000

Labuan trust company

3

120,000
Labuan leasing company or Labuan Islamic leasing company

2

100,000
Labuan credit token company or Labuan Islamic credit token company

2

100,000
Labuan development finance company or Labuan Islamic development finance company

2

100,000
Labuan building credit company or Labuan Islamic factoring company

2

100,000
Labuan factoring company or Labuan Islamic factoring company

2

100,000
Labuan money broker or Labuan Islamic factoring company

2

100,000
Labuan fund manager

2

100,000
Labuan securities licensee or Labuan Islamic securities license

2

100,000
Labuan fund administrator

2

100,000
Labuan company management

2

100,000
Labuan International Financial Exchange

2

120,000

Self-regulatory organisation or Islamic self-regulation organisation

2

120,000

Holding company

2

50,000

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

 

With effect from 1 Jan 2019, under Income Tax (Deductions Not Allowed for Payment Made to Labuan Company by Resident) Rules 2018, the following type of payments made to a Labuan company 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
33%
Lease rental
33%
Other payments
97%

Tax Exemption

The source of income is exempted from income tax as follows:-

 

  1. Dividend paid out of the income derived from the Labuan Business Activities is not subject to tax.
  2. Interest or technical and management fee paid by a Labuan company to a non-resident person or a resident person or another Labuan company is not subject to withholding tax.

Tax Incentives (until to Year of Assessment 2020)

  1. Tax exemption on Director fees received by a non-citizen individual in his capacity as a Director of a Labuan company.
  2. Tax exemption on 50% of gross income received by a non-citizen individual from exercising employment in Labuan with Labuan company in managerial function in Labuan or at its marketing or co-located offices approved by Labuan Financial Services Authority.
  3. Tax exemption on 50% of gross housing and Labuan territory allowances received by Malaysian citizen from exercising employment in Labuan with a Labuan company.

Stamp Duty Exemption

The following activities are exempted from stamp duty:-

 

  1. All Memorandum and Articles of Association of a Labuan company.
  2. All instrument executed by a Labuan company in connection with a Labuan business activities, including transfer of shares in a Labuan company.

Double Taxation Agreements

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

Albania, Republic

Germany

Mongolia

South Africa
Argentina ^
Hong Kong
Morocco
Spain

Australia

Hungary

Myanmar

Slovak Republic

Austria

India

Namibia

Sri Lanka

Bahrain

Indonesia

Netherlands

Sudan

Bangladesh

Ireland

New Zealand

New Zealand

Belgium

Islamic Republic of Iran

Norway

Switzerland

Bosnia & Herzegovina *

Italy

Pakistan

Syria

Brunei

Japan

Papua New Guinea

Taiwan #

Canada

Jordan

Philippines

Thailand

Chile

Kazakhstan

Poland

Turkey

China, People’s Republic

Korea, Republic

Qatar

Turkmenistan

Croatia

Kuwait

Romania

United Arab Emirates

Czech Republic

Kyrgyz, Republic

Russia

United Kingdom

Denmark

Laos

San Marino

United States of America ^

Egypt

Lebanon

Saudi Arabia

Uzbekistan

Fiji

Luxemburg

Senegal *
Venezuela

Finland

Malta

Seychelles

Vietnam

France

Mauritius

Singapore

Zimbabwe*

* Gazette Double Taxation Agreements

^ Limited Agreements

# Income Tax Exemption Order

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

Australia

Japan

South Africa

Seychelles

Chile

Luxembourg

Spain

United Kingdom

Indonesia

Netherlands

Sweden