Why Re-Dom to Labuan

Why bear the risk of significant penalties and compulsory strike off when you can have a better solution? 0% withholding tax? 0% indirect tax? Exempted dividend income? All benefits you can enjoy in Labuan! There is no need for complicated group restructuring. Re-domicile to Labuan can help to solve all these problems while maintaining status quo of the company.
Country
BRITISH VIRGIN ISLANDS
Economic Substance Act 2018
CAYMAN ISLANDS
The International Tax Co-operation (Economic Substance) Law 2018
LABUAN, MALAYSIA
Labuan Business Activity Tax Regulation 2018
Relevant activities
  1. Banking business;
  2. Distribution and service centre business;
  3. Financing and leasing business;
  4. Fund management business;
  5. Headquarters business;
  6. Holding company business;
  7. Insurance business;
  8. Intellectual property business; or
  9. Shipping business.
  1. Banking business;
  2. Distribution and service centre business;
  3. Financing and leasing business;
  4. Fund management business;
  5. Headquarters business;
  6. Holding company business;
  7. Insurance business;
  8. Intellectual property business; or
  9. Shipping business.
  1. Labuan insurance business;
  2. Labuan international commodity trading company;
  3. Labuan banking business;
  4. Labuan trust company;
  5. Labuan leasing company;
  6. Labuan credit token company;
  7. Labuan development finance company;
  8. Labuan building credit company;
  9. Labuan factoring company;
  10. Labuan money broker;
  11. Labuan fund manager;
  12. Labuan securities licensee;
  13. Labuan fund administrator;
  14. Labuan company management;
  15. Labuan international financial exchange;
  16. Self-regulatory organisation; or
  17. Holding company.
Exemption
Investment Fund
Investment Fund
Dormant company
Minimum employment
Adequate
Adequate
2 – 4
Minimum spending
Adequate
Adequate
RM50,000 – RM180,000;
(RM3mil for Labuan International Commodity Trading Company)
Requirements
  1. Direction and management in the islands;
  2. Adequate expenditure and employees and appropriate premises in the islands and
  3. CIGA carried on in the islands.
  1. Direction and management in the islands;
  2. Adequate expenditure and employees and appropriate premises in the islands and
  3. CIGA carried on in the islands.
  1. Physical office in Labuan; and
  2. Expenditure and employees as per minimum requirements
Penalty for non-compliance
First determination:
Penalty of USD5k to USD20k (high risk IP entity will be USD50k)

Second determination:
Penalty of USD10k to USD200k (high risk IP entity will be USD400k)

Final – COMPULSORY STRIKE-OFF
First year fail to meet ES test: USD10k

Subsequent year: USD100k

Final – COMPULSORY STRIKE-OFF
Not eligible to enjoy the LBATA tax preferential treatment e.g. tax rate of 3%.

Consequently, it will be taxed under the ITA. (17% for holding company)

It is an offence for non-compliance on the Economic Substance requirements and company may subject to significant fines or eventually being compulsory struck off. Beneficial ownership on the company assets, shares, subsidiaries and other investments will be lost and Directors may be disqualified from acting as a director.

 

Group restructuring may take place but subject to limitations. Careful considerations should be taken on double taxation issue, withholding tax and additional stamp duty charges. In addition, the BVI or Cayman Islands company is non-replaceable if it is used as listing vehicle for the group.

 

Re-domiciliation to Labuan can be a better solution in order to maintain status quo given the comprehensive taxation system of Labuan. It is also worth mentioning that there is no withholding tax on interest payments, no stamp duty and no tax on dividend declared to Malaysia.