Malaysia Government welcome all foreigners to incorporate International Businesses in Malaysia to enjoy low tax benefit and ownership of 100% via Labuan Company.
Labuan was declared as tax free zone and International Financial Center in 1990, and has established Financial Services Authority (LFSA) to support Labuan Entity incorporations and various applications in financial related licenses. Thus, Labuan jurisdiction is known as Mid-shore where Labuan entity has two different tax implication between Income Tax Act 1967 (onshore tax) and Labuan Business Act 1990 (offshore tax) depending on the type of businesses and nature of transactions.
Nevertheless, looking at Labuan Business Tax Act 1990’s implication, a Labuan entity can make its election tax system annually either to pay 3% (audited account is required) or flat payment of RM20,000 (approximately USD6,666). Under the same Act, a Labuan entity’s tax implication is defined as below:-
Labuan Trading Company
A Labuan Trading Company can be defined as a Labuan Company which conducts trading activities including banking, insurance, trading, management, licensing, shipping operations or any other activities which are not a Labuan non-trading activity. Labuan Trading Companies have a yearly election of either paying a flat tax rate of MYR20,000 per annum, or 3%* of audited net profit.
*A trading company, which pays 3% of audited net profits, is required to appoint an auditor and file audited financial statements.
Labuan Non Trading Company
A Labuan Non Trading Company can be defined as a Labuan Company which conducts non trading activities such as activity relating to the holding of investments in securities, stock, shares, loans, deposits or any other properties. A Labuan Non Trading Company is not subjected to tax.
In such a special tax implication scenario, tax certificate will be made available to the Labuan entity which can reduce the possibility to be challenged by any local tax authority on Permanent Establishment for a business transaction. Therefore, you can operate your business worries free.
Labuan Company is permitted to trade with Malaysian companies and resident with the requirement of declaration to Labuan Authority and the corporate tax earned from the transaction is at a tax rate of 25% (which is same as local company tax rate) with audited account.
In summary, you can set up a Labuan International Company and enjoy the following benefits:
– 100% ownership
– Low tax rate of 3% or a maximum of USD 7,000
– For investment holding company, no tax or audit is required
– Most businesses do not require trade licenses
– Flexibility to operate with Ringgit Malaysia or foreign currencies bank accounts
– No personal tax for all directors
– 2 years business visa available for you and your family
– Visa can be extended to include parents
– You can stay anywhere in West Malaysia and Labuan
– Approval within 60 days