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Labuan is a federally administered jurisdiction in eastern Malaysia, located on the island in the South China Sea in eastern Malaysia. The Malaysian government announced in October 1990 that it is committed to the development of Labuan Island as an international financial center.
Therefore, some investment clients will set up a company in Labuan. Malaysia has a good reputation in the international arena and is a member of APEC, ASEAN, WHO, IFC and IMF, and the UN. It is also a member of the Asia/Pacific Group on Money Laundering.
At the same time, it has the same time zone and convenient transportation because it is in the center of Asia. English and Malay are the main languages, and the legal currency is Ringgit.
I.Formation of Company registration in Labuan
- The Labuan area has a low tax rate. If it is trading income, it only pays 3% tax or MYR 20,000. If you are engaged in non-trade activities such as investment in bonds, stocks, deposits, etc., foreign companies are tax-free.
- Annual government fees and secretarial company management and address fees must be paid.
- The company must have a registered office in Labuan to keep all the files required.
- No business project restrictions except for licensed industries such as finance, insurance, and fiduciary investment.
- The company name can be named by yourself, and the Chinese name can be added.
- At least one director’s share, which may be a natural or legal person, with no restrictions on nationality (except for high-risk countries).
- Shares of different categories and different interests may be issued, but bearer shares are not allowed. Shares can be settled in any currency, except for Malaysian Ringgit (MYR).
- There must be a company secretary in the local agency to communicate with the government.
Labuan is not a tax-free company and must maintain complete accounting information. If the company engages in trading activities and adopts a 3% tax rate, an auditor may be assigned to audit the company’s account.
- The tax declaration must be completed by March 31 of the fiscal year.
- The transaction between Labuan and Malaysian residents no longer requires prior approval (but it is necessary to notify Labuan FSA after the transaction).
- There is no minimum equity limit. In addition to Malaysian Ringgit, the share capital can be used in any other currency. Companies can also issue different share classes in response to different dividend rights. The establishment of a company requires at least one shareholder, and the shareholder can be an individual or a company and does not need to be a resident in Malaysia.
- The annual returns produced in the prescribed form need to be reported within 30 days of the company’s anniversary in each reporting year and need to be updated to a minimum of 14 days before the reporting date.
II.Advantages of Labuan Company Formation
- The advantages of Labuan are described as follows:
- 1.100% ownership and control – foreigners will have full Malaysian business.
- 2.The tax rate is less than RM20,000 for fixed tax or 3% for audited net profit.
- 3.Establish minimum requirements – one director and one shareholder.
- 4.Director’s fees or dividends are not taxed.
- 5.Investment holding company does not need to pay taxes or audit.
In addition to assisting customers to set up a company in Labuan, Inter area professional service provider can provide customers with substantial needs, such as information preparation, business appointment arrangements, and commissioner accompaniment, such as bank account assistance, international accountant, and lawyer verification.
III. Labuan Company Taxation
Labuan Activity Description
- Non-trade activity in Labuan
Investment activities of securities, stocks, shares, loans, deposits or other industries held by Labuan Holdings entities or in their name.
–Taxation method : No tax.
- Trade activity
This includes banking, insurance, trade, management, shipping operations, licenses or other non-trade activities that are not Labuan.
-Taxation method : 3% of the net pro fit of the audited accounts per year, or a fixed rate of MYR 20,000 per year.
- Working together on trade and non-trade activities
Considered as a trading activity
-Taxation method : 3% of the net profit of the audited accounts per year, or a fixed rate of MYR 20,000 per year.
- Non-commercial activities
-Taxation method :Taxation under the Malaysian Income Tax Act of 1967-24%.
IV.There are four tax options in Labuan
Forms of non-commercial transactions overseas
Refers to non-commercial activities (non-trading) conducted by a Namin-Min Company engaging in overseas investment holding or establishing overseas branches in countries such as Malaysia. This includes overseas investments in stocks/securities and real estate. An example would be Taiwanese businesses using Namin-Min offshore holding companies to invest and establish factories in Mainland China. This can also be referred to as “solid investment.” According to tax regulations in Namin-Min, this type of commercial activity is exempt from taxes.
Forms of commercial transactions overseas
Defined as related commercial activities conducted by Namin-Min offshore companies other than investment holding (solid investment). It is also known as “liquid transactions.” Examples include operating trade companies, management consulting firms, insurance and trust companies with personnel hired locally in Namin-Min, as well as receiving royalties and patent fees from overseas. In such cases, taxes are payable according to the following methods:
1.A 3% profit tax based on net income.
2.Regardless of the amount of gains or turnover, an annual payment of MYR 20,000 (USD 7,400, HKD 659,200, TWD 2,368,000).
Both of the above calculation methods can be freely chosen based on one’s own tax situation. Regardless of which method is chosen, the maximum tax payable is MYR 20,000.
Exchange rates for MYR to other currencies:
1 MYR = 0.271 USD
1 MYR = 2.101 HKD
1 MYR = 8.848 TWD
Investment holding company:
no tax, no audit required.
Trade, export, and import companies:
There are only a 3% net profit tax and the required audit report.
Trading company:
This type of company can choose to pay a one-time tax of MYR 20,000 ($5,000) without a 3% profit tax.
Non-trading company:
For non-trading companies with the only source of income outside Malaysia, no tax is required and no audit is required.
V. Documents required for Incorporating a Labuan offshore company:
- One director/shareholder is required to be present for registration. The director(s)/shareholder(s) can be of any nationality and can be either natural persons or legal entities.
- Anonymous directors and shareholders (non-contact persons) may be appointed at Labuan.
- There are no minimum or maximum capital requirements for registration, and the capital can be denominated in either US dollars or Malaysian Ringgit.
- The process of incorporating a Labuan company is fast and convenient. You can choose your own company name, and the registration can be completed in just 14 working days.
- The first year of government fees for Labuan overseas companies will have different fees according to the amount of registered capital according to registered capital. In the second year, regardless of the amount of capital registered, the fees are all uniform.
- A registered address, local agent, and secretary are required in Labuan.
- Labuan Company shall hold annual directors’ and shareholders’ meetings, and the venue and manner of its holding may be held by the directors/shareholders in their most appropriate form.
- A tax report is required every year.
- The name of the company is in English and the name can be: Ltd., Corp., Inc, Bhd, Gmbh, Sdn Bhd, etc.
VI. Labuan Overseas Income Exemption | Malaysia
- Labuan with no indirect taxes enjoys the status of a free port. Therefore, indirect taxes do not apply locally.
- Instruments related to Labuan’s physical business activities are exempt from stamp duty.
- Foreign Exchange Management Labuan entities are not subject to foreign exchange controls.
- The income of the following Labuan entities is exempt:
1.Dividends received by offshore companies.
2.Dividend income received from offshore companies, paid, credited offshore business activities, or earned.
3.On distributions received by beneficiaries from offshore trusts.
4.Interest received by resident individuals from offshore companies (except those operating under the Banking and Financial Institutions Act 1989, Islamic Banking Act 1983, Insurance Act 1996, or Takaful Act 1984)
- With many years of industrial and commercial experience, InterArea can provide customers with services not only for the registration of physical companies and overseas companies but also for customers to handle company audit reports, company accounting, company annual reports, and other company follow-up accounting services. (If the customer’s Labuan company operates locally, it must apply for the Namin company’s audit report, annual declaration, etc.)
- InterArea has professionals who are familiar with overseas affairs, and also provide company establishment in China, from planning, registration, practical operation cases, relevant precautions, and the latest information to provide customers with the most complete, fast and secure services. The focus is on the background and purpose of the customer’s practical investment, and the new experience of different products and services determines the future value.