DOING BUSINESS IN LABUAN IN 2023
Since 2003, Healy Consultants Group PLC has been assisting our Clients doing business in Labuan. Our services include i) Malaysia Labuan international company registration ii) government licence registration iii) business bank account opening iv) employee recruitment v) visa strategies and vi) office rental solutions.
|Compare different Labuan entities||Legally tax-exempt company||Turnkey solution||Money broking company||Representative office||Trust||Payment Service Provider company||Branch Office|
|Also known as||IBC||Shelf company||Forex company||RO||Trust||IBC||Branch Office|
|Best use of company?||International trading||Close client deal now||Financial services||Marketing/ research||Asset protection||Payment services||Specific projects|
|How soon to invoice Clients?||3 weeks||2 weeks||8 months||Cannot trade||Cannot trade||3 weeks||1 month|
|How soon can you hire staff?||3 weeks||2 weeks||3 weeks||4 weeks||Cannot hire||3 weeks||1 month|
|How soon can you sign a lease agreement?||1 week||1 week||1 week||1 week||Cannot lease||1 week||1 week|
|How long to supply corporate bank a/c?||6 weeks||4 weeks||8 months||6 weeks||6 weeks||6 weeks||12 weeks|
|How long to supply co. reg / tax numbers?||3 weeks||2 weeks||3 weeks||4 weeks||4 weeks||3 weeks||1 month|
|Corporate tax rate on annual net profits?||3%||3%||3%||Cannot trade||Cannot trade||3%||3%|
|Limited liability entity?||Yes||Yes||Yes||No||No||Yes||No|
|Government grants available?||Yes||Yes||Yes||No||No||Yes||No|
|Govt. approval required for foreign owners?||No||No||No||No||No||Yes||No|
|Res. director/partner/ legal rep. required?||No||No||No||Yes||No||No||No|
|Minimum paid up share capital?||US$1||US$1||US$130,000||US$1||US$60,000||US$125,000||None|
|Can bid for Government contracts?||Yes||Yes||Yes||No||No||Yes||No|
|Corporate bank account location?||BNP Paribas||CIMB Bank||Citibank||DBS||Maybank||BNP Paribas||HSBC Malaysia|
|Can secure trade finance?||Yes||Yes||Yes||No||No||Yes||Yes|
|VAT payable on sales to local customers?||Cannot trade locally||0%||0%||Cannot trade||Cannot trade||Cannot trade locally||NA|
|This entity will be regulated by?||Labuan IBFC||Labuan IBFC||Labuan IBFC||Labuan IBFC||Labuan IBFC||Labuan IBFC||Labuan IBFC|
|Economic substance requirements?||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|Average total business set up costs?||US$18,800||Request a proposal||US$30,025||Request a proposal||Request a proposal||US$43,500||US$15,570|
|Average total engagement period?||3 months||2 months||8 months||3 months||3 months||3 months||3 months|
Labuan company registration summary
Press the link headings below to read detailed, relevant, up to date information on doing business in Labuan.
Advantages and disadvantages
Advantages of Labuan company registration
- Registering a Labuan company is straightforward. For example:
- A Labuan offshore company requires only one director and one shareholder, who can be of any nationality and need not be resident in Malaysia;
- The minimum paid up share capital is US$1;
- Registering a Labuan company requires minimal documentation;
- Clients do not need to travel to complete the engagement;
- Clients have access to an online portal to regularly check the status of the incorporation process.
- Labuan corporate compliance requirements are simple. For example:
- Clients personal details remain confidential. There is no public record of companies registered with Labuan International Business and Financial Centre (IBFC);
- Industries including i) e-commerce ii) import/export and iii) consultancy businesses do not need trade licences;
- Labuan offshore companies can open marketing offices in Kuala Lumpur and/or Johor Bahru to i) facilitate Client meetings and ii) build relationships with potential Clients. Our clients often use a Labuan company to do business in Malaysia.
- Clients enjoy several tax benefits with an offshore company registration in Labuan including:
- 3% corporation tax on annual net profits;
- Zero tax for companies conducting non-trading activities, such as holding companies;
- No sales tax, VAT, custom duties or stamp duties;
- No withholding taxes on i) dividends ii) royalties and iii) interest payments;
- Non-resident directors of a Labuan offshore business pay no personal income tax on directors’ fees. By contrast, non-resident directors of onshore Malaysian companies pay 26% personal income tax on directors’ fees;
- Labuan-based companies can take advantage of Malaysia’s double tax avoidance treaties with 68 countries including Canada, China, India, Singapore, and the United States.
- Labuan is both a Common Reporting Standard (CRS) and Base Erosion and Profit Shifting (BEPS)-compliant jurisdiction. Malaysia is also on the OECD ‘white list’ of jurisdictions adopting international standards of transparency and information exchange. Therefore, a Labuan company has a sterling international business reputation;
- Labuan is an established financial hub for companies looking to enter and expand into Asia, including Islamic finance and FinTech;
- A Labuan offshore company is an ideal vehicle through which to conduct business in Asia because:
- With a Labuan company, our Clients can open a foreign currency corporate bank account anywhere in Malaysia;
- Clients can lease Malaysian office premises and secure Malaysian visas for expatriate staff;
- Labuan’s labour costs are low (the minimum wage is only RM1,000 per month).
- All Labuan banks are governed by the Financial Services Act 2013 under the Labuan IBFC, unlike mainland Malaysian banks that are governed by the central bank. Consequently, Labuan banks have less strict capital controls than mainland Malaysian banks.
- Labuan International Companies can still enjoy a low tax rate of 3% on annual profits as long as the entity falls within the scope of Economic Substance Requirements.
- Labuan entity can be wholly foreign owned.
- In Labuan, companies that carry out activities such as e-commerce, import and export or consultancy services are not required to secure trading or regulatory licenses.
Disadvantages of Labuan company registration
- Although Labuan is not a blacklisted ‘tax haven’ Labuan offshore companies:
- Are considered less reputable than similar entities in Singapore and Hong Kong;
- Must include ‘(L)’ in the name, which is undesirable for Clients who do not wish to reveal that their company was incorporated in Labuan;
- May be excluded from some of the double taxation agreements (DTA) Malaysia has signed with countries such as Australia, the UK, and Japan;
- Must submit financial statements to independent statutory annual audit.
- Labuan is an inefficient place from which to do business in Malaysia because:
- Labuan is geographically remote from Peninsula Malaysia and the country’s main population and commercial centres;
- Despite the above, economic substance rules state that, based on a company’s principal activities, it must maintain a certain number of staff in Labuan and commit to a minimum operating expenditure;
- A Labuan company cannot open a Malaysian Ringgit corporate bank account. Local payments cannot be made or received in local currency.
- It is challenging to register a financial services company in Labuan because:
- Annual financial licence fees are up to US$30,000;
- Labuan, and Malaysia in general, suffers from a dearth of qualified financial talent. Singapore and Hong Kong attract top regional talent;
- Malaysian assets held by Labuan companies may not be attractive to foreign buyers. Assets valued in Malaysian Ringgit are likely to lose value, because the Ringgit is volatile.
- Companies which do not meet substance requirements are liable to pay 24% tax on taxable profits. Companies operating under the regulations of the Labuan Business Activity Tax Act 1990 are taxed at 3% of audited profits;
- To curb tax evasion and other harmful tax practices, Labuan companies are subject to economic substance requirements. In practice, this means locally-incorporated Labuan entities, foreign entities registered in Labuan and limited partnerships engaging in i) holding company activities ii) banking business iii) distribution and service centre business iv) finance and leasing v) fund management vi) headquarters business vii) insurance viii) intellectual property holding and ix) shipping are required to employ local staff and lease a physical office. However, economic substance criteria are applied only after the company has been fully registered.
- For a Payment Service Operator (PSO) licence, there is a high minimum paid-up capital requirement of US$125,000. In addition, annual PSO licence renewal fees are US$13,000.
- The Labuan government has reduced the number of company activities which are eligible to claim 3% tax as part of the jurisdiction’s Economic Substance Requirements (ESR). There are now 21 permitted activities on the list, compared to 23 before.
- Because of the above, some companies are required to undertake an audit in Labuan and pay 24% tax under Income Tax Act 1967.
- The substance rules are constantly evolving and changing, creating business uncertainty.
- Labuan is negatively perceived by banks as an offshore jurisdiction.
- Labuan entities do not have access to all double taxation avoidance treaties signed by Malaysia to minimize international withholding tax.
- Registering a Labuan company is straightforward. For example:
Best uses of a Labuan company
- Labuan is an emerging Asian Islamic finance hub with a supportive sharia-compliant legal and regulatory infrastructure. A Labuan Islamic banking business is an excellent way to access the region’s ‘halal’ economy;
- Labuan is an emerging Asian FinTech centre. A Labuan FinTech business can capitalise on rising regional demand for i) payments and currencies (crypto-currencies, currency exchanges, mobile money and payment apps) ii) financial software iii) platforms (crowdfunding, fund-raising, secondary trading; and iv) data/analytics;
- Labuan IBFC has ambitions to be the territory of choice for FinTech business in Asia. In practice, this should mean that FinTech regulations will be increasingly pro-business, and licensing procediures streamlined;
- Labuan is positioned as Asia’s captive insurance hub. Labuan IBFC is home to about 200 licenced insurance/reinsurance entities, providing a vibrant environment for captive formation and management;
- Labuan IBFC is the only Asian jurisdiction to offer a Protected Cell Company (PCC) structure;
- Because it is close to China and India, and the fact that it offers a balance of fiscal neutrality and an efficient tax network, a Labuan company is often used for leasing capital equipment for industries such as shipping, aviation and oil and gas;
- Labuan IBFC’s Global Incentives for Trading Programme is designed to attract commodity traders using Malaysia as a regional/international hub.
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Useful links for Labuan
Government and public authority websites:
- Tax Authority
- Financial Services Authority
- Central Bank of Labuan
- Stock Exchange
- Chamber of Commerce
- Labuan airport
- Visiting Labuan
- Invest in Labuan
- Benefits for Chinese investors in Labuan IBFC
- Labuan Business Activity Tax Act
- Tax Planning International
- PWC: My Labuan; Guide to Labuan Finance
- Labuan Offshore Business