Accounting and tax
- Corporate tax in Labuan is imposed only on trading companies at 3% of its audited net profit for income sourced outside Malaysia. Non-trading (investment holding) companies are not subject to tax. On the other hand, Malaysia resident companies are subject to corporate tax at the rate of 17% for chargeable income below MYR 500,000 and 24% for incomes above this threshold;
- Capital gains and import duties are completely exempt from any capital gains tax in Labuan;
- All non-resident Labuan companies are exempt from indirect taxes such as VAT, sales tax, custom duties and GST. However, all resident Labuan companies making sales within Malaysia are levied indirect taxes in form of GST at the rate of 6%;
- According to the LBATA Amendments 2019, income obtained from royalties and intellectual property received by a Labuan company will now be subject to a corporate tax at the rate of 24% under the Income Tax Act 1967;
- A Labuan company i) enjoys 3% corporation tax on its annual net profits but ii) must submit financial statements to independent statutory annual audit;
- Tax returns must be filed by the 31st of March, else a 10% penalty is imposed on the outstanding balance;
- There are no exchange controls imposed on Labuan offshore companies. Moreover, there are no longer any restrictions on Labuan companies to transact with Malaysian residents in Malaysian Ringgits, including paying for their administrative or statutory expenses;
- Employers are required to make monthly contributions to employees’ provident fund at 12% of their remuneration;
- Labuan based companies can take advantage of Malaysia’s double tax avoidance treaties with more than 73 countries including Australia, China, Singapore, U.K. and the United States;
- Healy Consultants Group PLC will assist our Clients with i) documenting and implementing accounting procedures; ii) implementing financial accounting software; iii) preparation of financial accounting records; and iv) preparing forecasts, budgets, and sensitivity analysis;
- It is important that our Clients are aware of their personal and corporate tax obligations in their country of residence and domicile; and that they will fulfill those obligations annually. Let us know if you need Healy Consultants Group PLC’s assistance to clarify your annual reporting obligations.
Legal and compliance
Healy Consultants Group PLC’s Legal and Compliance department assists our Clients to fulfil their annual legal and tax obligations for their Labuan companies.
- A Labuan offshore company requires at least 1 director and 1 secretary who are both resident in Labuan. Both the positions can be held by the same individual. Further, it also requires 1 shareholder who can be i) of any nationality and ii) an individual or a body corporate;
- Offshore companies must appoint its resident company director and secretary either through i) a Labuan trust company; ii) a domestic company completely owned by the trust company or iii) a licensed or registered domestic company holding shares in a Labuan company. Healy Consultants Group PLC will assist our Client’s firm to appoint a suitable Labuan legal entity for them;
- Prior approval is required from the Labuan FSA for companies engaging in certain business activities including i) Islamic financial services; ii) banking; iii) insurance; iv) fund management; v) leasing; vi) factoring transactions; and vii) accounting;
- An offshore company is not allowed to issue bearer shares;
- If the Malaysian word “Sdn. Bhd.” is used in the company’s name to denote limited liability, it must be preceded with an “L” to show that the company was incorporated in Labuan;
- It is compulsory for all Labuan companies to comply by their annual audit obligations.
- The minimum wage in Labuan is US$265 per month;
- Employers are required to make monthly contributions of 12% of an employee’s remuneration to their employment provident fund. Failure to comply subjects the employer to i) 3 years of imprisonment and/or a ii) fine of US$3,000;
- Each marketing office of a Labuan company cannot have more than four employees;
- Standard working hours in Malaysia are 48 hours per week. Companies must provide at least a 24-hour break to its employees per a week;
- Companies with more than 40 employees are required to establish a joint labor-management safety committee that creates a safe, healthy workplace for its workers;
- Notice period for employees who have worked with the company for i) less than 2 years, is 4 weeks; ii) between 2 and 5 years is 6 weeks; and iii) more than 5 years is 8 weeks;
- Labuan companies are required to pay their employees termination benefits. The benefit amount can be up to 20 days’ wages for each year of service.
- All Labuan companies can now freely conduct business with resident Malaysia companies and deal in Malaysian Ringgits directly. Transactions with Malaysian residents no longer need to be notified to the Labuan FSA.
Labuan economic substance requirements
All companies incorporated in Labuan that are carrying out any “Labuan business activity” must mandatorily meet the following requirements of:
- Having a minimum number of full-time employees in Labuan;
- Satisfying the minimum required annual operating expenditure in Labuan.
Please refer to the table below for a detailed insight regarding the minimum substance requirement for each company type:
|S. No.||Type of Labuan Company||Minimum substance requirements for full time employees||Minimum substance requirements for annual operating expenditure|
|1.||Insurance company and Takeful operators||4||US$36,166|
|2.||International commodity trading company||3||US$723,315|
|3.||Banking and investment company||3||US$48,400|
|5.||Fund managing company||2||US$24,111|
- If a Labuan company does not meet the minimum substance requirements laid in the 2019 LBATA amendments then, the company would not be entitled to be taxed under the LBATA 1990. Instead, the company would be liable to a corporate tax of 24% under the Income Tax Act 1967 of Malaysia;
- All Labuan companies are also required to have a physical office space in Labuan for its full-time employees;
- A dormant Labuan company is not required to meet the above minimum substance requirements.
It is important our Clients’ are aware of their personal and corporate tax obligations in their country of residence and domicile; and they fulfil those obligations annually. Let us know if you need Healy Consultants Group PLC’s assistance to clarify your annual reporting obligations.