Labuan tax is one of the most favorable in the region. Labuan is a federal territory of Malaysia. A Labuan Offshore Company conducting trading is subject to tax at either 3% of net profit or a fixed tax amount of Malaysia Ringgit 20,000. If you choose the 3% tax on net profit, the accounts of the Labuan Company has to be audited by a certified accountant. For Labuan Offshore Investment Holding Company which does not perform any trading activities, their investment income is not subject to tax in Labuan.
The favourable tax rate mentioned above comes with some restrictions - the Labuan Offshore Company must NOT trade or carry on business with Malaysian residents, businesses or individuals and must NOT conduct any business transactions in Malaysia Ringgit except for administrative purposes. For example, if the Labuan Offshore Company is deriving income from trading activities in China with Chinese Companies and in US dollars, it can enjoy the favorable tax treatment as a Labuan Offshore Company. It is important that the Labuan Offshore Company is not a shell Company but a Company with substance so that it can withstand the query of any tax authority.
Interest Income and Royalties Income received by Labuan Offshore Company is tax exempt.
When the Labuan Company's profit is declared as dividends to the shareholders, the dividends are not taxable in the hands of the individual shareholders.
Furthermore, Labuan does not impose withholding tax on interest, management fee, technical fee, royalty, public entertainment fee and speaking fee. In other words, there is no withholding tax in Labuan.
With the above Labuan tax details, you now know why Labuan has attracted many business owners to set up Labuan Offshore Company.
Can a Labuan Offshore Company be Fully Owned by Non-Malaysians
Labuan Company can be fully owned by non-Malaysians. In other words, 100% shareholding can be owned by Singaporeans, Australians, etc.
Can a Labuan Offshore Company benefit from Malaysia Tax Treaties?
Generally, Malaysia Tax Treaties are applicable to Labuan Offshore Company. You may wish to seek tax advice on application of tax treaty or tax planning because some situations may have unique treatment.
Banks in Labuan
Though Labuan banking system is not as established as Singapore banking system in our opinion, it is still a mature financial centre with international banks available.
In addition, there is no control or restriction over a Company's freedom to move currencies through a country. This provides great flexibility for international business.
How long does it take to set up a Labuan Offshore Company?
Generally it takes one to two weeks to register an Offshore Company at Labuan. However, it may take three to four weeks to set up the bank account at Labuan.
Must the Shareholders and Directors be physically present at Labuan?
The Shareholders and Directors must be physically present at Labuan to sign the documents for setting up Labuan Offshore Company and to open the bank account. It only takes them half a day to do so. As such, they can arrive at Labuan in the morning, get the documents signed for company registration and bank account opening and depart in the evening.
How can A Tax Advisor Pte Ltd assist you in setting up a Labuan Offshore Company?
With a dedicated strategic partner at Labuan, we can coordinate the setting up of Labuan Company for you. We will be able to perform the following for you:
- Get the necessary documents printed so that you can sign and bring to Labuan;
- Certified some of the documents required for opening of Offshore Labuan Company;
- Get the our trusted Labuan Tax Partner to open the Labuan Offshore Company for you; and
- Liaise with our Labuan Tax Partner to advise you on the Singapore and Labuan tax implication in respect of your business transactions.
We are able to advise you on Singapore tax and our Labuan Partner is able to advise you on Labuan tax. Let us know what advice you need.
Let us check if your business is suitable for setting up a Labuan Company. We need to look at the substance of your transactions and ensure that it is legitimate for you to do so.