Labuan Offshore Company

Labuan is a small set of islands off the coast of Borneo and ois officially a “federal territory” of Malaysia. The Labuan Offshore Jurisdiction has become one of the preferred jurisdictions in Asia for offshore company formation since the Malaysian government made it into an international offshore financial centre in 1989. 

The formal name for an offshore company in Labuan is a “Labuan International Business Company” (Labuan IBC). Incorporation is very quick and easy with minimal startup requirements and fees.

The legislature which governs offshore company formation in Labuan allows for a number of practical benefits of the jurisdiction, such as its cost-effective and convenient incorporation laws, favourable taxation, and high level of confidentiality.

It is also a highly reputable jurisdiction which is fully compliant with international standards. Its location is ideal for giving business owners access to both Middle Eastern and Asian markets. 

For more: Offshore Companies in Brunei

Table of Contents:

• Advantages & Top Uses of a Labuan Offshore Company Formation
• Top uses
• Key Corporate Features 
• Requirements for Incorporation
• Taxation of a Labuan Company
• Corporate Details of a Labuan Company

Advantages & Top Uses of a Labuan Offshore Company Formation

• Allows 100% foreign ownership - offshore companies require only a single director and shareholder who can be the same person or corporate body. 
• Labuan Offshore Companies are subject to either zero or very low taxes (maximum of 3% corporate tax), depending on the type of offshore company formed.
• Partial access to Malaysia’s wide network of Double Taxation Avoidance Treaties (DTAs), as well as its tariff reductions in the ASEAN Free Trade Area (AFTA).

• Incorporation can be completed within 2 - 7 days.
• Registration and licensing fees are low, and there are effectively no minimum issued share capital requirements.
• There is a high degree of confidentiality for offshore company and offshore account holders.
  • The Malaysian Federal Government cannot access banking information, and there are minimal disclosure requirements for offshore companies. The names of shareholders and directors are not publicly available, nor are the accounting statements of the company.
• The Labuan jurisdiction is in an ideal location which offers access to both Middle Eastern and Asian markets.
• The infrastructure is conducive for successful corporate setup, which includes access to a well-qualified work-force and advanced telecommunication system.
• Labuan is a “free port” which means there are no import or export duties on traded goods, and no sales taxes are levied.
• English is widely spoken in Labuan, and corporate documents and legislation are usually written in English.
• It is easy to obtain a two year, renewable work visa in Labuan.

Top uses

• International trading and access to top Asian markets
• Asset protection
• Minimization of taxes
• Protection and ownership of intellectual property
• Estate planning
• Confidentiality
• Investment holding

Key Corporate Features 

Requirements for Incorporation

To incorporate a Labuan Offshore Company, the following documents must be submitted to the Registry:

• Memorandum and Articles of Association
• Consent form from the director
• Statutory Declaration of Compliance with the Companies Act
• Identity Certificate
• Incorporation/registration fee

In addition, a Labuan offshore company must register with the following government agencies:

• Labuan Company Formation Authority
• Malaysia Immigration Department
• Inland Revenue Authority
• Central Bank of Malaysia

Taxation of a Labuan Company

Trading companies pay only 3% corporate tax on their audited net profit up to a maximum tax of RM 20,000 per year (about 4,700 USD). Companies which choose to pay the RM 20,000 lump sum tax are not required to file audited reports. Non-trading offshore companies are tax exempt. 

In addition, there is NO:

• Tax on Dividend payouts
• Stamp Duty
• Withholding Tax
• Capital Gains Tax and Inheritance Tax
• Personal Tax for Foreign Directors’ Fees

Corporate Details

Anonymity, Confidentiality and Disclosure

There is a high degree of confidentiality for Labuan Offshore Company owners and offshore account holders. The Malaysian Federal Government cannot access banking information, and there are no imposed disclosure requirements for offshore companies.

This means that the names of directors and shareholders are not publicly available. Furthermore, there is no public register of trusts and private foundations which are registered in Labuan. 

Company Shares

The following classes of shares are permitted: preference shares, registered shares with par value, shares with no voting rights and redeemable shares. Labuan International Companies are not allowed to issue bearer shares.

Required Capital

Minimum standard authorised capital is USD 10,000 which is usually divided into 10,000 shares with a par value of USD 1 each. However, the minimum issued capital is only one share with a value of USD 1, so in practice startup capital requirements are negligible. 

Annual Fees

Annual fees are quite high compared to other offshore jurisdictions: Labuan offshore companies usually pay fees of about 5,300 Ringgit per year (equal to around 1,200 USD at the time of writing).

Directors

A minimum of one director is required. The director/s can be any natural person or corporation of any nationality. There is no requirement for local directors.

Shareholders

A minimum of one shareholder is required. The shareholder/s can also be any natural person or corporation of any nationality. The shareholder and the director can be the same legal entity. 

Trading Restrictions

There are restrictions and limitations on trade with Malaysian companies and residents: besides some exceptions, Labuan International Companies should not engage in business with Malaysian companies and residents. 

Principal Corporate Legislation 

The Labuan Financial Services Authority (LOFSA) is the governing body that oversees Labuan’s corporate laws.

In 1990, the first Offshore Companies Act was laid out which set the foundation for Labuan’s offshore corporate laws. Later, the Labuan Companies Act of 2010 took over, which currently governs the formation, taxation and activities of Labuan International Companies. 

Type of Law

The legal system in Malaysia is based upon British Common Law, and as Labuan Island is a part of Malaysian territory, it falls under the same type of law. 

Powers of the Company

A Labuan Offshore Company is regarded as a separate legal entity from its shareholders and directors. As such, it has all the same powers as a natural person. 

Local Presence Requirements

Labuan International Companies are required to maintain a local registered office address.

Trading companies must also have so-called physical “commercial substance” in Labuan. This requirement can be fulfilled in various ways, such as by holding a Labuan bank account, employing staff in Labuan, or simply holding an annual board meeting in Labuan.

Company Meetings

Meetings are not required and can be held anywhere, although having an annual board meeting in Labuan is one easy way to fulfill the physical “commercial substance” requirement. 

Company Secretary

The company must appoint at least one secretary, who can reside anywhere. If there is more than one secretary, at least one must be a local resident. 

Language of legislation and Corporate Documents

Although the official language is Malay, many pieces of legislation and corporate documents are written in English, including the legislation pertaining to Labuan Offshore Companies.

Official Language

The official language in Labuan is Malay, but English is widely spoken. This is especially the case in the corporate arena. 

Audit Requirements

There are no audit requirements for investment holding companies and other types of non-trading companies whose only source of income is from outside of Malaysia.

International Trading Companies who pay the standard corporate tax of 3% of audited net profits are required to appoint an auditor and file audited financial statements. Those trading companies who instead opt to pay a lump sum tax of RM 20,000 (USD 4,700) are not required to file audited financial statements. 

Annual Reporting Requirements

Companies are required to file an annual report containing a statement of their accounting records, which must be kept in Labuan. 

Exchange Controls

Labuan Offshore Trading Companies are not allowed to trade in the Malaysian Ringgit, nor can share capital be denominated in the Ringgit. Trade is permitted in most other currencies, with the USD being the most common currency used.

Shelf Companies available 

No.

Time required to form a company

A Labuan Offshore Company can be registered in 2 - 7 days. 

Company Name Requirements and Restrictions

The name must be unique and should not:

• Resemble any other Malaysian company’s name
• Suggest Royal or Government affiliation
• Be considered undesirable by the Registrar 

In addition, certain names require special consent or license, such as: bank, insurance, trust, University and so forth. 

The name can be in any language which uses the Latin alphabet. The name must end with one of the following words or suffixes: “Labuan”, “Limited”, “Co,Ltd”, “Inc.”, “Ltd”, or “LLC”.

Access to Double Tax Treaties

Malaysia has an extensive network of Double Taxation Treaty Agreements (DTAs) of 74 DTAs. Many of these agreements also extend to Labuan, except for the following countries which do not consider Labuan as part of the benefits applicable under the double tax treaties signed with Malaysia: Australia, Chile, Germany, Indonesia, India, Japan, Luxembourg, the Netherlands, Seychelles, South Africa, South Korea, Spain, Sweden, the United Kingdom.

A Labuan company can gain access to the advantages of all of Malaysia’s DTAs by irrevocably electing to be taxed under the Malaysian Income Tax Act of 1967. This type of company is known as a Labuan Charged Company. 

Licence Fee

The fees for the application of a company name and for the registration of a Labuan Offshore Company amount to RM 6,050 (approx USD 1,400)

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