Labuan Company Formation for Non Residents

Want a low-tax base in Asia without stepping outside the regulated world? Labuan may be your answer. This small island sits in the Federal Territory of Labuan, just off the coast of Sabah in East Malaysia. Since 1990 it has run as a licensed international business and financial centre. You can zzz own 100% of your company. Trading profits are taxed at 3%. Passive holdings are taxed at zero. Setup is fast, the fees are published, and the rules are public. Here is how Labuan company formation works in 2026.

For more: Offshore Companies in Brunei

Key Takeaways

• A Labuan company gives you 100% foreign ownership, one director, one shareholder, and a corporate tax rate of 3% on audited net profits from trading.
• You must incorporate through a licensed Labuan trust company. You cannot file direct with the registry.
• Since 2019, tax breaks depend on economic substance. Miss the staffing and spending tests and you pay Malaysia's 24% rate instead.
• Government fees are low and fixed: US$300 to incorporate at the lowest capital band, US$1,000 a year after that.
• Every Labuan company must now appoint at least one resident director. This has been mandatory since 10 June 2022.

Why Do So Many Founders Choose Labuan Companies?

Because it is one of the few places in Asia where low tax and a real licence sit side by side.

Labuan was built for cross-border business. The Malaysian government turned it into an offshore financial center in 1990 and has kept upgrading the rules ever since. That means you get the tax advantage without the reputational baggage of a pure paper jurisdiction.

Here is what you actually get:

• 100% foreign ownership. No local partner needed. One person can be both the sole director and the sole shareholder.
• A 3% tax ceiling on trading profits. Non-trading (holding) activity is taxed at 0%.
• No minimum capital. One share is enough, and it can be denominated in any currency except the Malaysian Ringgit.
• Fast incorporation. Labuan FSA can approve a company within 24 hours once your paperwork and due diligence clear.
• Treaty access. Labuan entities may access benefits under Malaysia's double tax agreements, subject to the exclusions set out below.
• Duty-free island status. Labuan is a designated duty-free area, with specific exceptions covered below.
• English everywhere. Legislation and corporate documents are in English, and the legal system is based on British common law.
• No exchange controls on dealings with non-residents.

What people use Labuan companies for

• International trading into Asian and Middle Eastern markets
• Investment and holding companies
• Wealth management and estate planning
• Asset protection and confidentiality
• Licensed financial services, insurance, and fund management

What Is a Labuan Offshore Company?

It is a Malaysian company that lives under its own rulebook.

Companies incorporated in Labuan are formed under the Labuan Companies Act 1990 (Act 441), not under the ordinary Malaysian companies legislation. They are regulated by the Labuan Financial Services Authority (Labuan FSA), and they are taxed under a separate statute, the Labuan Business Activity Tax Act 1990 (Act 445).

That split is the whole point. A normal Malaysia company pays up to 24% corporate tax. A Labuan entity carrying on qualifying Labuan business activities pays 3%, or nothing at all.

Trading versus non-trading: the choice that sets your tax bill

Labuan FSA splits every company into one of two buckets.

Definitions and rates per Labuan FSA, Labuan Companies FAQ.

One warning. If your company does both, Labuan treats the whole thing as Labuan trading activity and charges 3% across the board. Income from royalties and intellectual property is different again: it falls outside the Labuan regime and is taxed under the Malaysian Income Tax Act 1967 at 24%.

Other structures available

• Protected Cell Companies, which ring-fence assets and liabilities into separate cells
• Foundations, used for succession and wealth planning
• Limited Partnerships and Limited Liability Partnerships
• Labuan trusts, for estate planning

All of them are open to new clients in 2026. None of the structures on this page have been closed or grandfathered.

Labuan Company Formation: What the Law Requires

Three rules matter more than all the others.

First, you need a licensed Labuan trust company. Incorporation must go through one. The trust company also provides your registered office and acts as resident secretary, and it runs due diligence on you before it will file anything.

Second, you need at least one resident director. This changed with the Labuan Companies (Amendment) Act 2022, which was gazetted on 9 June 2022 and came into force on 10 June 2022. Before that, section 87(1) required at least one director who may be a resident director. Now at least one must be. That person is either a trust officer supplied by an approved Labuan trust company, or a natural person aged 18 or over with full legal capacity who meets Labuan FSA's criteria and consents in writing. A body corporate can no longer serve as resident director — including a Labuan company wholly owned by a trust company, which used to be a common arrangement.

Third, beneficial ownership is on the record. The company must keep beneficial ownership particulars in its register of members and lodge changes with Labuan FSA within 30 days. Your resident secretary carries that duty. Director and shareholder names are not on a public register, but they are known to the regulator.

What you must file to incorporate

• Memorandum and Articles of Association of the proposed company
• Statutory declaration of compliance by the trust company
• Consent to act as director
• Individual forms completed by each director
• The relevant fees

If your business needs a licence, such as banking, insurance, fund management or securities dealing, you must get approval before you incorporate, not after.

Incorporation and Registration: How the Process Runs

Faster than most people expect. Labuan FSA can approve a company inside 24 hours once everything is clean.

The official registration procedures run like this:

1. Appoint your Labuan trust company. They run due diligence on you first. Nothing moves until that clears.
2. Reserve the name. The fee is US$30. The Registrar approves within 24 hours and holds the name for three months.
3. Prepare the constitutional documents. Your Memorandum and Articles of Association set out what the company can do and how it is run.
4. File the application. Documents, consents and fees go in together.
5. Get approved. Labuan FSA can incorporate within 24 hours of complete lodgement and due diligence clearance.

In practice, allow two to three working days to prepare and sign originals, then another three to five business days for the registry to issue your certificate and stamped constitution. Most clients are trading inside two weeks.

Name rules

Your name must be unique and must not suggest royal or government links. Names using words like bank, insurance, trust or university need special consent. The name can be in any language written in the Latin alphabet, and it must end with "Labuan", "Limited", "Co., Ltd", "Inc.", "Ltd" or "LLC".

Ready-made companies

If speed matters more than a specific name, Labuan FSA operates the Labuan Pre-Incorporated Company scheme. A licensed trust company incorporates the entity in advance and holds it as beneficial owner until a buyer transfers it across. It is an ordinary Labuan company in every other respect.

How Much Does It Cost to Set Up a Company in Labuan?

Government fees are the easy part. They are published and fixed.

Labuan FSA revised its entire fee schedule with effect from 1 January 2026 under Circular No. 327/2025/ALL — the first comprehensive revision since 2012 — and gazetted the revised regulations on 15 July 2026. These are the current figures from the regulator:

Source: Labuan FSA, Incorporation and Registration Procedures.

A note on conflicting published figures. Labuan FSA's older Labuan Companies FAQ page still shows the pre-2026 fees — US$800 annual and US$2,000 to register a foreign company. That page has not been updated for the revised schedule and also still cites the governing statute as the "Labuan Companies Act 1996", which does not exist. The Incorporation and Registration Procedures page above carries the current figures and is the one to rely on. Incorporation fees of US$300, US$600 and US$1,500 are identical on both pages.

The government fee is not the whole bill. Add your trust company's incorporation and secretarial package, registered office, annual audit if you are a trading entity, and the real cost of meeting substance — office, staff and local operating expenditure. For most trading structures, substance is the largest recurring line item by a wide margin, not the registry fee.

How Is a Labuan Company Taxed?

Simply, if you qualify. Painfully, if you do not.

Under the Labuan Business Activity Tax Act 1990, a Labuan entity carrying on a trading activity pays 3% on audited net profits. A non-trading entity pays nothing. Both rates depend on one condition: you must meet the substance test.

There is also no:

• Withholding tax on payments to non-residents
• Tax on dividend distributions
• Capital gains tax or inheritance tax
• Stamp duty on Labuan instruments
• Personal tax on foreign directors' fees

The RM20,000 flat tax no longer exists. Section 7 of the Act was deleted by the Finance Act 2018 with effect from 1 January 2019. Labuan entities can no longer elect to pay a fixed RM20,000 instead of 3%, the annual cap on tax liability is gone, and the dispensation from filing a return went with it. Every Labuan trading entity now pays 3% on audited net profits and files. Any guide still offering the RM20,000 election is more than seven years out of date.

One more option worth knowing. Under Section 3A of the Act, a Labuan entity can make an irrevocable election to be taxed under the Malaysian Income Tax Act 1967 instead. Companies do this when full treaty access matters more than the 3% rate.

Filing and audit

• Trading entities must have accounts audited by a Labuan approved auditor and file a tax return.
• Non-trading entities are not required to audit, but must still keep proper accounting records.
• Accounting records must be kept in Labuan, at the registered office or another Labuan address, and be open at all times for inspection by a director.
• An annual return goes to Labuan FSA each year.
• From 1 January 2025, Labuan tax moved from a preceding-year basis to a current-year basis, alongside the move to self-assessment. Returns are due within seven months of the close of the accounting period.

Economic Substance: The Rule That Decides Your Rate

This is where most Labuan plans succeed or fail.

Since 2019, Malaysia has required Labuan entities to prove they are real. Section 2B of the Act says a Labuan entity must have an adequate number of full-time employees in Labuan and an adequate amount of annual operating expenditure in Labuan. The thresholds sit in the Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2021, P.U.(A) 423/2021, gazetted 22 November 2021.

Depending on your activity, that means:

• Two to four full-time employees physically in Labuan
• RM50,000 to RM3 million of annual operating expenditure in Labuan
• For non-trading activity, control and management in Labuan as well, effective from 1 January 2021

Fail the test and the preferential rate disappears. Your chargeable profits are taxed at 24%, the standard Malaysian rate. There is no partial credit.

The pure equity holding exception

One category sits outside the headline numbers, and it is the one most holding structures fall into. A Labuan entity carrying on pure equity holding activity — holding equity participations and earning mainly dividends and capital gains — has no full-time employee requirement at all. It must instead incur a minimum of RM20,000 annual operating expenditure in Labuan and satisfy management and control conditions, including a board meeting held in Labuan at least once a year. A holding entity that is not pure equity holding needs one full-time employee and the same RM20,000 minimum.

If you are building a holding structure rather than a trading one, this is usually the difference between a workable plan and an unworkable one.

What "adequate" now means

The bar moved in September 2025. Employees are no longer simply "full time employees" — they must be fit and proper full time employees. A new Regulation 2A says each one must do work that genuinely matches the company's business, have adequate and appropriate competence to do it, be free of conflicting outside interests or responsibilities, be employed on a permanent or contractual basis by the entity itself, and carry out that work physically in Labuan.

The Inland Revenue Board followed with detailed guidelines on 5 November 2025 showing exactly how it will apply the test. Its worked examples make the direction obvious: an office cleaner does not count toward your headcount, and staff supplied through an employment agency with no contract of service between the worker and the Labuan entity do not count either.

Not sure whether your business clears the substance test?

Substance is the difference between paying 3% and paying 24%. We size the structure, the staffing and the operating budget around the outcome you actually need, before you incorporate rather than after your first assessment.

Talk To A Consultant →

Can You Do Business in Malaysia From Labuan?

Yes, and this surprises people who read older guides.

The old regime walled Labuan off. Companies could not deal with Malaysian residents and could not transact in Ringgit. The Labuan Companies (Amendment) Act 2022 repealed those restrictions in section 7 of the principal Act, with the change deemed to take effect from 1 January 2019, as part of removing the ring-fencing that had drawn OECD attention. A Labuan entity can now conduct business in Malaysia, deal with residents and non-residents alike, run shipping operations anywhere, and transact in any currency.

Two limits remain. Dealings with Malaysian residents can pull income into standard Malaysian taxation, and some expenses paid to Labuan entities are not fully deductible for the Malaysian payer. And if you want to run a domestic company in Malaysia offering banking, insurance or financial services onshore, that entity must be registered with the Companies Commission of Malaysia and licensed by the Securities Commission or Bank Negara Malaysia instead.

Treaty Access: What Labuan Can and Cannot Use

Malaysia has a large treaty network — more than 70 double tax agreements — and Labuan FSA confirms that Labuan entities may access benefits under it. But the access is not universal.

A number of Malaysia's treaty partners have written limitation-of-benefit clauses into their agreements, through protocols or renegotiated treaties, that specifically exclude entities taxed under the Labuan Business Activity Tax Act. The countries most consistently identified across professional sources are Australia, Chile, Indonesia, Japan, Luxembourg, the Netherlands, the Republic of Seychelles, South Africa, South Korea, Sweden and the United Kingdom. Some sources list additional countries, including Germany, India, Poland, Spain and Ukraine.

Where a treaty is closed to you, Section 3A gives you a route back in: elect irrevocably to be taxed under the Income Tax Act 1967 instead, and you access the full network at the standard rate. That is a real trade — full treaty access in exchange for the 3%.

Banking for Companies Incorporated in Labuan

Labuan hosts a working banking sector, not a nameplate one.

International banks hold Labuan licences, and accounts can usually be opened remotely. Expect multi-currency accounts, SWIFT access, internet banking and trade finance. Labuan FSA confirms that a Labuan company may open accounts with banks inside or outside Labuan, provided the account is held in the company's own name. Minimum relationship sizes vary widely between institutions and rise steeply at the private banking end, so treat any headline figure as bank-specific rather than jurisdictional.

To open an account you will generally need:

• Certificate of incorporation and constitutional documents
• A certificate of incumbency
• Due diligence documents for every director, shareholder and beneficial owner
• A clear business plan showing what the account is for

Banks care far more about the business story than the jurisdiction. Vague answers are the main reason applications stall.

Is Labuan Still a Duty-Free Port?

Mostly, but less than it was.

Labuan is one of three "designated areas" under Malaysia's Sales Tax Act 2018, alongside Langkawi and Tioman, and goods moving into it are generally outside the standard sales tax net. That is the basis of its long-standing duty-free reputation.

The exceptions have always mattered and have recently grown. Sales tax applies on importation of wine, spirits, beer, malt liquor, tobacco and tobacco products into designated areas, and on petroleum. Budget 2026 narrowed the privileges further, introducing duties on tobacco products and capping vehicle tax exemptions at vehicles valued at RM300,000 and below. The Labuan Corporation Advisory Council has formally asked the federal government to restore the island's full duty-free status, in line with the review being considered for Langkawi. No restoration has been announced.

For a typical trading or holding company this changes nothing. If your business model depends on duty-free movement of specific goods, check the current position for your commodity before you commit.

Labuan Company: Corporate Features at a Glance

A correction worth stating plainly. Earlier versions of this page said a Labuan company must register with a "Labuan Company Formation Authority", the Immigration Department, the Inland Revenue Authority and the Central Bank of Malaysia. No body called the Labuan Company Formation Authority exists, and the other three are not general incorporation requirements. Registration runs through Labuan FSA via your licensed trust company. Immigration becomes relevant only if you apply for work permits, and Bank Negara only if you seek an onshore financial services licence.

A second correction. Earlier versions also claimed the Malaysian Federal Government cannot access banking information. That is no longer accurate. Malaysia participates in the Common Reporting Standard, and Labuan entities sit inside the beneficial ownership reporting regime. Labuan offers confidentiality from the public, not from regulators or tax authorities.

How Is Labuan Company Formation Changing in 2026?

The tax rate has not moved. The bar for earning it has.

The stat. On 9 September 2025, Malaysia gazetted the Labuan Business Activity Tax (Requirements for Labuan Business Activity) (Amendment) Regulations 2025, known as P.U.(A) 325/2025. It replaced the phrase "full time employees" with "fit and proper full time employees" throughout the substance rules, inserted a new Regulation 2A defining what that means, and amended the headings of both Schedules accordingly. Among other conditions, the employee must be engaged directly by the Labuan entity and must carry out the work physically in Labuan. The Inland Revenue Board issued supporting guidelines on 5 November 2025. Separately, Labuan FSA revised its entire fee schedule from 1 January 2026 and gazetted the new regulations on 15 July 2026.

What 25 years of formation work tells us. Regulators rarely announce that they are tightening enforcement. They redefine a word. "Full time employee" was the soft spot in Labuan's substance regime for six years, because nobody had defined it, and the market filled that gap with shared staff, outsourced headcount and part-time arrangements booked as full-time. Adding four words to the regulations quietly invalidated a large share of the structures sitting on our competitors' books, without changing a single threshold or rate. We have watched the same move play out in Mauritius and the BVI. The number in the schedule is never the thing to watch. The definition underneath it is.

What we expect next. If the current direction holds, the pressure will most likely shift from headcount to evidence: payroll records, immigration status, physical attendance and lease documentation checked at assessment rather than accepted on declaration. We would not be surprised to see Labuan FSA and the Inland Revenue Board share substance data more systematically, given both already sit on the Labuan Investment Committee. This is a reading of the trend, not a published plan, and nothing has been announced.

Frequently Asked Questions

• Can a foreigner start a business in Labuan?

  Yes. A Labuan company can be 100% foreign-owned. One non-Malaysian person can be both the sole shareholder and the sole director, and there is no requirement to bring in a local partner. You will need a licensed Labuan trust company to handle the incorporation, and the company must have at least one resident director, which the trust company can supply. Foreign owners who intend to relocate can apply for a two-year renewable multiple-entry employment pass, subject to a minimum monthly salary of RM10,000.

• How much does it cost to form and renew a Labuan company?

  Government fees start at US$300 to incorporate if your paid-up capital is RM50,000 or below, plus US$30 to reserve the name. The annual government fee is US$1,000. On top of that you pay your trust company for incorporation, registered office and resident secretary services, plus an annual audit if you are a trading entity, plus the cost of meeting substance. For most trading structures the substance cost — office, staff and local operating expenditure — is the largest recurring item, well ahead of the registry fee.

• What is the corporate tax rate for a Labuan company?

  3% of audited net profits for Labuan trading activity, and 0% for non-trading activity. Both rates depend on meeting the economic substance requirements. If you fail them, your chargeable profits are taxed at 24% instead. Income from royalties and intellectual property is taxed under the Malaysian Income Tax Act 1967 at 24% regardless.

• Can I still pay the RM20,000 flat tax instead of 3%?

  No. That option was removed when Section 7 of the Labuan Business Activity Tax Act 1990 was deleted by the Finance Act 2018, with effect from 1 January 2019. Every Labuan trading entity now pays 3% on audited net profits and must file a return. The old annual cap on tax liability and the exemption from filing went at the same time. Any guide still offering the RM20,000 election is out of date by more than seven years.

• How long does incorporation take?

  Labuan FSA can approve a company within 24 hours once your documents are complete and due diligence has cleared. Realistically, allow two to three working days to prepare and sign originals and another three to five business days for the registry to issue your certificate and stamped constitution.

• Do I need a resident director?

  Yes. Since the Labuan Companies (Amendment) Act 2022 came into force on 10 June 2022, every Labuan company must have at least one resident director. That is either a trust officer made available by an approved Labuan trust company, or a natural person aged 18 or over with full legal capacity who satisfies Labuan FSA's criteria and consents in writing. A body corporate can no longer serve in this role, including a Labuan company wholly owned by a trust company.

• What is economic substance and why does it matter?

  It is proof that your company genuinely operates from Labuan. Depending on your activity you need between two and four fit and proper full-time employees working physically in Labuan, and between RM50,000 and RM3 million of annual operating expenditure there. Miss it and you lose the 3% or 0% rate and pay 24%. Since September 2025, employees must also meet a fit and proper standard covering relevant work, competence, absence of conflicts, direct employment by the entity and physical presence in Labuan.

• Does a pure holding company need employees in Labuan?

  No. A Labuan entity carrying on pure equity holding activity — holding equity participations and earning mainly dividends and capital gains — has no full-time employee requirement. It must incur at least RM20,000 of annual operating expenditure in Labuan and satisfy management and control conditions, including a board meeting held in Labuan at least once a year. A holding entity that is not pure equity holding needs one full-time employee plus the same RM20,000 minimum.

• Can a Labuan company trade with Malaysian residents?

  Yes. The old restriction was repealed by the Labuan Companies (Amendment) Act 2022, with effect deemed from 1 January 2019. A Labuan company can now deal with Malaysian residents and transact in any currency, including Ringgit. Be aware that income from Malaysian dealings may fall into standard Malaysian taxation, and certain payments to Labuan entities are not fully deductible for the Malaysian payer.

• Can a Labuan company use Malaysia's double tax treaties?

  Sometimes. Labuan FSA confirms that Labuan entities may access benefits under Malaysia's network of more than 70 double tax agreements, but a number of treaty partners have written limitation-of-benefit clauses that exclude entities taxed under the Labuan Business Activity Tax Act. Australia, Chile, Indonesia, Japan, Luxembourg, the Netherlands, the Seychelles, South Africa, South Korea, Sweden and the United Kingdom are the most consistently cited. Where a treaty is closed to you, Section 3A lets you elect irrevocably to be taxed under the Income Tax Act 1967 instead, which restores full access at the standard rate.

• Does a Labuan company need an audit?

  Trading entities must have their financial statements audited by a Labuan approved auditor and file a tax return. Non-trading entities are not required to audit, but they must still keep proper accounting records in Labuan and file an annual return with Labuan FSA.

• Are shareholder and director names public?

  No. There is no public register of Labuan shareholders and directors. However, the company must record beneficial ownership particulars in its register of members and lodge any changes with Labuan FSA within 30 days. Malaysia also participates in the Common Reporting Standard, so this is confidentiality from the public, not from regulators or tax authorities.

• Is Labuan still a duty-free island?

  Largely, but with more exceptions than before. Labuan is a designated area under Malaysia's Sales Tax Act 2018, so goods moving into it generally sit outside the standard sales tax net. Sales tax does apply to wine, spirits, beer, malt liquor, tobacco products and petroleum. Budget 2026 narrowed the privileges further, adding duties on tobacco products and capping vehicle tax exemptions at RM300,000. For a typical trading or holding company this changes nothing.

Start Your Labuan Company Formation Today

Labuan gives you a rare combination: 3% tax on trading profits, zero on holdings, full foreign ownership, no minimum capital, and a regulator with a published rulebook. The catch is substance. Get the staffing and spending right and the rate is yours. Get it wrong and you pay 24%. That is a planning problem, and it is one we solve before you incorporate, not after. Talk to us about setting up a Labuan company built to hold up.