FAQs
Frequently asked questions
The questions we are actually asked, grouped by subject. Each group links through to the full explanation.
Labuan companies
Can a foreigner own 100% of a Labuan company?
Yes. Labuan companies may be wholly foreign-owned, and there is no exchange control on Labuan business activities.
Do I need to use a trust company, or can I incorporate directly?
You must use one. Under the Labuan Companies Act 1990 a licensed Labuan trust company acts as the statutory agent for incorporation, and the resident secretary role can only be filled by a licensed trust company. Firms that advertise Labuan incorporation without a licence route the filing through a trust company like ours.
How long does the whole process take?
Incorporation itself takes a minimum of three business days once due diligence is complete. Corporate bank account opening takes considerably longer and is usually the critical path, so allow several weeks.
Can a Labuan company do business with Malaysian residents?
Yes. A Labuan company may carry on any business that is lawful in Malaysia, in, from or through Labuan, and may deal with Malaysian residents and transact in Ringgit. Note that Sales and Services Tax and the Tax Deductibility Regulations apply where business is transacted with residents.
What tax will my company pay?
Labuan trading companies listed under the Schedule are taxed at 3% of net audited profit, and non-trading (investment holding) companies at 0%, but only if the economic substance requirements are met. A company in scope that fails those requirements is taxed at a flat 24%.
Work permits and visas
I am not Malaysian, but I am a director of my own Labuan company. Can I live and work in Malaysia?
Yes. You can apply for a two-year renewable work permit allowing multiple entry into Malaysia with no visa required, so you can enter and reside in Malaysia to hold business meetings and run your operation.
Can I sponsor my family?
Yes. Your spouse, children under 18 and your parents may apply for a dependant pass under your work permit. A stamped duty-paid personal bond signed by you is required to secure your parents' passes. Do note that the visa validity for your spouse and children will be the same as yours, i.e. 2 years, while visas for your parents will be valid for 1 year.
Can I live anywhere in Malaysia with this permit?
Not quite. You are eligible to reside anywhere in Peninsular Malaysia and in Labuan. You can base yourself in Kuala Lumpur, but you must first apply for and obtain Labuan FSA approval for a KL marketing office, in addition to your Labuan operational office. To get that approval, the company must demonstrate it has a fully operational office in Labuan.
Do I need a residential address in Malaysia?
Yes. You, your employer or the company must provide evidence of a residential address in Labuan if you intend to live and work in Labuan.
Is my director's fee taxable?
Director's fees have been treated as not taxable, though the amount must still be declared in your annual personal tax filing. This incentive was stated as extended to YA2025, so please confirm the current position with us before relying on it.
Is my employment income taxable in Malaysia?
Yes, you are considered a tax resident if you are physically in Malaysia for 182 days or more.
Do I have to travel to Labuan?
Yes, you are required to visit the Immigration Department in Labuan for the endorsement and visa stamping in your passport, both for the first-time application and for subsequent renewals.
Economic substance
How do I know if my company is in scope?
It depends on whether your business activity appears in the Schedule to the Labuan Business Activity Tax Act. Our ESR checker walks you through the same decision tree our advisers use and tells you which branch you fall into.
What happens if I do not meet the requirements?
A Labuan entity that is in scope but fails to meet the substance requirements is taxed at a flat rate of 24% on its profits, instead of 3% or 0%, and audited accounts are required. In addition, your Labuan entity may not be eligible to enjoy the applicable tax exemptions.
Do the employees have to be physically in Labuan?
Yes. The requirement is for fit and proper full-time employees physically based in Labuan, and for operating expenditure incurred in Labuan. This is exactly why a firm with a real Labuan office and local hiring experience matters.
Can you provide the employees for us?
We provide all-in-one economic substance services covering recruitment, onboarding with the local labour authority, employment regulation advice and monthly payroll, so the administrative burden sits with us rather than with you.
Have the rules changed recently?
Yes, repeatedly. The position on activities that are not listed in the Schedule is not yet settled, so talk to us before relying on any assumption about yours.
Which non-financial activities are in scope, exactly?
Nine service activities are defined in the Regulations. Administrative services: employee management, payroll management, property management, human resource management, financial planning, contract or subcontract management, facilities management, or proposal management. Accounting services: recording, analysing, summarising or classifying financial, commercial and business transactions. Legal services: conveyancing, legal advisory, litigation, legal representation before any court or tribunal, and alternative dispute resolution. Back-office processing services: settlements of receivables and payables, clearance, record maintenance, regulatory compliance and IT-related services performed by staff who do not deal directly with clients. Payroll services: processing, calculation, payment and deduction of remuneration, benefits and tax, and issuance of payslips and tax statements. Talent management services: attracting, onboarding, developing, motivating and retaining employees. Agency services: providing specific services on behalf of another group, business or person under an agency agreement. Insolvency related services: administering company liquidations, winding up or personal bankruptcy. Management services: organising, coordinating, supervising, monitoring, planning, controlling and directing a client's human, financial, technology and physical resources.
What are the minimum thresholds for an in-scope trading activity?
Two fit-and-proper full-time employees in Labuan and RM50,000 of annual operating expenditure in Labuan. Activity codes 1 to 20 additionally require licensing from Labuan FSA. The full schedule of activities, with the minimum employees and expenditure for each code, is set out in full on our economic substance page, linked below this section.
What if the company makes a loss?
If the company reports an audited loss there is no tax payable, whether or not the substance requirements were met.
What does hiring in Labuan actually involve?
More than a payslip. You advertise on MYFutureJobs, stamp the employment contract within 30 days, register with EPF, SOCSO, EIS, the IRB and HRD Corp (depends on headcount), file Form CP22 within 30 days of the employee starting, pay contributions before the 15th of each following month, issue EA forms by the end of February and file Form E with CP8D by 31 March. The minimum gross monthly salary is RM1,700.00. That is the legal minimum, not a benchmark for substance: staff supporting a Labuan business activity are normally paid more, in line with their role and experience. We handle all of it (see the process on our economic substance page, linked below this section).
Tax
Is Labuan a tax haven?
No, and the framing matters. Labuan operates a substance-based, compliant midshore regime under Malaysian law. The preferential rates are conditional on real employees and real expenditure in Labuan, proper accounts, and annual filings with both Labuan FSA and the Inland Revenue Board.
Is the 0% rate really zero?
For a Labuan non-trading company meeting its substance requirements, the LBATA rate on that activity is 0%. Management accounts in the IRB's prescribed format (no audit is needed) and annual returns are still required, and the substance costs are real.
What is the Schedule?
The Schedule lists the Labuan business activities that fall within the substance regime. Whether your activity is listed determines whether the substance requirements apply to you at all.
How does IP income work?
Royalty and other income derived from intellectual property rights is taxed under Malaysia's domestic Income Tax Act 1967, not under LBATA. It does not receive the Labuan preferential rate.
What are the tax rates under the domestic ITA, for comparison?
The headline rate is 24% for a resident company. SMEs qualify for concessionary corporate tax rates in the form of a progressive, tiered tax structure, typically ranging from 15 to 17%. The frequently quoted flat 24% is the headline rate, not the whole picture, which matters when comparing a Labuan structure against a domestic one.
How is a Labuan entity's foreign-sourced income treated?
Foreign-sourced income of a Labuan entity is not automatically subject to Malaysian tax under the Income Tax Act merely because it is received in Malaysia. Where the income is derived from a qualifying Labuan business activity carried on in, from or through Labuan, it may be subject to tax under LBATA at the applicable Labuan tax rate, subject to the prescribed substance requirements.
Can I choose to be taxed under the ITA instead of LBATA?
Yes. A Labuan company may make an irrevocable election to be taxed under the Income Tax Act 1967. It is a common choice for clients whose activity is not in substance a Labuan business activity. The rate is generally 24%, but the position is clean and the company operates within the domestic regime. Because the election cannot be reversed, take advice before making it.
Costs
So what does it actually come to, in total?
As an indicative worked example for a fully substanced in-scope trading company: roughly USD 32,300 in year one and USD 32,350 a year thereafter. That covers company set up, bank account and annual renewals, payroll setup and payroll for two staff, staff recruitment, salary and statutory contributions for one manager and one clerical employee, basic office rental, accounting and tax filing, and the audit fee. It assumes an exchange rate of RM4.0 to the US dollar. It is an estimate, not a quote, but it is the right order of magnitude, and it is what most published figures leave out. Please note that this estimated amount applies to a Code 23 entity. If your business activity is investment holding, the overall cost will be substantially lower.
At what profit level does a Labuan company start to make financial sense?
Our view is that it becomes financially feasible at a gross profit of around USD 200,000 and above, where the tax saving begins to clearly outweigh the cost of maintaining the substance. Below that, the annual cost can absorb the benefit. Against a jurisdiction taxing at an average of 20%, the net saving works out at roughly USD 3,150 on USD 150,000 of gross profit, and roughly USD 20,150 on USD 250,000. The gap widens quickly as profit rises, which is exactly why the break-even matters more than the headline rate.
Why do you not publish a fixed package price?
Because the honest answer depends on your activity. A pure equity holding company and an in-scope trading company have very different obligations and therefore very different annual costs. We publish the structure so you can see what drives the number, and we quote in writing once we know what you are doing.
Is Labuan cheaper than the alternatives?
It depends what you compare. Labuan's statutory fees are low, and the 3% rate is among the lowest available in a treaty-accessible jurisdiction. But the substance requirements mean a Labuan company is expected to be a real operating business, which is a genuine cost that purely offshore jurisdictions do not impose.
What is the most commonly underestimated cost?
Economic substance, without question: specifically the requirement for fit and proper full-time employees physically based in Labuan, and operating expenditure actually incurred there.
Trusts and foundations
Which is better, a Labuan trust or a Labuan foundation?
Neither is universally better. A foundation gives the founder more direct control and is a separate legal entity, which suits founders who want governance certainty. A trust is quicker and cheaper to establish with fewer formalities, which suits a straightforward succession or asset-protection objective. We have written a longer comparison in our articles.
Can you act as trustee, or do we need a separate trustee?
We can act as trustee. HMR Konsultan (Labuan) Ltd. is a trust company licensed by Labuan FSA under licence LT0072, and that licence is what permits us to hold the trustee role.
Can a foundation last indefinitely?
A Labuan foundation may exist in perpetuity, or it can be set up for a defined period.
Changing trust company
Is there a lock-in with my current provider?
No. You may change your Labuan trust company. You will need to settle any outstanding invoices with the existing provider, and they are required to hand over the company's statutory records.
Will changing provider create a problem with Labuan FSA?
No. The change of trust company and registered office address is a routine filing. We lodge it for you.
What if my company has overdue filings?
That is one of the most common reasons companies move. Our first step is a compliance review precisely so we can tell you where you stand, and then remediate.
How do I verify that you are actually licensed?
Labuan FSA publishes a list of approved trust companies. We are HMR Konsultan (Labuan) Ltd., licence number LT0072, company number LL13580.
Licence applications
What is a licence application?
Labuan offers more than just conventional operating companies. Certain business activities in Labuan are regulated and require a licence or approval from the Labuan FSA, namely trust company, insurance, banking, leasing, money broking, fund manager and credit token.
Can I use a virtual office?
No. Labuan FSA requires a furnished operational office in Labuan where the business activities are genuinely carried out. This is one of the requirements applicants most often underestimate.
Do I need prior industry experience?
Generally, an applicant should demonstrate they have the “fit and proper” criteria, covering from suitable ownership and management, relevant experience and expertise, adequate financial resources, a viable business plan and satisfactory regulatory and compliance standing.
How long does the application take?
Timing depends on the completeness of the application and Labuan FSA's assessment. We will give you a realistic timetable for your specific case at the pre-assessment stage rather than a headline figure.
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Ask the people who file it every week.