Labuan, known as the "Borneo's Gem", is a little yet influential island situated in East Malaysia. Located on major shipping and air routes of Asia Pacific, Labuan shares the same time zone as other major cities like Singapore and Hong Kong. Recognised as a mid shore jurisdiction, Labuan is a unique blend of an offshore and onshore financial centre, offering businesses the confidentiality and tax benefits of an offshore location, while ensuring adherence to international compliance and transparency standards, akin to onshore locations.
The business-friendly environment of Labuan is a magnet for many corporations and entrepreneurs. These companies are attracted by the flexible regulatory framework, strategic geographical location, simple tax structures, political stability, and a modern and reliable infrastructure that Labuan offers.
About HMR Konsultan
In Labuan's business ecosystem, a special role is played by trust companies. A Labuan trust company is essentially a corporate service provider whose primary function is to assist clients in establishing their businesses. They serve as facilitators, navigating businesses through the maze of company incorporation, guaranteeing that all legal obligations are addressed, and regulatory compliance is preserved.
HMR Konsultan is granted a full-fledged trust licence by Labuan Financial Services Authority (Labuan FSA) back in year 2017. As a licensed trust company, HMR Konsultan offers a diverse range of services catering to Labuan business entities. These services encompass corporate, fiduciary, and accounting aspects, providing an all-encompassing solution for businesses venturing into Labuan.
The Process of Setting Up a Labuan Company
It is important to know that a Labuan company is incorporated under the Labuan Companies Act 1990 (LCA) and file its tax under the Labuan Business Activity Tax Act 1990 (LBATA), which is a different tax regime from the Malaysian domestic companies.
The following are the five easy procedures to establishing a Labuan company –
Determine the company’s business nature to comply with tax and economic substance regulations;
Decide on directorship and shareholding structure and compile all relevant ‘Know Your Customers’ (KYC) documents;
Choose a company name and submit three names with the appropriate suffix, such as "Co., Ltd," "Ltd," "Limited," or “Inc.” for name availability checks;
Decide the company's paid-up capital; and
Decide on the company’s preferred bank to work with.
Types of Labuan Business Activities
Labuan offers a wide range of business opportunities. In general, business activities in Labuan are categorised into trading and non-trading activities, each having its own taxation rules. Only Labuan business activities are entitled to file their company’s tax returns under the Labuan Business Activity Tax Act, 1990.
Trading
Trading activities include mostly financial services such as banking, insurance, fund management related services, trust companies, fintech services and non-financial activities like shipping operations, back-office management services or any other activity not classified as non-trading. Labuan trading companies are subject to a tax rate of 3% on net audited profits, with economic substance regulations met.
Non-Trading
Non-trading activities relate to holding investments in securities, deposits, shares, stocks, loans, or other similarities. These operations are not taxable, with economic substance regulations met. For companies that conduct trading or non-trading business activities and do not meet substance regulations, a 24% flat tax rate will be imposed on the company.
A Labuan company has the choice to make an irrevocable election to be liable to tax under the domestic Income Tax Act 1967 (ITA), which is significant. In such a case, the prevailing income tax rate is generally 24%. It is common for our client to set up a Labuan company and taxed under the ITA, especially when they are conducting non Labuan business activities.
To better understand your Labuan company’s tax exposure, try our tax simulator here.
Criteria for Establishing a Labuan Company
Establishing a Labuan company involves meeting certain criteria. To set up a Labuan company, the applicant needs to submit a completed application form, together with the KYC documents stated therein. The application form is a critical document that captures essential information about the applicant and the proposed company. Therefore, it is essential to confirm that the form is filled out precisely and all the required supplementary documents are supplied.
Speak to our Konsultan to explore further.
Final Thoughts
Setting up a Labuan company offers numerous benefits including a favourable tax, flexible regulatory framework, and strategic geographical location. Whether you're a beginner or an experienced entrepreneur, understanding the process and criteria for setting up a Labuan company is the first step towards harnessing these benefits.
For more detailed information and assistance, consider engaging a trusted service provider like HMR Konsultan. With our proficiency and knowledge, we can steer you through the procedure, assist you in evading common errors, and ensure your path to establishing a Labuan company is seamless and fruitful.