If your aim to set up a Company mainly focuses on the below:

  • Tax-free trading

  • Asset protection

  • Privacy

Then, an offshore Company is the best option for you. Many multinational Companies have opted to incorporate an Offshore Company due to the lax regulations and governance.

What is a Labuan Offshore Company?

The common business entity which foreign investors aim for when they plan to venture in Malaysia market is Private Limited Company (Sdn. Bhd.), where it can be solely owned by a foreigner as long as they have legitimate local residential address.  

However, if the main concern for foreign investors is saving tax and protecting their assets while expanding their business globally, establishing an offshore Company may be the solution they are looking for.

An offshore Company can be either:

  • Company which has been incorporated at an offshore jurisdiction, or offshore financial centre. The Company can be either resident or non-resident.

OR

  • Company incorporated outside the jurisdiction where its primary operations are. This is regardless of whether that jurisdiction is a financial centre.

Being free from interferences by one’s government makes having an Offshore Company valuable to some corporations. This business entity type is also referred to as an International Business Company (IBC) or a non-resident company. International Business Company (IBC) is used frequently for international trade purposes. 

 The two criteria which distinguish an offshore company the most are: 

  • Substantial businesses are NOT conducted within the offshore jurisdiction where the company is incorporated.

  • It is incorporated under the offshore company protocols of the relevant offshore jurisdiction.

Labuan was turned into an International Offshore Finance Centre by the Malaysian government in 1989. The Offshore Companies Act was formed to create offshore corporate laws the following year. Additionally, the Offshore Banking Act 1990 was created, along with the Labuan Trust Companies Act 1990.   

Company formation, taxation and business activities of Labuan International companies are overseen by the Labuan Companies Act 2010. The regulating agency which oversees the offshore laws and regulations is the Labuan Offshore Financial Services Authority (LOFSA).  

Why Labuan offers the best offshore Company jurisdiction in Malaysia?

Labuan has become one of the most representative business destinations in Asia for the past years. Located in one of the peaceful parts of Malaysia, which is Borneo, it also comprised of several other islands within. Some might debunk stating that there are other several offshore Company jurisdictions in Asia, but none are comparable to Labuan’s Company setup when it comes to advantages the business owner are offered.  

Ranked as the 12th easiest and friendliest place to do business, Malaysia turns out to be a lucrative business investment option. Comparing to other countries who offer offshore incorporation such as Hong Kong and the Marshall Islands, Labuan has become reputable amongst the few offshore financial hubs in Asia, attracting investors all around the world.   

What are the benefits of incorporating a Labuan Offshore Company compared to a Private Limited Company (Sdn. Bhd.)? Some of the reasons are as follows:

  • No local partners required

    Similar to a Private Limited Company (Sdn. Bhd.) under Company Act 2016, a Labuan offshore Company also does not require a local nominee director for the Company to be incorporated. The aim was to attract foreign investors to invest within the Malaysia market, hence the government has eased the registration requirement and make it an entirely foreignowned with a minimum presence of one director and one shareholder.

  • Low-cost Company setup

    The Labuan offshore Company setup cost is considered reasonable compared to other offshore jurisdictions. This encourages foreign investors to kickstart their business here with ease. The cost to setup a Labuan offshore Company is:

    • Application for Company name reservation – MYR 50 (equivalent to USD$ 15)
    • Paid-up share capital – Depends on how much the initial paid up capital is. If it is below than MYR 50,000 then the cost is MYR 1,000 (equivalent to USD$ 300). The higher the paid-up capital is, the more expensive the cost incur 
    • Registration of the Company – MYR 6,000 (equivalent to USD$ 2,000) 
    • Annual recurring fees – For a foreign Labuan Company, it typically costs around MYR 5,300 (equivalent to USD$ 1,500)  
  • Low corporate tax

    It is common knowledge that the corporate tax for Private Limited Company (Sdn. Bhd.) is between 17% to 24%. However, for a Labuan offshore Company, the tax is much lower at 3%. This tax rate helps business entrepreneurs to get help over the high corporate tax instalment.  

    There are also several tax advantages offered especially for Labuan Offshore Company which are: 

    • Global tax market – The lower scale tax brackets help to minimise the net levy liability on local incorporations 
    • Business tax deferral – Offshore Company imposes income tax solely on Companies that are both locally traded as well as domicile. It is an ideal hub for investors to position a portion of their pools of revenue 
    • Tax Off-Setting incentives – Offshore Company also provides more shielding and exemption from stamp duties and excise on transactions.  

    Despite being an offshore Company, Labuan is still liable to comply with the rules and regulations enacted by the Central Bank of Malaysia (Bank Negara), the Labuan company formation authority, Malaysia’s immigration, and Inland Revenue Authority laws.  

    In lieu to adhering with the anti-money laundering (AML) and counter terrorism financing legislation, all licensed service providers such as Company Secretary and Auditors specifically for Labuan Companies are expected to enhance their Know-Your-Client (KYC) procedure before closing any business deals.

Note: There is no need for a Labuan Offshore Company to appoint a local nominee director for incorporation purpose. It can be registered with a sole foreign director and shareholder as long as he has local residential address.

Characteristics of Labuan Offshore Company in Malaysia

Governing Corporate Legislation

Malaysia’s legal system for offshore Companies is based on British Common Law and the Companies are regulated based on: 

  • Central Bank of Malaysia (Bank Negara) 
  • The Labuan Company Formation Authority 
  • Malaysia’s Immigration  
  • Inland Revenue Authority Law 
ConfidentialityThe business is privy to high level of privacy and anonymity  
Accounting RequirementsAll accounting must be prepared accordingly for audit purpose. Once audited, it must be lodged annually
TaxationEven though a Labuan Company is considered a tax haven, however, they are still liable to 0% to 3% tax. Tax filing must be done annually
LegislationModern offshore legislation
Minimum DirectorAt least 1 Director (18 years old above) 
Requirement to appoint Company SecretaryMust appoint a certified local Company Secretary  
Requirement to appoint Auditor Must appoint a certified local auditor  
Registered office Must have a registered office in Labuan (normally using the appointed Company Secretary office address) 

Requirements to fulfil in order to incorporate a Labuan Offshore Company in Malaysia

The requirements to establish this type of business entity include:

  • Director (1 person who is at least 18 years old)

  • Shareholder (at least 1 person or corporate)

  • One local Company Secretary (license to act as a Labuan Company Secretary)

  • A registered office address in Labuan (normally using the appointed Company Secretary office address)

You will also need to fulfil the following requirements upon incorporating the Labuan Offshore Company: 

  • Plan the Company business structure and ensure it is aligned with the compliance and tax regulations in Labuan

  • Propose a Company name – Advisable to prepare at least 3 names in case of Labuan Offshore Financial Services Authority (LOFSA) rejects the proposed name[Name application cost is MYR 50]

  • Confirm which suffix to use for the Company – Choices include Co. Ltd, Limited, Ltd, LLC, Labuan or Inc.

  • Regulate the ownership portion of each share within the Company

  • Draft out an agreement to plan the shares proportion between the shareholders

  • Plan what kind of work visa suitable for your purpose

  • Bank account opening must be completed before proceeding with incorporation

Those who wish to apply for work visa in Malaysia are mostly eligible for a two-year multiple entry visa. It also includes dependant pass (if needed). This visa allows you to stay in Labuan or any part of West Malaysia.  

With effect from 1 January 2019, a Labuan entity carrying on Labuan business activities must fulfil the substantial activity requirements as below:

  • Must employ at least 2 to 4 full time employees in Labuan

  • Must incur at least MYR 50,000 to MYR 3 million annual operating expenditure in Labuan

The above were introduced in Requirements for Labuan Business Activity Regulations 2018 to comply with the substantial activities requirements of the Base Erosion and Profit Shifting (BEPS) minimum standards.

Documents and Fees Required to incorporate a Labuan Offshore Company in Malaysia

Once the name application is approved, it will be valid for the next three (3) months for the Company to complete its registration procedure.

The documents below are required to submit the incorporation application:

  • NRIC/Passport copies of each stakeholder and account signatories (must be certified)

  • Proof of residential address of each stakeholder involved within the Company (original utility bills or personal bank statements is preferred)

  • Detailed business plan proposed for the Labuan Company

  • Memorandum and Articles of Associations of the proposed Company

  • Statutory declaration of compliance by the trust company

  • Consent to act as a director(s)

  • Business license (if any) – For activities that requires licensing, it must be obtained and approved before Company incorporation

The fees involved are based on the table below:

Types of Fees
 
FeesForm
 
MYRUSD$
Application for the reservation of company name50159
General Fees
Statutory declaration of compliance NilNil6
Consent to act as director
NilNil24
Memorandum and Articles of Association (Labuan company)NilNilNil
Paid-up Share Capital
RM50,000 and below1,000300Nil
Exceeds RM50,000 but less than RM1 million2,000600Nil
RM1 million and above5,0001,500Nil
Registration Fees
Statutory declaration by a Labuan trust company as an agent of a foreign Labuan companyNilNil33
Return on particulars and changes of directors and secretaries NilNil25
Memorandum and Articles of Association (foreign Labuan company) NilNilNil
Registration of a foreign Labuan company 6,0002,000Nil
Annual Fees
Labuan company 2,600800Nil
Foreign Labuan company 5,3001,500Nil

Once all documents are ready for submission, the appointed certified local Company Secretary will proceed to submit the incorporation application and make the necessary payments via online.  

Upon lodgement of complete documentation and payment fees as well as clearance from due diligence process conducted by Labuan Offshore Financial Services Authority (LOFSA), the incorporation can be approved within 1 to 3 working days.

Incorporation checker

Bank account opening for Labuan Offshore Company

Once a Labuan Company is incorporated, it is customary for the owner to initiate the corporate bank account opening. It is permissible for a Labuan offshore Company to open an offshore and/or onshore bank accounts. While the onshore bank accounts will directly be linked to the Central bank of Malaysia, an offshore bank is a different matter entirely as it depends on which offshore banks was chosen and the services suitable for offshore investors.

It may be quite straight forward for a Labuan Company to initiate an onshore bank account opening but things can be a tad complex and complicated if they wish to also open an offshore bank account.

It is not mandatory for the directors to travel to Labuan to be physically present during the bank account opening but, it is highly advisable to do so. This is to ensure the bank account opening process is smooth and the directors can have the complete information about the bank as well as the officer in charge on his case.

The documents required to initiate the bank account opening are:

  • Bank’s forms which normally requires the stakeholder personal information

  • Certified copy of passport /NRIC of stakeholder

  • Certified residential proof of address of stakeholders

  • Foreign bank recommendation commonly provided by the banker from stakeholder home country
  • Business plan which also includes the financial projection for the Labuan Company
  • Certified proof of documents showing sources of the funds injected in the Labuan Company

Note: Banker is liable to request a set of tax information regarding the tax status or residentship of the Labuan Company

Some considerations before initiating a bank account opening in Labuan

The tax regulation in Labuan may have come in handy for bank transactions especially for business related transactions. No withholding tax are applied on interest paid by Labuan Companies to residents and non-resident Companies and no withholding tax applied on interest payments made by Malaysian tax residents to entities registered in Labuan. The accounts are maintained under Labuan Financial Services and Securities Act.

However, the banking tariffs, conditions as well as services offered will greatly differ between the banks available in Labuan. For example, Labuan account holders are expected to be charged for transfers between accounts opened with the same banks.

Bankers are also allowed to set forth their own internal regulations that account holders are required to comply with. For example, the mandate used for opening a first Labuan corporate account are allowed to also apply other accounts after it is opened. Any changes of signatories must be duly notified by the bankers within a certain amount of time (normally within 30 days of change).

Lastly, Labuan banks also have the rights to suspend or close an account they deem the transactions occur are doubtful. They normally will issue a two weeks’ notice to the customers.

Annual Compliance for Labuan Offshore Company

According to Labuan Companies Act 1990, a Labuan Offshore Company is still liable to complete its annual compliance lodgement which includes:

  • Annual return – A company must file its annual return within 30 days from their anniversary of incorporation date.  

    Example: The Company was incorporated on 01.07.2019, the annual  return must be submitted between 01.07.2020 to 30.07.2020. Failure to comply is an offense punishable with a fine not exceeding MYR 5,000 

  • Financial statement – All Labuan offshore Companies with trading activities are required to audit their financial statement annually. All accounts must be finalised and approved by the Board of Director at least by the month of March every year in order for the appointed auditor to complete the audit procedure by May annually.  
     
    Example: Account year ended is 31.12.2020 and submitted to auditor by 31.01.2021. The auditor will require at least 2 months to finalise the audited financial statement. It should be ready to be lodged by 31.03.2021.
     
    As long as lodgement is done before 31 May annually, it will not be liable to a penalty 

  • Income tax return – The purpose of the audited financial statement is for the tax filing purpose to Labuan Inland Revenue Board. The corporate tax is 3% on international sales.  
     
    However, those transactions occur locally will be taxed at 24% on net profit payable to local Inland Revenue Board under Income Tax Act 1967. For Company with business activities that occur locally and internationally, the auditor will need to disclose both markets separately in the audit report as “Labuan Business” and “Non-Labuan Business” activities.  
     
    The deadline to submit the corporate tax filing is by 31 May annually. Hence, it is crucial for the auditor to finalise the audit report by then.

Tax treatment on Labuan Offshore Companies

A Labuan entity is subject to tax under Labuan Business Activity Tax Act 1990 (LBATA) in respect of its Labuan business activity.  

The tax rate applicable to Labuan entity is 3% on chargeable income from Labuan Trading activities only. Automatically, income from non-trading activities such as holding of investments in securities of a Labuan entity is not subject to tax at all.  

The tax is chargeable only on net profit as reflected in the signed audited report in respect of Labuan trading activities such as management, licensing and etc.  

As for intellectual property income, with effect from 1 January 2019, any income derived from royalty or other income derived from an intellectual property right by Labuan entity shall be subject to tax under Income Tax Act 1967 and not LBATA. In layman terms, any intellectual property right income will not be able to enjoy the 3% tax rate or tax exemption.  

Another input that is recently enacted by the Government in 2020 is that all Labuan entities carrying on Labuan business activities but fail to comply with the substance requirement mentioned above will not be able to enjoy the 3% tax rate. They will be however, be charged at 24% upon its chargeable profit under Labuan tax legislation.

Note: With effect from 1 January 2019, the annual tax liability capped at MYR 200,000 instead of 3% of net profit is no longer applicable.

Tax exemptions available for Labuan Offshore Companies

One of the main reasons why foreign investors are keen to incorporate a Labuan Offshore Companies is due to the tax exemptions they can enjoy:

  • No indirect tax – Labuan offshore companies enjoy free-port status. Hence, indirect taxes such as services and sales taxes are not applicable to Labuan entities located in Labuan

  • Stamp duty – Stamp duty is exempted from all instruments executed by Labuan entity in connection with its business

  • Exchange control – The entity is also not subject to exchange control restrictions

  • Payments made by Labuan entities – The following exemptions are available to recipients of income from Labuan entities:

  • Dividends received by Labuan Company

  • Dividends received from Labuan Company which are paid, credited or distributed out of income derived from Labuan business activity

  • Distributions received from Labuan trust by beneficiaries

  • Interest received from Labuan Company by a resident person

  • Withholding tax – The following payments made by Labuan entities to non-residents are exempted and not subject to withholding provisions:

  • Royalties

  • Interest

  • Technical services, advice or assistance

  • Other income

Disadvantages of Labuan Offshore Company

If you’re wondering whether there are downsides to incorporating an offshore company, the answer is yes. Among the disadvantages of owning a Labuan offshore company include: 

Difficult for valuation, appraisal, and financing

Potential financial partners or investors will have a tough time to do their own independent research and perform an estimated valuation before they conclude if the business is worth the investment or not. This is due to the lack of information about the Company publicly.

Proving ownership of an Offshore Company

It is known that offshore Company is not required to maintain Company registers publicly. This has come to a drawback in proving ownership of such Company to third party. Even though confidentiality and anonymity are proven benefits for such entities, however for the owner to declare themselves as the owner of such entity will be very difficult and time-consuming.

Negative perception of Offshore Companies

Even though the aim for foreign investors to venture into offshore Company is commonly due to the tax benefits it offers, it may directly or indirectly reflect and portray such business is trying to evade from tax obligations. As such, the concept and recognition of offshore Companies are not held with the highest regards.

Terminating a Malaysia Offshore Company 

Business owners are able to strike off their Labuan offshore Company any time after the incorporation. It will be done by the appointed Company Secretary electronically via CORAL system.

There are two (2) stages of to complete the strike off procedure: 

Stage 1 – Waiting for Labuan FSA strike off notice

The strike off notice is required to close the corporate tax file (File LE) with the Inland Revenue Board. It is normally issued on the 8th or 10th month from the Labuan Company date of incorporation. 

Board resolutions will be prepared and once signed, the Company is no longer allowed to continue business transactions, unless revoked. The Company may also proceed to close the bank account at this stage. 

The Labuan FSA will be keeping the Company records for the next 3 years after striking off application is made before they erased them from the system. 

The appointed Company Secretary and tax agent are only able to resign once the strike off notice and all corporate tax filing has been completed and successful.

Stage 2 – Lodgement with Inland Revenue Board to close Corporate Tax (LE) and Employer (E) file (if any)

It is very important for business owners to remember that even though the Company was deemed dormant before they apply the strike off application, they are still liable to submit the tax filing to the Inland Revenue Board. Once IRB has confirmed no tax payment pending from the Company, they will then proceed to strike off the Company accordingly.

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FAQs

Does a Labuan Company require a director who is ordinarily resident in Malaysia?2021-06-04T19:39:58+08:00

No, a Labuan Company does not require a director who is ordinarily resident in Malaysia.

How long does it take to setup a Holding Company in Malaysia?2021-06-04T19:39:18+08:00

As long as all documents are in order and all legal requirements are met, the incorporation process should take between one to two weeks.

Do I need a Corporate Secretary if I want to register a Sdn Bhd?2021-06-04T19:38:24+08:00

Yes, you need to appoint a company secretary within a month (30 days) of the incorporation of your Sdn Bhd as per Section 236 of the Companies Act 2016.

What are types of companies in Malaysia?2021-06-04T19:36:15+08:00
  1. Sendirian Berhad (Sdn Bhd) / Private Limited Company
  2. Company Limited by Guarantee
  3. Sendirian (Sdn)Sole Proprietorship / Unlimited Company
  4. Berhad (Bhd) / Public Limited Company
  5. Foreign Company
  6. Perkongsian Liabiliti Terhad (PLT) / Limited Liability Partnership (LLP)

The mentioned types have their own nature of specifications. Refer here to find out which type of company suits your current.

How long does it take to register a company in Malaysia?2021-06-04T19:34:23+08:00

The process could take up to [5-10 working days] upon submission of documents. However, the mentioned is the ideal timeline where the actual progress could have delay due to several factors (i.e., special approval required from external ministries or missing documents during submission to SSM).

Can foreigners incorporate and fully own a company in Malaysia?2021-06-04T19:32:52+08:00

Yes, foreigners can incorporate and fully own a Malaysian Sdn Bhd. However, according to the Malaysian Companies Act of 2016, your company must have at least 1 director with a residential address in Malaysia.

However, do note that specific industries may have their own local director/shareholding requirements. For example, classes of a recruitment agency license require a local director and shareholder.

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