With benefits like reduced tax liability, image credibility and so on, Labuan is fast becoming a place of interest by many investors to incorporate a offshore company.
If your requirements when setting up a company in a foreign country include tax-free trading, asset protection, privacy and more, then what you’re looking for is an offshore company. With less stringent regulations and governance, offshore company setup is becoming a preferred option for many multinational corporations.
Why Labuan Is Malaysia’s Best Offshore Company Jurisdiction
Labuan, is located in Borneo and comprised of several islands. There are several offshore company jurisdictions in Asia, but none can compare to Malaysia’s Labuan company setup.
Malaysia’s Labuan offshore company incorporation has gain traction over the years as an international business hub. It is among the top choice of countries for offshore incorporation, others of which include Hong Kong and the Marshall Islands. It has become reputable as among the few offshore financial centres in Asia, attracting multinational businesses from all over the world.
Why choose Labuan as your offshore company jurisdiction location? Because of its common-law jurisdiction, it is the ideal location to incorporate an offshore company. The advantages that a Labuan has over other locations are:
- 100% foreign ownership for foreigners.
- It is not bound by rules outside Malaysia, which gives it more freedom to govern its own affairs.
- Despite being an independent state with its own set of laws, Labuan is still protected by Malaysia’s sovereignty.
- Labuan has no tax policies in place for any foreign and Asian company which draws investment into the region.
- Corporate tax rates as low as 3%.
- Can trade with a Malaysian company or resident at a low tax rate of 25%, provided the transaction is reported to the Labuan Authority.
- A properly structured company is legitimately tax-exempt from several areas of business. These include insurance, investment holding, trust management, fund management and offshore banking.
- Director’s fees and dividends are not taxed.
- Investment holding companies don’t require audits. They are not taxed either.
- No trade licenses requirement for most business.
- Investors and their families are eligible for a 2-year business visa. This can be extended to include parents as well.
- The flexibility of either trading in Ringgit Malaysia or foreign currency bank accounts.
- Protected from double taxation, thanks to Malaysia’s Double Taxation Agreements with several countries.
- The Labuan Legislation law has and will remained unchanged and stable for the foreseeable future.
Other reasons that make Labuan a better tax haven that other places include:
- Name searches can be conducted within 2-hours.
- Name reservations can be completed within a day.
- Names are easily and readily available.
- It generally takes 1-2 days to incorporate a Labuan offshore company.
- Excellent confidentiality aspect, where any unauthorised disclosure of a client’s information can result in a penalty.
- Malaysia is a politically stable country.
- Laws are based on the English legal system.
- Liberal exchange control.
- Good local banking facilities, with more than 50 offshore banks located in Labuan. Initial deposits can range from USD$5,000 to USD$500,000.
- Malaysia is a major trading country, and Labuan is part of it.
- Shelf companies are an available option.
- Standard paid-up capital requirements is a minimum of USD$1.
- Directors and shareholders can host meetings from any location.
- No restrictions on nationality for directors and shareholders.
- No nationality requirements for directors and shareholders.
- USD is the prevalent permitted currency for capital. Any currency can be used except the Ringgit Malaysia.
- Absence of standard authorised capital, as Labuan adopts the no par value regime.
Labuan may be an offshore company in Malaysia, but it is still expected to comply with Bank Negara, the Labuan company formation authority, Malaysia’s immigration and Inland Revenue Authority laws. Labuan adheres to the anti-money laundering and counter terrorism financing legislation. This means that all licensed service providers in Labuan must know who their customers are before conducting or accepting a transaction. The disclosure of the beneficial ownership can be made to insurers, banks and trust companies. Disclosures of beneficial ownership cannot be made to the Authority.
What Is an Offshore Company?
This is different from the usual Sendirian Berhad (Sdn Bhd) company entity that foreigners might be used to in Malaysia. An offshore company can refer to two things. It is either a:
- Company which has been incorporated at an offshore jurisdiction, or offshore financial centre. The company can be either resident or otherwise.
- Company incorporated outside the jurisdiction where its primary operations are. This is regardless of whether that jurisdiction is a financial centre.
Offshore companies are generally free from interference by the home government. An offshore company is sometimes referred to as an International Business Company (IBC) or a non-resident company. IBC’s are used frequently in international trade.
The two key traits which distinguish an offshore company 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. Then in 1990, the Offshore Companies Act was formed to create offshore corporate laws. 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).
Incorporate with Nominee Director
Malaysia’s offshore company incorporation does not require a nominee director.
Malaysia Offshore Company Incorporation
Offshore company setup is reasonably affordable. Costs do vary depending on the jurisdiction you intend to setup in, and Malaysia is among the most affordable options available. There will be two types of standard fees which will be incurred by all offshore companies. This involves the set up and annual maintenance fee of the offshore company, not including the other initial setup fees which will need to be paid.
The minimum annual government fee which must be paid is RM2,600. This is regardless of the company’s capital structure. The fees are payable annually. Depending on the size of the authorised capital chosen by the company, the government’s registration fee can range anywhere from USD$300 to USD$1,500 (maximum).
Paul Hype Page’s offshore company incorporation packages offer you the most value for money. We have consistently been a top choice for many entrepreneurs because of our track record and affordable rates. Contact us for a detailed quote on our corporate services.
Malaysia Offshore Company Registration Requirement
The registration requirements to establish this company include:
- One director (minimum)
- One shareholder (minimum)
- One secretary
- A registered office address in Labuan
The minimum deposit required for the bank account opening will vary depending on the bank you choose. It is recommended that you setup your bank account outside Malaysia. This is because Malaysia has capital control, and therefore, having a bank account within Malaysia would defeat the purpose of having an offshore company.
The setup of new offshore companies is usually done within a week. The opening of a bank account should take approximately the same time, since due diligence checks must be conducted by the banks.
You will also need to fulfil the following requirements:
- Determine that the nature of your business and company structure align with compliance and tax.
- Determine your company name and identity. You must prepare at least 3 names to be submitted for approval.
- Determine the suffix you would like for your company name. Your options include Co. Ltd, Limited, Ltd, LLC, Labuan or Inc.
- Determine the ownership portion for your shareholders.
- Determine the type of work visa you will require.
- Determine if there will be dependants included in your work visa application.
- Complete your bank account opening (you must complete the banker’s interview and profiling requirements).
- Prepare the registration fee
- Prepare the minimum authorized capital
Foreigners will be eligible for a two-year multiple entry business visa. This visa can be extended to include dependents. With this visa, you can choose to reside in Labuan or anywhere else in West Malaysia if you desire.
Documents Required for Malaysia Offshore Incorporation
The documents which you will require will depend on the structure of your company. However, all registrations must include the memorandum and articles of association to acquire approval from the relevant authorities.
To register an offshore company in Malaysia, you must provide the following documents:
- Proof of identity of all the owners, directors and account signatories (certified true copies of original passport)
- Proof of residency for all involved parties (original utility bills or bank statements which show proof of residential address within the last 3 months)
- Proof that you are a “fit and proper person”. You will need to provide letters of reference attesting to the suitability of your conduct and personality. These can include letters from qualified professionals like lawyers, auditors, accountants and doctors.
- A CTOS report must be provided, along with a letter of Good Conduct from the police or relevant government bodies.
- Objectives and nature of your business. A clear business plan should be present.
- Complete and signed the required forms.
While having a resident director for a Labuan offshore company is not necessary, you must have a resident secretary.
Why Incorporate a Malaysia Offshore Company?
Among the benefits that investors gain by setting up an offshore company here include:
- Having 100% ownership of the company. A Labuan incorporated company can be 100% foreign owned without the need for a local partner. It can done with only one director and one shareholder, regardless of nationality.
- It is a tax haven, especially for offshore non-trading companies who are not subjected to tax rates.
- There are not exit levies and capital gains taxes.
- The low start-up capital needed. The company registration fees will vary based on the size of the company.
- Malaysia’s 60 double tax treaties, many of which have tax exemption provisions. Offshore Labuan incorporated companies enjoy certain tax exemption, thanks to these treaties.
- Labuan has a well-established reputation as a respectable offshore company jurisdiction.
- The simpler business administration and simple reporting process.
Offshore Company Tax Exemption
The biggest attraction about having an offshore company in Malaysia is that you will not be subjected to other taxes too. This includes customs tax, stamp duties and sales tax. Non-resident directors are also exempted from personal taxes on their salaries.
You can still conduct business in the Malaysian market with a Labuan company, but the 24% corporate tax will be levied on the business.
However, for audit purposes, an offshore trading company in Labuan can opt to pay either 3% income tax or a flat rate of RM20,000 per annum. It would depend on which one is lower.
Payments are made to the Inland Revenue Department of Malaysia. It is possible for non-trading and trading companies to pay the maximum RM20,000 per annum tax if they wish. In doing so, they will be devoid of requirements to file their financial declarations.
Common Reporting Standards for Tax
The Labuan Financial Services Authority (FSA) must be informed of any transactions conducted with Malaysian residents. This must be done within 10 working days.
You will be required by the government to file an annual report, together with a statement of your business accounts. These financial records must be kept in Labuan.
The Downside of Incorporating an Offshore Company
If you’re wondering whether there is a downside to incorporating an offshore company, the answer is yes. Among the disadvantages of owning a Labuan offshore company include:
- The privacy aspect makes it difficult to conduct valuations and appraisals because of the lack of available public information.
- It may be more difficult to acquire financing because of the privacy aspect too.
- Another problem privacy could cause is difficulty in proving the ownership of the company.
- Offshore companies have a negative perception associated with them. The tax benefits are good for businesses, but it can be viewed negatively as businesses trying to avoid tax obligations.
- Certain benefits or activities may be limited if you own a Labuan offshore company.
Terminating a Malaysia Offshore Company
There are two ways in which a Labuan offshore company can be terminated. You can either go through a voluntary winding up process, or default on the annual fee payments. The company will then be terminated due to non-compliance.
Why Choose Paul Hype Page & Co
With years of experience on our side, we make offshore company incorporation a smooth and hassle free process. Our goal is to help foreigners and foreign companies set up their business in Asia. If you’re ready to kick-start your future off on the right foot, we’re ready to lead the way. Get in touch with us today and let us help you take care of business.