The Role of Labuan Offshore Company in Malaysia for Global Business

In the intricate web of global commerce, offshore entities play a pivotal role in facilitating international transactions and optimizing financial structures. Among these entities, having a Labuan offshore company stands out as a particularly significant player. Situated in the strategically located jurisdiction of Malaysia, Labuan offers a unique blend of regulatory advantages, tax incentives, and financial stability, making it an attractive destination for businesses seeking to expand their global footprint. Through this article, you can take a better look into the essential characteristics and functions of a Labuan offshore company, shedding light on their indispensable role in the dynamic landscape of global business. 

What does a Labuan offshore company entail in Malaysia? 

A Labuan offshore company offers entrepreneurs a strategic avenue for tax optimization and asset protection while facilitating global business expansion with minimal regulatory burden. Governed by the Labuan Companies Act 1990 (LCA 1990), this structure provides favorable tax treatment contingent upon meeting substance requirements. It can take various forms, such as a company limited by shares, a guarantee, or an unlimited company. 

Under the Labuan Business Activity Tax Act 1990 (LBATA), a Labuan offshore company can engage in diverse business activities and enjoy attractive tax incentives. They are permitted to conduct any business permissible in Malaysia from or through Labuan. However, specific activities, such as banking or insurance, may require licensing under the Labuan Financial Services and Securities Act 2010 or the Labuan Islamic Financial Services and Securities Act 2010. 

The perks of having a Labuan offshore company in Malaysia 

Labuan offshore company registration offers enticing advantages for foreign investors looking to establish a presence in Malaysia. Unlike local entities, Labuan companies don’t require local partners or nominee directors, simplifying the incorporation process. This flexibility, coupled with reasonable setup costs, attracts entrepreneurs seeking a low-barrier entry into the Malaysian market. 

One of the most significant draws is the remarkably low corporate tax rate of 3% for Labuan offshore companies, compared to the 17% to 24% range for private limited companies. This substantial tax advantage provides a competitive edge and eases the burden on business owners. Additionally, Labuan entities benefit from various tax incentives, including global tax market access and exemptions from stamp duties and excise on transactions. 

Moreover, establishing a Labuan company opens doors to the Labuan Employment Pass, granting foreign business owners entry privileges to Malaysia. This pass, coupled with relaxed paid-up capital requirements, facilitates travel and operational flexibility. Overall, the combination of minimal regulatory requirements, low-cost setup, tax advantages, and access to the Labuan Employment Pass makes Labuan offshore company registration an attractive option for foreign investors eyeing the Malaysian market. 

The downsides of having a Labuan offshore company in Malaysia 

Maintaining high levels of privacy and confidentiality in Labuan’s jurisdiction can pose challenges for investors and partners seeking to conduct background checks or verify ownership. Publicly declaring ownership may be necessary at times, but the process can be resource intensive. 

Moreover, the lack of publicly available information makes it difficult for potential financial partners to assess the value of the business, hindering their ability to make informed investment decisions. This opacity also complicates the appraisal and financing processes, further potentially impeding the company’s growth prospects. 

Furthermore, operating within Labuan’s jurisdiction may entail forgoing certain benefits available in the company’s home country, such as tax incentives or specific deductions. These limitations can restrict the company’s ability to capitalize on favorable conditions and opportunities elsewhere. 

Key features of establishing a Labuan offshore company in Malaysia 

Offshore companies in Malaysia operate within the framework of British Common Law and adhere to regulations enforced by entities such as the Central Bank of Malaysia, the Labuan Company Formation Authority, Malaysia’s Immigration Department, and the Inland Revenue Authority. Confidentiality is maintained at a high level, ensuring privacy and anonymity for businesses. Accounting procedures must comply with audit requirements, with annual liabilities following auditing. 

Taxation for Labuan companies ranges from 0% to 3%, notwithstanding their status as tax havens, necessitating annual tax filings. The legislation governing offshore operations is modernized, with requirements including a minimum of one director, aged 18 or older, and the mandatory appointment of a certified local company secretary and auditor. Additionally, a registered office in Labuan, typically utilizing the address of the appointed company secretary, is obligatory. 

Requirements to set up a Labuan offshore company in Malaysia

A Labuan offshore company must have its registered address at the main office of the Labuan Trust Company. It requires a minimum of one share, with no specific par value, and at least one director who is 18 years old. Accounting obligations include submitting audited financial statements for tax purposes, which are not publicly accessible records under LCA 1990. 

Additionally, the company must appoint at least one company secretary from the Labuan Trust Company. Economic substance requirements mandate the employment of a prescribed minimum number of workers in Labuan and incurring a certain yearly operational expense in Labuan, aligned with the specific activity conducted by the offshore company. 

Private limited company vs. Labuan offshore company in Malaysia 

Labuan Companies and Malaysian Sdn Bhd offer avenues for foreign ownership with minimum capital requirements of USD 1 and RM 1 million, respectively, while both are limited to 50 shareholders. Both entities necessitate showing capital in the bank for permit applications and provide options for various business activities, with Malaysian Sdn Bhd requiring a trade license for specific operations. For work permit applications, both entities require a minimum paid-up capital, with additional requirements such as office rental and telephone lines. 

Labuan Companies and Malaysian Sdn Bhd offer avenues for foreign ownership with minimum capital requirements of USD 1 and RM 1 million, respectively, while both are limited to 50 shareholders. Both entities necessitate showing capital in the bank for permit applications and provide options for various business activities, with Malaysian Sdn Bhd requiring a trade license for specific operations. For work permit applications, both entities require a minimum paid-up capital, with additional requirements such as office rental and telephone lines. 

Tax structures differ between the two entities. Labuan companies enjoy a 3% net profit tax for trading activities, with exemptions for dealings with Malaysians, while Malaysian Sdn Bhd is subject to a 24% tax on international and local sales. Directors’ fees for foreigners in Labuan Companies are not taxed, whereas in Malaysian Sdn Bhd, they are subject to a tax ranging from 0% to 28%. Expatriate income tax offers a 50% rebate on taxable income for Labuan companies, contrasting with Malaysian Sdn Bhd’s tax rates, which range from 0% to 28% without rebate. Both entities benefit from Double Taxation Agreement (DTA) tax treaties, although certain exclusions apply. 

Labuan offshore company and auditing 

All Labuan companies must annually audit and maintain proper accounting records, which must be kept at the registered office and available for inspection at all times. 

Labuan offshore company for foreign businesses 

In Labuan, foreign companies can establish themselves in three primary categories: pure equity holding companies, investment firms, and service providers. Pure equity holding companies generate revenue solely through share ownership of other entities, focusing on investment in various businesses. Investment companies in Labuan earn income through investments in securities, stocks, shares, loans, deposits, or other properties located within the jurisdiction. 

On the other hand, service companies in Labuan offer non-physical services such as administrative support, accounting, backroom processing, payroll management, agency services, talent management, insolvency-related services, and various financial services. These entities cater to a diverse range of client needs, offering expertise, skills, knowledge, and labor without physical product involvement. By operating within these classifications, foreign companies can navigate Labuan’s business landscape effectively. 

How Premia TNC can support your incorporation process 

At Premia TNC, we specialize in providing comprehensive incorporation services tailored to your needs in Malaysia. Whether you are a local entrepreneur or an international investor, we are here to streamline the process and ensure a smooth transition into the Malaysian business landscape. 

Our expert team offers: 

1. Guidance through the process: From company name reservations to obtaining necessary permits and licenses, we will navigate the incorporation process efficiently, saving you time and hassle. 

2. Customized solutions: We understand businesses are unique. Our services are customized to suit your specific requirements, ensuring compliance with Malaysian regulations while maximizing your operational flexibility. 

3. Professional support: Our team of experienced professionals is dedicated to providing you with personalized support at every step. You can rely on us for expert advice and prompt assistance throughout the incorporation journey. 

4. Post-incorporation assistance: Our commitment does not end with the successful establishment of your company. We offer ongoing support to help you meet compliance obligations and grow your business in Malaysia seamlessly. 

Partner with Premia TNC for a hassle-free incorporation experience in Malaysia. Allow us to manage the intricacies while you focus on achieving your business objectives.