Why Register an Offshore Company in Malaysia’s Labuan

An island nation in Malaysia, Labuan offers a favorable environment for international business. It has evolved from a former tax haven to a reputable and competitive jurisdiction for company registration. The local Companies Act provides several key benefits for Labuan-incorporated offshore businesses:

• Corporate tax rates of either 0% or 3% industry-wise.
• No additional taxes, including dividend and capital gains taxes.
• No currency restrictions.

In the article below, we will find out why registering a company in Malaysia (Labuan) comes with perks comparable to the ones other well-known international offshore hubs offer. 

Complete guide to company registration in Labuan for non-residents

For many expatriates who want to enjoy low tax rates and tax residency certificates, the Labuan offshore jurisdiction remains a popular option. The above certificates are issued by the Malaysian Inland Revenue Department. With them, individuals and businesses not only avoid double taxation but also enjoy various options for minimizing their tax burden.

You should keep in mind though that Malaysia is part of the Automatic Exchange of Tax Information (AEOI) framework. This means that in 2023, individuals and businesses who want to benefit from Labuan’s low tax rates shall prove their economic and physical substance in Labuan. They also need to follow a set of rules and requirements in force in the country.

Steps to set up a business in Labuan as a foreigner

Below, you’ll find the steps to follow if you wish to register a company in Labuan as a non-resident founder:

1. Choose a company name and get approval from the registrar.
2. Prepare the required corporate documents, such as the articles of incorporation and memorandum, and the documents necessary to verify the identities of beneficiaries, directors, and shareholders.
3. Rent a physical office and get a legal address for your company in Labuan.
4. Open a bank account.
5. Apply for company registration in Malaysia.
6. Pay a registration fee for your company in Labuan.

Under the established economic substance requirements, you will also need to hire a local resident as a company secretary as well as several office employees for your company in Labuan. The number of resident employees depends on the industry and your business type.

Benefits of choosing Labuan as your offshore company’s jurisdiction

Take a look at some of the benefits you will get after setting up an offshore company in Labuan:

• You may own 100% of your offshore company with no Malaysian partners involved.
• You will enjoy a low corporate tax rate of 3% for trading foreign companies or 0% for holding and investment companies.
• If you prefer, feel free to opt for a competitive local corporate tax rate of 24%.
• Your offshore company will operate without currency restrictions or special licenses unless it falls under certain categories.
• It will take you a max of 7 days to register your offshore company in Labuan.
• No special license is necessary to do international business in Labuan provided your industry is on the approved activity list.
• You can legally buy a ready-made shelf company in Labuan.
• You will only pay USD 1 as the minimum paid-up capital for your offshore company in Labuan.
• Your directors and shareholders may be nationals of any country.
• No requirements are set as to the company’s minimum authorized capital.
• You don’t have to pay any taxes on dividends, capital gains, inheritance, as well as withholding taxes or stamp duties.
• You can get a 50% tax rebate on foreign directors’ compensations and professional fees.

In Labuan, you can get renewable visas for up to 2 years and access Double Taxation Avoidance Agreements (DTAs) with over 70 countries to lower your tax rates and obligations. If you meet certain criteria, your Labuan offshore company will enjoy tax incentives when conducting business activities across the globe.

Tax planning tips for Labuan in 2023–2024

Would you like to set up a company in Labuan and learn how to do business in this country? If so, go ahead and study the tax system that the local government has introduced for 2023 and 2024.

FYI: In the Labuan offshore jurisdiction, you pay taxes the year immediately following the current financial period, with March 31 (inclusive) being the deadline to do it.

Labuan, Malaysia changed its tax system for foreign companies on January 1, 2019. It has removed the fixed tax of MYR 20,000 and introduced different tax rates for various business niches. Regardless of whether you are a country resident or not, you are now free to choose a niche that suits your business to pay either a 0% or 3% profit tax.

These are some of the business niches that enjoy zero or low tax rates in Labuan:

1. Licensed companies that provide leasing, fund management, brokerage services, etc. Such companies pay a 3% profit tax if they meet these criteria:
   1. They have a physical office in Labuan and employ at least 2 resident staff workers.
   2. In the incorporation jurisdiction, their expenses amount to at least MYR 100,000
   3. They keep proper accounting records.
2. Companies that offer administration, consulting, management, and related services. For them, the lowest profit tax rate is 3% in Labuan, and they have the right to enjoy the advantages of double taxation avoidance agreements, which is beneficial for non-resident founders. Yet, these companies have to meet the criteria listed below:
   1. They have a physical office in Labuan and employ at least 2 resident staff workers.
   2. They make verified expense transactions in Labuan.
   3. They declare profits and keep proper accounting records.
3. Holding companies that invest in other companies or assets. Such entities pay a 0% profit tax if they are either pure equity holding companies or non-private Labuan investment holdings meeting economic substance requirements. Sometimes, holding companies are also required to have a central management office in Labuan to qualify.

Labuan offshore jurisdiction in Malaysia: summing up

Labuan is a great option for offshore businesses to consider in 2023. It offers low corporate tax rates and comes with easy company registration procedures in Malaysia. It also boasts other advantages:

• Labuan accepts applications for Forex licenses, which can help you trade currencies online.
• It supports fintech startups to innovate and grow your business with technology.
• The jurisdiction boasts various programs for emerging entrepreneurs to help you learn and network with other business owners.