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Labuan

Private company limited by shares

Taxes

Corporate Income Tax – Taxes levied to a Labuan company largely depend on whether the company carries on a "Labuan Business Activity" or a "Non-Labuan Business Activity"

Labuan Business Activity
 
A company carrying on a Labuan Business Activity is subject to 3% corporate tax on its worldwide income. Labuan Business Activities include:
  • Labuan insurer, Labuan reinsurer, Labuan takaful operator, Labuan retakaful operator
  • Labuan underwriting manager or Labuan underwriting takaful manager
  • Labuan insurance manager or Labuan takaful manager
    Labuan insurance broker or Labuan takaful broker
  • Labuan captive insurer or Labuan captive takaful
  • Labuan International Commodity Trading Company
  • Labuan bank, Labuan investment bank, Labuan Islamic bank or Labuan Islamic investment bank
  • Labuan trust company
  • Labuan leasing company of Labuan Islamic leasing company
  • Labuan development finance company or Labuan Islamic development finance company
  • Labuan building credit company or Labuan Islamic building credit company
  • Labuan factoring company or Labuan Islamic factoring company
  • Labuan money broker or Labuan Islamic money broker
  • Labuan fund manager
  • Labuan securities licensee or Labuan Islamic securities licensee
  • Labuan fund administrator
  • Labuan company management
  • Labuan International Financial Exchange
  • Self-regulatory organisation or Islamic self-regulatory organisation
  • Holding Company (tax exempt)
  • Administrative, accounting and legal services including backroom processing, payroll services, talent management, agency services, insolvency related services and management services.
Labuan Companies carrying on the above activities can qualify for a 3% tax rate as long as they comply with Economic Substance Requirements. Such substance requirements include being directed and managed in or from within Labuan, conduct the core income-generating activities in Labuan, have physical premises in Labuan and have an adequate number of Labuan employees and local Labuan expenditure - which is determined depending on the specific activity, starting at two employees and RM 50,000 minimum local expenditure.
 
Non-Labuan Business Activity
 
Companies that do not carry on any of the above activities are subject to the Malaysia's Income Tax Act. 
 
Labuan companies that do not carry on a "Labuan Business Activity" are taxed on income accruing in, derived from, received in or remitted to, Malaysia at a corporate tax rate of 24%.
 
Companies that comply with the below are subject to a reduced 17% tax rate on the first MYR 600,000 -
  • with paid-up capital of 2.5 million Malaysian ringgit (MYR) or less, and gross income from business of not more than MYR 50 million.
  • that does not control, directly or indirectly, another company that has paid-up capital of more than MYR 2.5 million, and
  • is not controlled, directly or indirectly, by another company that has paid-up capital of more than MYR 2.5 million.
Foreign dividend income received in Malaysia is exempt from tax as long as certain conditions are met.
 
Capital gains are exempt from tax as long as they arise from capital transactions.

Withholding taxes – There are no withholding taxes in Labuan on dividends, interests, royalties or fees paid to non-residents.

Capital gains derived from the sale of securities are tax-exempt, those derived from the sale of real properties are subject to the Real Property Gains Tax at rates of 30% for properties held up to 3 years, 20% on the fourth year, 15% on the fifth year and 5% after 5 years.

There is an exemption of 50% of employment income in a managerial capacity with Labuan entity in Labuan, or in a co-located office of marketing office which may be located elsewhere in Malaysia to facilitate business meetings, but cannot be for exercising trading activities on behalf of Labuan entities.

A 100% exemption applies for non-citizens in respect of director’s fees from Labuan entities.

Other taxes – Labuan has a free-port status, hence indirect taxes do not apply. Stamp duty is exempted on all instruments executed by a Labuan entity in connection with its Labuan business activity.

Exchange controls do not apply to Labuan companies.

  • Offshore Income Tax Exemption
  • Offshore capital gains tax exemption
  • Offshore dividends tax exemption
  • CFC Rules
  • Thin Capitalisation Rules
  • Patent Box
  • Tax Incentives & Credits
  • Property Tax
  • Wealth tax
  • Estate inheritance tax
  • Transfer tax
  • Capital duties
  • 3% Offshore Income Tax Rate
  • 3% Corporate Tax Rate
  • 0% Capital Gains Tax Rate
  • 0% Dividends Received
  • 0% Dividends Withholding Tax Rate
  • 15% Interests Withholding Tax Rate
  • 10% Royalties Withholding Tax Rate
  • 0 Losses carryback (years)
  • Indefinitely Losses carryforward (years)
  • FIFO Inventory methods permitted
  • 11% Social Security Employee
  • 13.00% Social Security Employer
  • 28% Personal Income Tax Rate
  • 6% VAT Rate
  • 73 Tax Treaties

Country details

Malaysia
MYR
Kuala Lumpur
Asia
m s - M Y , e n , z h , t a , t e , m l , p a , t h
28274729

The Federal Territory of Labuan is a federal territory of Malaysia, which comprises the Labuan Island and six smaller islands. It is located off the coast of the state of Sabah in East Malaysia.

It is populated by about 96,800 inhabitants and its capital is Victoria.

Malaysia’s official currency is the Ringgit (MYR) and official languages is Malay, although English is widely spoken.

The island is administered by the federal government through the Ministry of Federal Territories. Labuan Corporation is the municipal government for the island and is headed by a chairman who is in charge of the development and administration of the island.

Labuan has one representative in each of the Lower and Upper Houses of Federal Parliament. Usually, the chairman of the Labuan corporation is the Labuan’s parliament current member.

Labuan is an offshore support hub for deepwater oil and gas activities in the region, as well as a tourist destination and an international financial center.

Labuan is a free trade zone with an export-oriented economy, mainly exporting crude oil, methanol, HBI, gas, flour, animal feed, sea products, and ceramic tiles, which are exported to mainland Malaysia or overseas.

Raw materials, parts, and equipment for industrial uses well as consumer products are imported.

Labuan is also a reputable financial center (Labuan International Business and Financial Centre, LIBFC), currently with more than 300 licensed financial institutions including major leading banks.

Labuan LIBFC is mainly comprised of holding companies, captive insurance, Shariah-compliant Islamic Finance structures, public and private funds, and wealth management.

Tax treaties

Country Type Date Signed
Namibia DTC  1998-07-28
Belgium DTC  1973-10-24
Jordan DTC  1994-10-02
Bahrain DTC  1999-06-14
Sudan DTC  1993-10-07
Poland DTC  1977-09-16
Uzbekistan DTC  1997-10-06
Seychelles DTC  2003-12-03
Kyrgyzstan DTC  2000-11-17
Syrian Arab Republic DTC  2007-02-26
Viet nam DTC  1995-09-07
Kuwait DTC  2003-02-05
Egypt DTC  1997-04-14
Hong Kong, China DTC  2012-04-25
Hungary DTC  1989-05-22
Pakistan DTC  1982-05-29
Brunei Darussalam DTC  2009-08-05
Czech Republic DTC  1996-03-08
Turkey DTC  1994-09-27
Bangladesh DTC  1983-04-19
Kazakhstan DTC  2006-06-26
Mongolia DTC  1995-07-27
Italy DTC  1984-01-28
Bosnia and Herzegovina DTC  2007-06-21
Saudi Arabia DTC  2006-01-31
Finland DTC  1984-03-28
France DTC  1975-04-24
India DTC  2012-05-09
Iran DTC  1992-11-11
Albania DTC  1994-01-24
Spain DTC  2006-05-24
Norway DTC  1970-12-23
New Zealand DTC  1976-03-19
Morocco DTC  2001-07-02
Korea, Republic of DTC  1982-04-20
Papua New Guinea DTC  1993-05-20
Senegal DTC  2010-02-17
Mauritius DTC  1992-08-23
Austria DTC  1989-09-20
Zimbabwe DTC  1994-04-28
Ireland DTC  1998-11-28
China DTC  1985-11-23
Malta DTC  1995-10-03
Romania DTC  1982-11-26
Chile DTC  2004-09-03
San Marino DTC  2009-11-19
Singapore DTC  2004-10-05
Thailand DTC  1982-03-29
Myanmar DTC  1998-03-09
Fiji DTC  1995-12-19
Luxembourg DTC  2002-11-21
Japan DTC  1999-03-19
Sri Lanka DTC  1997-09-16
Australia DTC  1980-08-20
Turkmenistan DTC  2008-11-19
Denmark DTC  1970-12-04
Indonesia DTC  1991-09-12
Canada DTC  1976-10-16
Venezuela DTC  2006-08-28
Philippines DTC  1982-04-27
Lebanon DTC  2003-01-20
South Africa DTC  2005-07-26
United Arab Emirates DTC  1995-11-28
Bermuda TIEA 2012-04-23
Croatia DTC  2002-02-18
Sweden DTC  2002-03-12
Qatar DTC  2008-07-03
Lao People's Democratic Republic DTC  2010-06-03
United Kingdom DTC  1996-12-10
Germany DTC  2010-02-23
Switzerland DTC  1974-12-30
Russian Federation DTC  1987-07-31
Netherlands DTC  1988-03-07

Tax treaties Map

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