www.ecovis.my

CONTENTS

• About Labuan

• Usages of Labuan

Company “LC”

• Corporate and Fiscal

Structure of Labuan Company

• Setting Up a Labuan

Company

• How ECOVIS AHL Assists You

• Contact

LABUAN

COMPANY

LABUAN also known as the Pearl of Borneo is centrally located in the heart of the South

China Sea.

The climate is warm and humid throughout the year and the official currency used within

the country is the Malaysian Ringgit (RM).

Although Bahasa Malaysia is the national language, English is widely used.

Unlike other Malaysian towns, Labuan is unique as it is totally surrounded by sea. This

tropical islands paradise with International Business and Financial Centre plus Free Trade

Zone transforms it into an ideal business playground for the corporate tourist, business

and affluent travellers.

About Labuan

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Usages of Labuan Company “LC”

The Malaysian Government declared the island of Labuan as an International Offshore

Financial Centre (IOFC) back in October 1990. Today, Labuan has grown significantly as an

international financial centre and has become home to over 300 financial institutions that

provide a comprehensive range of financial services. These institutions serve more than

9,000 companies registered in Labuan. Beginning January 2008, the Labuan IOFC has been

repositioned as Asia’s most connected, convenient and cost-efficient International

Business and Financial Centre, with a specific focus on business incorporations. With that

approach, Labuan is now more well-known as the Labuan IBFC. As of 11 February 2010, a

new set of legislations were gazetted whilst radical amendments were made to existing

laws so as to change the way in which Labuan IBFC carries on its financial services

business.

Brief Introduction

Tax benefits offered by Labuan IBFC:

•A Labuan Company (“LC”) carrying on a Labuan trading activity for thebasis period for a year of assessment will be taxed at a rate of 3% of itsnet audited profits or at a tax rate of RM20,000 upon election by theCompany. You will note that the maximum amount of tax payable by a LCconducting Labuan trading activity is capped at RM20,000.

•The definition of “Labuan trading activity” includes banking, insurance,trading, management, licensing or any other activity which is not Labuannon-trading activity.

Low TaxLow Tax

•A LC carrying on a Labuan non-trading activity for the basis period for ayear of assessment is not subject to tax.

•The definition of “Labuan non-trading activity” includes holding ofinvestments in securities, stock, shares, loans, deposits and immovableproperties by a LC on its own behalf.

No TaxNo Tax

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Amongst the benefits of using a Labuan

Company (“LC”) are as follows :1. Trading Companies1. Trading Companies

Existing Structure:

Vietnam

(“Supplier”)

Singapore Pte Ltd

(“SgCo”)

Oversea Buyers

SgCo buys goods from Supplier

Profit is taxed at between

17% of taxable profits

SgCo sells product to

Overseas Buyer

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A LC can be utilised in such a way as to effectively shift profits from a high-taxjurisdiction to a low-tax jurisdiction. This can be achieved by interposing a LC topurchase goods at arm’s length prices either from a related or non-relateddistributor, and then on-sell those same goods at a profit to the overseas buyers.Therefore, part of the profit that would otherwise have been made by theSingaporean domestic company is effectively shifted from the high-taxjurisdiction (i.e. 17% of its taxable profits) to the low-tax jurisdiction of theLabuan IBFC (i.e. 3% of its net audited profits or flat rate of RM20,000).

Vietnam

(“Supplier”)

Labuan Company

(“LC”)

Oversea Buyers

By Interposing LC :

LC buys goods from Supplier

Profit is taxed at either 3% of net

audited profits, OR flat of RM20,000

LC sells product to

Overseas Buyer

Shipment of goods

direct to overseas

Singapore Pte Ltd

(“SgCo”)

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A d va n t a g e s o f s e t t i n g u p

L a b u a n l e a s i n g c o m p a n i e s

2. Leasing Companies2. Leasing Companies

Election of tax (i.e. either 3% of its net audited profits or a flat rate of RM20,000);

Exemption from stamp duty on all instruments created related to Labuan business activities;

Provides off balance sheet financing and maximize company’s cash flow;

Tax exemption on dividends paid to its shareholders. Profits declared as dividends by the LC will not be subject to further Malaysian corporate tax.

ABC

D5

Similarly, a LC can be utilised in such a way as to effectively shift profits from ahigh-tax jurisdiction to a low-tax jurisdiction. Labuan leasing is defined as thebusiness of letting or sub-letting property on hire for the purpose of the use ofsuch property by the hirer, regardless whether the letting is with or without anoption to purchase the property or such other business as approved by theMinister of Finance. Generally, international leasing companies are allowed toconduct leasing business in Labuan with non-residents. Leasing operationsthrough Labuan are also opened to residents but subject to the approval fromBank Negara Malaysia and Labuan FSA. Presently, Malaysian domestic companieswith leasing facilities with foreign based leasing companies are subject to 10%withholding tax on their rental repayments to the foreign based leasingcompanies. They are also subject to stamp duties on their lease agreements. Inorder to overcome the withholding tax issue, a LC is set up and interposedbetween the Malaysian domestic company and the non-resident company.

3. Investment Companies3. Investment Companies

4. Holding Companies4. Holding Companies

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Use of a LC allows the possibility of investing tax efficiently in a high tax countrywhere there is a concessionary tax treaty in respect of investments made by LC.Under the Labuan Business Activity Tax Act 1990, a LC that carries on a Labuannon-trading activity is not liable to pay tax. Therefore, if the LC is carrying on anactivity relating to the holding of investments in securities, stock, shares, loans,deposits or any other properties on its behalf, such income generated are tax free.

If the holding company is situated in an offshore area where there are no incomeor corporation taxes and no requirement that dividends must be paid, then theprofits which are accumulated in the tax free climate can be used to fund therequirement of subsidiaries or reinvested as business convenience suggests.Additionally, a high net worth individual with properties or other assets in anumber of countries may wish to hold these through the medium of a personalholding company so that upon his demise, probate would be applied for in thecountry in which his company was incorporated rather than in each of thecountries in which he may hold assets. This saves legal fees and avoids publicity.

Likewise, there are often great advantages in using a Labuan property holdingcompany for the purpose of holding an overseas property such as avoidance ofinheritance tax, avoidance of capital gains tax, ease of sale which is achieved bytransferring the shares of the company rather than transferring the property ownedby the company.

Secrecy and Confidentiality Provisions

Liberal Exchange Control

Labuan has a very liberal exchange control policy in relation toLabuan business activity. All LC (including licensed banks,insurance entities and other companies operating in Labuan)are considered non-resident for exchange control purposes andtherefore are free from complying with exchange controlsrelating to Malaysian resident companies. Non-residents (i.e.Labuan companies) are permitted to move their funds into andout of Malaysia without having to complete any exchangecontrol forms and are not subject to any exchange controlmonitoring.

Secrecy provisions are existent in all laws and regulations inLabuan. Public inspection of company files is limited,disclosures of shareholdings or beneficial ownership areprohibited and court hearings against any LC will be held incamera. Information can only be divulged or documentsproduced by order of the High Court.

A

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Corporate and Fiscal Structure

of Labuan Company

Corporate Characteristics of Labuan Company

1 Bearer shares Not allowed

2 Minimum number One

3 Public share registry There are no public records of Labuan companies

4 Meetings/frequency Yes, at least one annually

Shareholders

1 Permitted Currencies In any foreign currency except Ringgit Malaysia

2 Minimum share issue One share in any denomination in foreign currency

Share Capital

1 Minimum number One

2 Residency requirements Resident director is optional

3 Corporate directors Allowed

4 Meetings/frequency Per Articles of Association

Directors

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Description Tax Treatment

1

Labuan Non-Trading Activity

means holding of investments in securities,

stock, shares, loans, deposits or any other

properties by a Labuan entity on its own behalf

Not subject to tax

2

Labuan Trading Activity

Includes banking, insurance,

trading, management, shipping

operations, licensing or any other activity

which is not a Labuan non-trading activity

3% of net profits per

audited accounts;

OR

RM20,000 upon election

3Carrying out both Labuan Trading and Non-

trading activities

- Deemed to be Labuan Trading Activity

Same tax treatment as

Labuan Trading activity, ie

- 3% of net profits per

audited accounts;

OR

- RM20,000 upon

election

4 Non-Labuan Business Activities

Tax under domestic

income tax act - 25%

(24% from YA 2016

onwards )

5A rebate against Labuan tax shall be given to a Labuan Entity for any Zakat

paid in the basis period. Evidence of receipt required.

Tax Structure

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Income exempted from income tax

1. Dividends received from Labuan entities

2. Distributions received from Labuan trusts and foundations (including both Islamic) by the beneficiaries

3. Distributions of profits by Labuan partnerships (including Islamic partnerships)

4. Interest received by residents, non-residents or another Labuan entity from a Labuan entity.

5. Royalties and fees for services, advices or assistance specified in Section 4A(i) and (ii) of the ITA, received by a non-resident or another Labuan entity from a Labuan entity.

6. Other gains or profits under Section 4(f) of ITA received by a non-resident from a Labuan entity.

Tax incentives

No withholding tax is imposed

1. On payments to non-residents for interest, royalties, fees for services, advice or assistance, or other gains or profits under Section 4(f) of ITA by a Labuan entity.

2. On payments to non-residents for use of moveable properties by a Labuan licensed leasing company.

Tax incentives are applicable up to year of assessment 2020

1. Tax exemption on directors’ fees received by a non-citizen individual in his capacity as a director of a Labuan entity.

2. Tax exemption on 50% of gross income received by a non-citizen individual from exercising an employment with a Labuan entity in a managerial capacity, in Labuan or at its marketing or co-located offices approved by LFSA.

3. Tax exemption on 50% of gross housing and Labuan Territory allowances received by a Malaysian citizen from exercising an employment in Labuan with a Labuan entity.

4. Tax exemption on 65% of the statutory income of any person providing qualifying professional services such as legal, accounting, financial and secretarial services, rendered in Labuan by that person to a Labuan entity.

Stamp Duty Exemption

Stamp duty is exempted on all instruments executed by a Labuan entity in connection with a Labuan business activity, including its memorandum of articles/constituent documents and on transfer of shares in a Labuan company.

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Setting up a Labuan Company

Costing for a Labuan Company

Incorporation Fee

(USD)

2,255

- for Share Capital not exceed RM50K in Ringgit equivalent

Process of Incorporation

The process of incorporating a LC is as follows:-

1. Completion of the application form and the due diligence document by the client

2. Upon receipt of Incorporation fee, apply for the reservation of the proposed company’s name (this will take approximately one (1) working day);

3. Once the company is incorporated, Labuan FSA will then issue a certificate of incorporation (usually within 3 working days after the application).

Open Bank Account 300 - Assist LC to open bank accounts with any banks (professional

fee per bank account excluding disbursement)

Total Incorporation Costs2,555

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Disclaimer

Above calculations are solely for general references and might not be the exact amount and subject to

change from time to time by related parties and/or authorities.

Annual Maintaining Fees

(USD)

1,820 - Annual Government Fees

- Registered Office

- Resident Secretary

- Maintain Statutory record & lodgment of Annual Returns

- Resolution for AGM on adopt account

Tax Agent 200- Prepare & submit tax documents

- Prepare & submit extension letter

- Tax agent fee of USD150 (non-trading) or USD200 (trading)

Total Annual Costs 2,020

Working Permit (for the period of 2 years)

- For principal 450

- For dependent 200

Procedure :

1. Prepare & submit application to the relevant authorities

2. Once Immigration approved the application, arrange with client

to get his/her passport endorsed

Costing for a Labuan Company

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Disclaimer

Above calculations are solely for general references and might not be the exact amount and subject to

change from time to time by related parties and/or authorities.

HOW DO I ESTABLISH A LABUAN COMPANY?

Incorporation of a Labuan company must be done through a Labuan Trust Company. The application should

be submitted together with the Memorandum and Articles of Association, consent letter to act as director,

statutory declaration of compliance as well as payment of registration fees based on paid-up capital.

WHAT ARE THE DIFFERENCES BETWEEN TRADING AND INVESTMENT COMPANIES?

Investment companies usually only “hold” assets, or shares in companies located in other jurisdictions.

Trading companies are defined as those which actually carry out business on a day to day basis.

ARE THERE ANY REQUIREMENTS ON MINIMUM CAPITAL AND SHAREHOLDING?

A minimum of one share is required. Apart from this there is no minimum capital requirement (except for

licensed entities), and Labuan companies may issue shares of different classes and of different rights but no

bearer shares are allowed. Shares may be denominated in any currency except in Malaysian Ringgit. The

minimum number of shareholders in a Labuan company is one (1). The shareholder may be an individual, a

corporation or a trust company holding the shares as a nominee, or on trust.

WHAT IS THE COMPOSITION OF DIRECTORS AND SECRETARIES IN A LABUAN COMPANY?

A Labuan company must have at least one director who can be either resident or non-resident. It must have

at least one resident secretary, who is an officer of the trust company.

ARE THERE ANY AUDIT REQUIREMENTS?

Generally, audit is mandatory for licensed entities in Labuan. However, it is optional for all other Labuan

companies to have its financial books audited. A Labuan company is required to maintain proper accounting

and other records in Labuan, and those proper accounting and other records shall be kept at the registered

office of the company or other places in Labuan. Such accounting and other records shall be open at all times

for inspection by a director of the offshore company.

WHAT TAXES ARE PAYABLE IN LABUAN IBFC?

The Labuan Business Activity Tax Act 1990 encapsulates the jurisdiction’s tax structure and provides all

Labuan registered trading companies the yearly option of either paying a flat tax of MYR20,000 per annum or

3 percent of net profit. Labuan investment holding companies, non trading companies and investment

entities are not subjected to tax on investment income. There is also an option for all Labuan trading entities

and companies to make an irrevocable election to be taxed under the onshore Malaysia Income Tax Act 1967.

DO I HAVE A REGISTERED OFFICE IN LABUAN?

Yes. Labuan companies are required to engage the services of a Labuan Trust Company, which company will

serve as the registered office.

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How ECOVIS AHL Assists YouECOVIS AHL and its team of

professionals are readily available to

assist you in a broad way ranging

from comprehensive steps in setting

up Labuan Company and everything

you’ll need to keep your company in

good order

Understand your needIt’s our ultimate objective to foster mutual understanding by exchanging and sharing of thoughts

and work closely with you for a better insight. To provide you with your desired financial advice

and services to meet your individual need as well as for your business to know its competitive

edge with minimal risk, but with maximised potential.

Assess the possibilitiesWe analyse all the possibilities. By understand your need, our team will thoroughly identify all the

possible key factors for the development of your business with the most efficient strategy.

Consultation and AdvisoryWe aim to structure and design for you in every possible way to help equip you with all the

information and knowledge you will need. Our team of professionals are pleased to guide you.

Working hand in handWe treasure and develop strong relationship with you as our business partner, therefore, we put

special privilege to your business. Thus, we will help in monitoring and to ensure your business is

under full compliance with the authority. This is the fundamental of our professionalism.

Our Services � Formation of companies

� Accounting

� Assurance

� Tax

� Advisory

Other related services :

� application of work permit

� opening bank account14

Contact

www.ecovis.my