Setting up an Offshore Company in Malaysia (Labuan)

There are few reasons to incorporate your business in an offshore area in Malaysia, one of the strategic locations could be Labuan in Malaysia. In this article, you may learn from where to start and how to proceed.

What are the benefits by forming an offshore company in Labuan Malaysia?

100% Ownership

All Business entity under Labuan International Company can be owned 100% by the business director even with foreigner

Lower / None Entitled Taxes

3% entitled taxes on annual nets profit for trading company and 0% taxes for non-trading offshores company.

Things to prepare before setting up a Labuan (Offshore) Company in Malaysia:

Company's Name
Relevant Documents
Company Registration & Fees
Company Bank Account
Minimum one business director and one shareholder
(Both position could be same person)
Most Importantly, your Business Plan

The rate of tax imposed on Labuan business activities.

The rate of tax imposed is 3% of audited net profits for trading activity and zero percent for non-trading activity, provided that the Labuan entities are in compliance with the tax substantial activity requirements.

*If a Labuan Company does not meet the minimum substance requirements according to LBATA 2019 amendments, the company will then not be entitled to tax under LBATA 1990, instead, the company will be entitled tax under the Income Tax Act 1697 of Malaysia with a corporate tax of 24%.

Audit Requirement for Labuan Company.

A Labuan company is required to maintain their proper accounting and other records. All of the proper accounting and records should be kept at the registered office of the company in Labuan. The related accounting and other records should be open at all times for inspection by a director of the offshore company. All Labuan Companies must review and submit the required tax forms within a period of three months for any extended period as may be allowed by the Director-General from the commencement of a year of assessment, with effect from the year of assessment 2022.

The relevant income tax return forms (IRTF) to be submitted to the Lembaga Hasil Dalam Negeri (LHDN) annually before 31st March as follow, otherwise a 10% penalty will be imposed on the outstanding balance:-

Form LE1 – Return of Profits by a Labuan Entity under Section 5 and Section 10 of the LBATA.
Form LE4 – Statutory Declaration under Section 5 of the LBATA (for Labuan trading activities)
Form LE5 – Statutory Declaration Under SEction 10 of the LBATA (for Labuan non-trading activities)
Audited Financial Statements

It is necessary for all impacted Labuan Companies to appoint an authorized external auditor in Labuan for the preparation of the Audited Financial Statements for the year of assessment 2022 (FYE 2022) and Management Accounts for audit purposes.

Labuan Business Activity	Form LE1	Form LE4	Form LE5	Duly Signed Audit Report
Trading Activity Comply wiith SR: tax at 3% Not Comply wiith SR: tax at 24%
Non-Trading Activity Comply wiith SR: tax at 3% Not Comply wiith SR: tax at 24%

To file your tax under LBATA and be taxed at 3%, the following requirements must be achieved:-

The Labuan entity must conduct a Labuan Business Activity (trading/non-trading) that is listed under the P.U.(A) 423/2021 and P.U.(A) 482/2021.
The Labuan entity carrying on a Labuan Business activity must fulfill the stipulated economic substance requirements- the number of full-time employees and annual operating expenditure in Labuan.

To know more regarding details about the minimum substances requirement for the Labuan Business Activity, kindly refer to the table below.

No.	Type of Labuan Company	Minimum Substance Requirements for Full Time Employees	Minimum Substance Requirements for Full Time Employees
1	Insurance Company and Takaful Operators	4	US $36,166 (RM150,000)
2	International Commodity Trading Company	3	US $723,315 (RM3,000,000)
3	Banking and Investment Company	3	US $48,400 (RM180,000)
4	Trust Company	3	US $28,933 (RM120,000)
5	Fund Managing Company	2	US $24,111 (RM100,000)
6	Leasing Company	2	US $24,111 (RM100,000)
7	Holding Company	2	US $12,055 (RM50,000)
8	Labuan Payment Service Operator Licensed Company	2	US $24,111 (RM100,000)

Business Owners Formed their Companies in Labuan from these Popular Countries & Industries.

Incorporation your company in Labuan Malaysia now!

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Setting up an Offshore Company in Malaysia (Labuan)