How to mitigate potential risks of dual taxation when setting up business in Labuan?

Labuan in Malaysia is a favoured destination for those desirous of setting up business overseas. As compared to other erstwhile so called tax heavens like Cayman Islands or Monaco, Labuan in Malaysia has distinct advantages due to its geographical location. It is a ‘mid-shore’ free trade jurisdiction for foreigners desirous of setting up an overseas venture. However, a person looking for such opportunities is now wary of the risk of dual taxation i.e. in Malaysia and also in his country of origin, which can completely offset the advantages of setting up an overseas business venture.

In this scenario, we at QX Trust will act as Company Secretary for your business and ensure that you do not face duplicate taxation.

Fortunately, Malaysia has the infrastructure in place for issuing a Certificate of Residence. A Certificate of Residence serves the purpose of confirming the ‘resident’ status of the taxpayer for taxation purposes. Malaysia has Double Taxation Agreements (DTA) with more than 70 countries which allows taxpayers to benefit from the respective tax treaties. The Certificate of Residence ensures that the Malaysian tax residents can claim tax benefits under the DTA and need not pay double tax on the same income in their country of residence.

Most government or jurisdiction desires and aims to collect taxes owed diligently and to thwart any attempts of tax evasion.

However, many business persons and corporates have been finding loopholes by taking shelter in the (ill) famous tax heavens like Cayman Islands or Monaco. Hence demands for more standardised levels of tax reporting compliance at the international level have been increasing over the last decade.

Various countries have existing treaties for exchanging financial details of certain individuals or corporates on ‘exchange on request’ basis. However, these measures were not sufficiently effective in combating cross-border tax evasion.

At the request of G20 countries, the Organisation for Economic Co-operation and Development (OECD) has in 2014 established what is known as CRS (Common Reporting Standard).

The CRS is a standard for the automatic exchange of information (AEOI) pertaining to financial accounts. It compels a jurisdiction’s financial institutions such as banks, trust companies, insurance companies, and corporate services to report to their tax authority specific information on yearly basis pertaining to the financial accounts in the names of non-resident persons and institutions like companies, partnership firms, trusts and foundations located in countries which are committed to CRS.

It works on a reciprocal basis.

Hence a company has to be careful in keeping its records above board and file taxes in proper forms within the prescribed time limits.

In this scenario, we at QX Trust will guide and assist you in ensuring all CRS requirements are complied accordingly.

We at QX Trust helps mitigate risks of dual taxation while assisting you in setting-up your business in Labuan.