Leveraging Asian Businesses via Labuan

With low taxes and a business-friendly atmosphere, Labuan is the ideal location for growth-orientated companies with international business. Labuan was first determined as an International Business and Financial Centre (IBFC) in 1990 and its business and financial activities are governed by a separate set of legislation first introduced in 1990 and then enhanced, extended and adapted over the past thirty years.

A small island, Labuan is strategically situated in East Malaysia near Asia’s main financial and business hubs comprising Hong Kong and Singapore. The jurisdiction is home to many active entities who have established themselves in Labuan owing to its business-friendly environment and close proximity to the rest of Asia. Though there are several reasons why Labuan is a favoured choice for many organisations, following are three significant reasons why it makes Labuan the perfect location for growth-oriented companies :-

Astute Tax Policies

Labuan forms part of Malaysia and has signed Double Taxation Agreements (DTAs) with over 70 countries globally. Furthermore, the jurisdiction provides a separate tax legislation under the Labuan IBFC, additionally reducing the tax burden for particular entities.

Labuan has a preferential tax regime and no foreign exchange controls among other benefits. Corporate tax ranges from 3% (for international revenue sourced outside of Malaysia) to 24% (for local Malaysian revenue). The jurisdiction has an exemption (0% tax) for “non-trading” activities, like holding companies and certain investment vehicles. There are no taxes on capital gains, no withholding taxes on dividends, interest, management fees, royalties and technical fees, Sales and Service Tax is not applicable for transactions within Labuan and between Labuan and abroad.

Recommended Blog: Know the process of Labuan offshore company registration.

Realistic Regulations

Labuan’s laws and regulations are persistent, realistic and transparent, following all international laws and standards (it is on the Organisation for Economic Cooperation and Development’s (OECD) ‘white list’) and is a member of numerous multilateral bodies concentrating on the development and regulation of international financial centres.

Where new regulations do come, Labuan frequently seeks a business-friendly approach. For example, adhering increased substance requirements, many offshore jurisdictions have imposed requirements, even on licensed entities. Labuan, while still following a hybrid of both international offshore and onshore rules, has taken a more flexible approach by permitting a substitute, that is to be taxed under the ordinary domestic Income Tax Act (ITA). The ITA does not offer for any substance needs, although the tax rates are generally higher.

Responsive Legal Framework

The legal framework of Labuan IBFC has been specifically developed to cater to the needs of a broad array of organisations and entities to fulfil their regional and international legal and business operational requirements. Entities that can be formed include companies confined by shares or by guarantee, secured cell companies, limited liability partnerships, private and charitable foundations, special purpose trusts, private trust companies and more.

The outcome is a jurisdiction which includes a broad and assorted range of organisations that are employed for a variety of services comprising asset holding, banking and insurance, captive insurance, trading and fund management among other domains. Labuan IBFC is also persisting to lure fresh industries, with over 50 fintech companies present in Labuan and a developing insurance industry with over USD 300 million in gross written premiums in June 2019.

Whether it is permitting organisation, including entities with financial service license, to stick to substance regulations, maintain their tax bills low or providing a flexible legal structure from which to develop; Labuan has proven over the past three decades that it is a friendly substance creator for businesses of all sorts to be domiciled in Labuan / Asia.

Benefits of Labuan Company Formation

  • Ease of Succession

For individuals who possesses several properties in various countries, deploying an offshore holding company is a functional administrative strategy which reduces probate and will come in handy after one dies. Supposedly, you own properties in your own name in several countries. After your demise, your family or heirs will have to cope with probate issues in those countries. This signifies detailed and intricate procedures of navigating through various inheritance laws. The outcomes may or may not match your wishes and might even obtain financial burdens for them to inherit your real estate investments, especially if they are located in overseas.

Using an offshore entity like a Labuan company for property investment intents, you can own the company 100% with single ownership or with multiple partners. There will be no inheritance tax and disposals/transfers can be done by the way of shares transfer.

  • Improves Confidentiality

Most offshore location, including Labuan, provides the benefit of anonymity and privacy. Significant information like the shareholders, directors or beneficiaries of the company will not be disclosed by the registrar nor will they be publicly published. Considering that there are no suspicions of criminal or terrorist activities, your entity in Labuan has total anonymity.

The legal obligations of any directors or officers of offshore companies are often more relaxed than LLCs. Most offshore companies make use of virtual office services, for accounting needs, employees/staff or a physical office, as this is more cost effective. The process of setting up an offshore company in Labuan is relatively fast and simple. This translates to lower costs for both establishing and maintaining an offshore company.

Labuan Substance Requirements

Economic substance is the degree to which a company or organisation has operational and economic activity in a country. For instance, if the company has an office, transactions, employees, local expenses and other infrastructure then it is considered to have substance.

Substance requirements for Labuan are based on the activities of the Labuan entity, particularly held or transacted in the jurisdiction. There are particular requirements for licensed entities like banks, insurance brokers, and fund managers etc., and requirements for unlicensed activities like a “non-pure holding activity” or “pure holding activity” as well as specific “trading activities”. In Labuan, the requirements are emphasised on the activity of every entity, and all kinds of entities (companies, foundations, partnerships, trusts etc.) are treated equally.

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Get in touch with QX Trust consultants at +60 3 9212 6940 or consultant@qx-trust.com to understand better about a Labuan offshore company formation. We have over 10 years of experience in assisting clients with their holistic business and corporate structuring that leverages on the offshore tax regime.