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Malaysia Labuan International Company Formation

Form a Malaysia Labuan International Company Introduction

Malaysia has several types of companies and corporations. However, foreigners prefer the Labuan International Company because it provides 100% foreign ownership and lower taxes than all of the others.

In 1989, the Malaysian government made Labuan into an International Offshore Finance Center. In 1990, the Offshore Companies Act created its offshore corporate laws. In addition, there are the Offshore Banking Act of 1990 and the Labuan Trust Companies Act of 1990. The Labuan Companies Act of 2010 currently oversees the formation, activities, and taxation of a Labuan International Company. The Labuan Offshore Financial Services Authority (LOFSA) is the sole regulatory agency overseeing these laws.

In the 1980’s, Malaysia wanted to compete against Hong Kong for offshore entity business. While being popular with Asians as a tax haven, it remains under the radar for residents of other countries seeking a tax haven. Non-Malaysian sourced income is tax free. Air Asia airlines bases its operations in Labuan to avoid paying income taxes which allows them to keep their fares low to be competitive with larger airlines. From 2015 to 2017, more than $550 billion USD was held by Labuan offshore legal entities.

Background

Labuan is an autonomous federal area of Malaysia, much like an independent state. It is actually a small island off the coast of Borneo, but owned by Malaysia. Its population is only around 85,000.

Malaysia is a member of the British Commonwealth having been a former British Colony until it gained its independence in 1957.

The Malaysian legal system is based on British Common Law. Special laws were enacted which created the offshore industry in Labuan. Arbitration is allowed. Disputes are heard in camera and final appeal lies with the Supreme Court.

 

Malaysia Labuan International Company Benefits

A Malaysia Labuan International Company obtains the following benefits:

  • Lower or No Taxes: Offshore non-trading companies do not pay any taxes on income sourced outside of Malaysia. No income tax levied on foreigners. The corporate tax rate is only 3% for the other companies. However, U.S. taxpayers and everyone residing in countries who tax worldwide income must declare all income to their tax authority.
  • One Shareholder/Director: A company can be formed with just one shareholder who can also be its sole director.
  • Low Registration Fee: For as little as $300 USD a small company can be formed.
  • Confidentiality: The names of directors and shareholders are not part of the public records.
  • Low Minimum Capital: The minimum total authorized capital is $10,000 USD.
  • International Banks: Over 100 international banks have branches in Labuan including JP Morgan, Bank of America, BNP Paribas, and DBS. Foreigners can easily open bank and brokerage accounts.
  • Ideal Location: Since Malaysia is a Moslem country in Asia, Labuan offers access to Asian and Middle East markets.
  • Asia Monetary Markets: Labuan brokerages have access to every Asian monetary market at a much lower setup costs than Hong Kong or Singapore. Labuan has its stock market called the Labuan Financial Exchange (LFX).
  • Corporate Infrastructure: Labuan offers an infrastructure for corporations to set up including a qualified workforce.
  • Free Port: Labuan is a free port where no sales tax, import and export duties, surtax, or excise taxes are levied.
  • English: While not being its official language, English is widely spoken.

 

Malaysia Labuan Company Name

The company cannot have a name resembling any other company’s name in Malaysia. The company name can be in any foreign language using the Latin alphabet. The company name must end with one of the following words or abbreviations: “Labuan”, “Limited”, “Co,Ltd”, “Inc.”, “Ltd”, or “LLC”.

Registration of Company

Registration of the company involves submitting to the Registry the following documents: Memorandum and Articles of Association, a consent form from the company director, a Statutory Declaration of Compliance and the required fee.

The following four Malaysian government agencies must be registered with by the Malaysia Labuan International Company:

  1. Labuan Company Formation Authority
  2. Malaysia Immigration Department
  3. Inland Revenue Authority
  4. Central Bank of Malaysia

Shareholders

Shareholders can be from anywhere in the world.

The following classes of shares are permitted: preference shares, registered shares with par value, shares with no voting rights and redeemable shares. Bearer shares are not allowed.

Directors and Officers

A minimum of one director is required which can be a natural person or a corporation. Corporate directors can reside in and be citizens from any country. There is no requirement for local directors.

While there is no requirement for a president or a treasurer, a company secretary must be appointed who can reside anywhere in the world.  However, if there is more than one secretary, at least one must be a local resident.

Registered Office and Secretary

All companies must maintain a local registered office address and hire a company secretary.

Authorized Capital

The minimum standard authorized capital is $10,000 USD divided into 10,000 shares whose value is $1 USD per share. The minimum issued capital is one share ($1 USD).

Accounting

The government requires you to file an annual report with a statement of your accounts.  All financial records must be kept in Labuan.

Taxes

There are four tax options for a Labuan International Company to choose:

  1. Investment Holding Company: No taxes paid and no required audits.
  2. Trading, Exporting and Importing Company: Only a 3% tax on the net profits with a required audit report.
  3. Trading Company: Instead of the 3% tax on profits, this type of company can choose to pay a lump sum tax of 20,000 RM ($5,000 USD) with no required audit.
  4. Non-Trading Company: No taxes owed and no required audit for non-trading companies whose sole source of income is from outside of Malaysia.

In comparison, the normal Malaysian Sdn Bhd Company does not have these tax options.  An audit is required and corporate tax starts at 19% up to 24% as follows:

  • Up to 500,000 RM has a fixed tax rate of 19%; and
  • All profits over 500,000 RM pays a fixed tax rate of 24%.

The tax reductions also include foreigners earning fees, salaries, and bonuses in Malaysia.  Comparing these taxes as follows:

Malaysian Sdn Bhd Company: the income tax rate is 28% for all foreigners residing in Malaysia.

Labuan International Company: no income tax for all director’s fees and only 14% for all expatriate employee salaries.

However, U.S. taxpayers and everyone residing in countries who tax worldwide income must declare all income to their tax authority.

Public Records

The names of directors and shareholders are not part of the public records.

Registration Time

Getting a Labuan International Company registered only takes one to two days.

Shelf Companies

Shelf companies are not permitted.

Form a Malaysia Labuan International Company Conclusion

A Malaysia Labuan International Company obtains the following benefits: low or no taxes, only one shareholder and director are required, low registration fee, confidentiality, low minimum capital, access to numerous international banks, ideal location to Asian and Middle East markets, easier access to Asian money markets, good corporate infrastructure, free port benefits, and English is widely spoken.