Guide to Elect Tax Under Malaysia ITA for Labuan Company
Labuan Company is one of the best entity for establishing an international business in Asia! This is especially beneficial for businessmen who trade in huge amounts while enjoying Double Tax Agreement protection to prevent double taxation on income. Labuan is on the whitelist issued by OECD.
Pursuant to Section 3A of Labuan Business Activity Tax Act 1990 (LBATA), a Labuan company can elect to be taxed under the Malaysian Income Tax Act 1967 (‘‘ITA’’). Once the election is made, it is irrevocable. Under the ITA, net profit is taxed at 24% instead of the lower rate of 3% under the LBATA.
There is no significant difference in the taxation of foreign sourced passive income (dividends, interest, royalties) and capital gains, as the ITA does not tax foreign sourced income and capital gains. It is therefore likely that only non-trading entities will make this election as a non-trading entity under LBATA is 100% tax-free.
Why Labuan Company Elect Tax Under Malaysia Income Tax Act?
1. The main advantage is to gain access to the majority of Malaysia’s double taxation agreement network of more than 70 countries. Please visit complete list DTA of countries at www.hasil.gov.my. Only 14 countries have excluded Labuan entities for the DTA: Germany. India. Australia. UK. Netherlands. Japan. Sweden. Luxembourg. Chile. Seychelles. Indonesia. South Africa. Spain and South Korea. More on Labuan Company for DTA, please click here!
To qualify for the Malaysian DTA network, one of the key requirement is to have the ‘‘management and control’’ being exercised in Malaysia. Therefore, we encourage global companies or regional operational headquarters to move to Labuan for a low cost of labor and other operational functions which are easily available.
2. For ownership protection purposes, one can own Labuan Company 100% without the interference of a local Malaysian. Most local Malaysian Sdn Bhd company set-up requires local as nominee director and shareholder to operate. Labuan company operates with a simple structure of one person ownership, where the same person may not of the director as well. By option the ITA, the Labuan company owned 100% by the foreigner, the company may deal with Malaysian residents without the need of reporting.
What is the Procedure for Making the ITA Election?
The election has to be made to Inland Revenue Board (IRB) within 3 months of the beginning of the basis period for a year of assessment and would be effective for the year of assessment for which election was made and the subsequent years. Once the election is made, the company will have to adhere to all the provisions of the ITA including administrative procedures, the requirement to furnish estimates of tax payable for each year, payment of tax by installments, settlement of final tax liability by the 7th month after date of closing of the company’s financial account, etc.
Contact us at +603-2161 0354 or email email@example.com to guide you how to lodge the ITA Tax Election for your Labuan Company. We ‘simplify the complexities’ of your Labuan company!