Labuan Entities on Dealing with Malaysian Residents
Labuan being a midshore jurisdiction has a provision to permit most Labuan entities to deal with Malaysian Residents (individuals or companies). This special feature allows owners of Labuan entities to tap into Malaysia markets should opportunities arise. The permission requires a notification with the relevant information on the dealing and the corporate tax rate will be 24% with audited financials. With effect from 1st Jan 2019, Labuan company’s tax rate will be 3%, except for income derives from royalties and Intellectual Properties, and permitted to deal with Malaysian residents freely in Ringgit.
Four (4) main areas where reporting is not required:
- Labuan entity carrying on banking, insurance or financial business licensed by Labuan FSA
- Dealings with residents for administrative and statutory requirements, professional contacts such as auditor, attorney, accountant, management company, investment adviser, bookkeeping service, etc.
- Labuan entity acting as a Holding Company of Malaysian Domestic companies (Sdn Bhd).
- Carrying out businesses with companies fully owned by a Labuan Trust Company
Labuan business is defined as all activities with non-Malaysians and is subject to LBATA tax regime while non-Labuan Business is subjected to Malaysia Income Tax Act 1967 entirely.
Dealing with Malaysian Residents (individuals or corporate) requires reporting within ten (10) working days to Labuan FSA. Any delay will attract penalty by Labuan FSA. General activities that require reporting include the following:
- Commercial dealings relating to income from purchase and sales of goods and services
- All types of real estates investments within Malaysia
[Read: Guide to Lodgement of Dealing with Malaysia Residents]
LBATA Tax Regime:
For Trading nature of a Labuan entity, the tax option is:
1. 3% on net profits with an audited account
For non-Trading nature of a Labuan entity declared as an Investment Holding, the financial accounts need not be audited. The tax on capital gain is fully exempted.
Labuan Trading Company Auditing Process for Labuan Business and Non-Labuan Business
The audit process of a Labuan Company which has international and Malaysia revenues is as follows:
Feel free to contact us at email@example.com for more information on dealing with Malaysian entities. We “simplify the complexities” of your Labuan set-up to meet your objectives.