Print Friendly, PDF & Email

OECD Common Reporting System for Labuan Company

OECD Common Reporting System for Labuan Company

With the world becoming increasingly globalized and cross-border activity is now the new norm, entrepreneurs and business owners have to readjust the way their businesses are run as quickly as possible as the Automatic Exchange of Information (AEOI) platform will soon take place starting 2018.

What is the Automatic Exchange of Information (AEOI) platform about?

More than 200 countries have agreed with the Organisation for Economic Co-Operation and Development Body (commonly known as OECD) to report their expatriates (non-residents) and assets through the set up of Common Reporting System (CRS) implementing progressively, they work together cooperatively and collaboratively in order to ensure that taxpayers are paying the correct amount of tax in the appropriate jurisdiction. The aim is to eliminate tax avoidance. 

With CRS in place, it allows the tax authorities freely exchange information thru Automatic Exchange of Information (AEOI) on expatriates living in their countries for tax assessment purpose. Hence, it is essential for entrepreneurs to set up a business with real commercial substance. This will bring great impact to jurisdictions which offer zero tax and unable to issue a tax certificate for both the company and expatriates. These tax haven jurisdictions often lack infrastructures to assist the businesses to create a commercial substance. Being a tax resident in Malaysia, Labuan company can avoid potential pitfall being dual resident and possibility tax more than one jurisdiction. Moving forward, creating a commercial substance for your businesses will be a new norm for tax proofing purposes. It is easy for a Labuan entity to do so with affordability with the support of good infrastructure available in Labuan and within Malaysia, please click here to find out more.

Here are some of the example of how the substance works:

A Hong Kong company set up but operate in Malaysia will be taxed under Malaysia taxation if unable to proof the operations and major decisions were done in Hong Kong.

An Australian resident’s bank accounts in overseas will be taxed in Australia unless he is able to proof his overseas resident status.

A Seychelles company set up having operations in Singapore, will be taxed by Singapore authority if the company unable to proof its substance using Seychelles company.

Labuan International Business Centre is a “midshore” jurisdiction ideal for expatriates who like to enjoy low taxation, at the same time able to obtain Corporate Tax Resident Certificate to confirm resident status for his company as well as personal tax certification to validate his personal resident status. These certificates can be easily applied thru Malaysia Inland Revenue Department.

Labuan’s tax regime is as follows:

Corporate Tax :

Trading Company : 3% tax on net profit 
Non-Trading Company (Investment Holding) : 0% tax 

Personal Tax :

Directors issue fee in lieu of salary : 0% tax
Expatriates employment under salary: 50% tax rebate on taxable income

Labuan is a sophisticated Financial and Business Centre with the possibility to create a substance with real terms. It is especially perfect for businesses dealing in Asia region due these three (3) main factors:

1. Strategically located within Asia Pacific region- easy access within hours with international flights to Labuan for your meetings, banking and urgency, compared to other jurisdictions which take days to reach.

2. Sharing common time zone with Asian cities- this enhances efficiency level of the operations with lagging of communications due to waiting time.

3. All Infrastructure ready and available- influencing the commercial substance of a Labuan Company ability to demonstrate its “highest level of control” being exercised in Malaysia with relatively low cost compared to closest jurisdiction such as Hong Kong and Singapore.

It is crucial to do your own research to gain a fuller and more complete picture of how the AEOI will affect your company specifically and what action you need to take as a result. And it never hurts to get in touch with a professional for advice and guidance to safeguard your interest.

Check out more with us on how to set up the right entity in Labuan Jurisdiction to maximise your return! Feel free to send us an enquiry today!

Secure your office space @ Labuan today! The“new norm of offshore business operation!” with the need for your business to have “substance” will become increasingly important. Doing nothing is no longer an option. The intelligent solution is for you to demonstrate that you have active commercial substance to validate your Labuan business and to avoid the tax authority scrutiny. Click here to view the co-share office space information!