V. Venkatachalam, CA(M) FCCA FTII AMIM CMIIA
Mohd Yusuff Mohd Sa’at, B.Acc(Hons)
Brighton Business Centre
Brighton Place, 1-01,
Lot U0215, 1st Floor,
87000 Labuan F.T., Malaysia
Telephone: +60 87 429800
A. Offshore Company
Incorporation of an offshore company and registration of a foreign offshore company in Labuan must be done through a Labuan trust company. The application should be submitted together with the Memorandum and Articles of Association, consent letter to act as director, statutory declaration of compliance as well as payment of registration fees based on authorised capital.
There is no minimum capital requirement and offshore companies may issue shares of different classes and of different rights but no bearer shares are allowed. Shares can be denominated in any currency except in Malaysian Ringgit.
The minimum number of shareholders in an offshore company is one. The shareholder can be an individual, a corporation or a trust company holding the shares as nominee or on trust.
An offshore company must have at least one director who can act as a resident director and a resident secretary.
The tax payable under the Labuan Offshore Business Activity Tax Act is of 3% on the net profit or a fixed rate of RM20,000 (whichever is being elected) arising from the trading activity. The election exercise can be done every year. An offshore company that chooses to pay 3% tax is required to be audited.
However, an offshore company is required to maintain proper accounting and other records in Labuan that shall be kept at the registered office of the company or other places in Labuan. Such accounting and other records shall be opened at all times for inspection by a director of the offshore company.
Blanket approval is given to carry on business with Malaysian resident, invest into a domestic company, and wholly own a domestic company to carry on offshore business (“Satay Structure”), subject to certain conditions.
B. Exchange Control
The operations of offshore companies in Labuan are completely free from exchange control regulations when dealing with non-residents. This is due to the nature of the business in Labuan which is basically foreign currency-based and not ringgit-based.
In addition, for exchange control purposes, offshore companies in Labuan are accorded non-resident status, i.e., they are free to move foreign currency into and out of Labuan without being subject to any exchange control.
In general, Labuan offshore companies are restricted from dealing with Malaysian residents in ringgit, except for defraying administrative and statutory expenses.
C. Tax Structure
Offshore companies in Labuan will benefit from various tax incentives as follows:
- 0% for non trading companies (Non-trading activity is defined as an activity relating to the holding of investments in securities, stock, shares, loans, deposits and immovable properties by an offshore companies on its own behalf)
- 3% or RM20,000 for trading companies (Trading activities include banking, insurance, trading, management, licensing and any other activity which is not an offshore non-trading activity)
- 50% tax abatement for expatriate professionals and managers.
- 65% of statutory income of local service providers such as trust companies, accounting and legal firms, is exempted from tax
- No stamp duty
- No withholding tax (on deposits and loans)
- No death or inheritance tax.
- Operators and investors could stand to benefit from double tax agreement (DTA) between Malaysia and well over 50 countries
- Malaysia has signed Investment Guarantee Agreement (IGA) with more
- Labuan is a duty free island where goods are brought in free of import duties, making it a shopping heaven for tourist and business travelers.