Tax Structure - Tax | Labuan IBFC

Tax Structure

About Tax Structure by Labuan IBFC

Key Facts

Inland Revenue Board of Malaysia (“IRB”) being the agency responsible for the administration of tax matters
Compliant with international tax standards and practices
The income tax legislation in Labuan IBFC is the Labuan Business Activity Tax Act 1990 (“LBATA”), which has been updated in recent years to comply with the Organisation for Economic Co-operation and Development’s (“OECD”) and Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”)
Economic substance requirements were introduced as a pre-requisite for the preferential tax rates under the LBATA to be applied

Tax Structure

Income from Labuan trading activities (as defined) in Labuan IBFC taxed at 3% of net audited profits

Non-trading income (e.g., from investment holding activities) in Labuan IBFC attracts no tax

Clear and prescribed substance requirements based on business activities via a gazette regulation issued by the government of Malaysia

Fiscal regime is perpetual not time bound

May irrevocably elect to be taxed at the domestic tax rate under the Malaysia Income Tax Act 1967. Generally, the corporate tax rate is 24%

Islamic digital entities enjoy full income tax exemption for 5 years, with effect from year of assessment 2024 [refer to the Labuan Business Activity Tax (Exemption) Order 2024 for details]

Other Benefits

Exemption from withholding tax on dividends, interest, royalties, service fees and lease payments to non-resident

Exemption from stamp duty

Access to most of Malaysia’s 70+ double taxation agreements*

100% foreign ownership

100% tax exemption on director fee received by foreign director until year of assessment 2025

Access to live in Malaysia

*Labuan entities enjoy the benefits of most of Malaysia’s tax treaties, but certain treaties have specifically excluded Labuan entities from treaty benefits