Labuan is a Federal Territory of Malaysia, with a unique set of investor-friendly yet robust laws and tax rules.
Located in the heart of the Asia Pacific region, Labuan International Business and Finance Centre (Labuan IBFC) is easily accessible from major economic centres such as Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Manila, and Singapore. Labuan IBFC is regulated by the Labuan Financial Services Authority (“Labuan FSA”), with the Inland Revenue Board of Malaysia (“IRB”) being the agency responsible for the administration of tax matters.
As a leading and substance-enabling mid-shore jurisdiction, Labuan offers innovative, cutting-edge solutions to meet investor demands, whilst being compliant with international tax standards and practices. Guidelines on regulatory matters are issued regularly on the Labuan FSA website, found at the link here: https://www.labuanfsa.gov.my/legislation-guidelines/guidelines.
The income tax legislation in Labuan 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”) Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”). In this regard, economic substance requirements (“ESR”) were introduced as a pre-requisite for the preferential tax rates under the LBATA to be applied. The Labuan Investment Committee (“LIC”) was set up to conduct consultations with stakeholders on Labuan tax matters and to resolve implementation issues.
Apart from being strategically located, business-friendly and compliant with international standards, Labuan IBFC offers investors an attractive tax regime. Entities established in Labuan IBFC may avail the benefits of the many bilateral tax agreements entered into by Malaysia. Labuan IBFC has also adopted a simple tax structure by allowing investors to enjoy preferential tax rates. Non-trading activities (such as investment holding) are not subject to any tax, whilst other activities are subject to tax of 3% of net audited profits. These preferential tax rates only apply if the relevant ESR are met. Various exemptions are available to Labuan entities in relation to indirect taxes, stamp duty and withholding tax.
Labuan is a Federal Territory of Malaysia, with a unique set of investor-friendly yet robust laws and tax rules.
Located in the heart of the Asia Pacific region, Labuan International Business and Finance Centre (Labuan IBFC) is easily accessible from major economic centres such as Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Manila, and Singapore. Labuan IBFC is regulated by the Labuan Financial Services Authority (“Labuan FSA”), with the Inland Revenue Board of Malaysia (“IRB”) being the agency responsible for the administration of tax matters.
As a leading and substance-enabling mid-shore jurisdiction, Labuan offers innovative, cutting-edge solutions to meet investor demands, whilst being compliant with international tax standards and practices. Guidelines on regulatory matters are issued regularly on the Labuan FSA website, found at the link here: https://www.labuanfsa.gov.my/legislation-guidelines/guidelines.
The income tax legislation in Labuan 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”) Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”). In this regard, economic substance requirements (“ESR”) were introduced as a pre-requisite for the preferential tax rates under the LBATA to be applied. The Labuan Investment Committee (“LIC”) was set up to conduct consultations with stakeholders on Labuan tax matters and to resolve implementation issues.
Apart from being strategically located, business-friendly and compliant with international standards, Labuan IBFC offers investors an attractive tax regime. Entities established in Labuan IBFC may avail the benefits of the many bilateral tax agreements entered into by Malaysia. Labuan IBFC has also adopted a simple tax structure by allowing investors to enjoy preferential tax rates. Non-trading activities (such as investment holding) are not subject to any tax, whilst other activities are subject to tax of 3% of net audited profits. These preferential tax rates only apply if the relevant ESR are met. Various exemptions are available to Labuan entities in relation to indirect taxes, stamp duty and withholding tax.
Labuan is a Federal Territory of Malaysia, with a unique set of investor-friendly yet robust laws and tax rules.
Located in the heart of the Asia Pacific region, Labuan International Business and Finance Centre (Labuan IBFC) is easily accessible from major economic centres such as Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Manila, and Singapore. Labuan IBFC is regulated by the Labuan Financial Services Authority (“Labuan FSA”), with the Inland Revenue Board of Malaysia (“IRB”) being the agency responsible for the administration of tax matters.
As a leading and substance-enabling mid-shore jurisdiction, Labuan offers innovative, cutting-edge solutions to meet investor demands, whilst being compliant with international tax standards and practices. Guidelines on regulatory matters are issued regularly on the Labuan FSA website, found at the link here: https://www.labuanfsa.gov.my/legislation-guidelines/guidelines.
The income tax legislation in Labuan 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”) Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”). In this regard, economic substance requirements (“ESR”) were introduced as a pre-requisite for the preferential tax rates under the LBATA to be applied. The Labuan Investment Committee (“LIC”) was set up to conduct consultations with stakeholders on Labuan tax matters and to resolve implementation issues.
Apart from being strategically located, business-friendly and compliant with international standards, Labuan IBFC offers investors an attractive tax regime. Entities established in Labuan IBFC may avail the benefits of the many bilateral tax agreements entered into by Malaysia. Labuan IBFC has also adopted a simple tax structure by allowing investors to enjoy preferential tax rates. Non-trading activities (such as investment holding) are not subject to any tax, whilst other activities are subject to tax of 3% of net audited profits. These preferential tax rates only apply if the relevant ESR are met. Various exemptions are available to Labuan entities in relation to indirect taxes, stamp duty and withholding tax.
Income from Labuan trading activities (as defined) taxed at 3% of net audited profits
Non-trading income (e.g., from investment holding activities) attracts no tax
Clear and prescribed substance requirements based on business activities via a gazette issued by Parliament of Malaysia
Fiscal Regime is perpetual not time bound
May irrevocably elect to be taxed at the domestic tax rate at 24%
Benefits of the many bilateral tax agreements i.e., simple tax structure (0% or 3%)
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
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
Labuan banking means the business of receiving deposits on current accounts, deposit accounts, savings accounts, and includes the investment banking business, Labuan financial business, Islamic banking business and such other transactions and terms and conditions as specified by Labuan FSA in any currency including Malaysian Ringgit where permitted by Bank Negara Malaysia.
Investment banking means the business of providing credit facilities and consultancy and advisory services relating to corporate and investment matters, including making investments on behalf of any person. Other activities include undertaking foreign exchange transactions, interest rate swaps, dealings in derivative instruments or derivative financial instruments or any other similar risk management activities.
Islamic banking is defined as a banking business that is in accordance with Shariah principles.
Organisations that meet the following minimum criteria may apply for a Labuan banking licence:
RM10 million or its equivalent in any other currency.
