Every business owner is always on the lookout for opportunities to gain some competitive advantages. One of the ways of becoming more competitive in the market is expanding your business and testing the environment in other jurisdictions. You are certainly aware of the fact that some jurisdictions offer beneficial tax treatment so why not set up a company in a country where you could save on taxes? Below we point out the advantages of incorporating a company in Labuan. It is not exactly an independent country but a federative part of Malaysia. However, Labuan enjoys wide autonomy from the central Government and it offers advantages typical of offshore jurisdictions.
General information about Labuan
The name ‘Labuan’ refers to a group of islands with a total area of about 100 square kilometers and a population of about 110,000 people. The islands are located not far away from Brunei and Borneo. The group consists of 7 islands, Pulau Labuan being the largest one.
Labuan sits around 8 kilometers away from the coast of Sabah, one of the Malaysian states. Such strategic locations as Hong Kong, Jakarta, and Singapore are within reach from Labuan.
The archipelago sits at the crossroads of air and water routes. Labuan holds the largest deep-water seaport in Malaysia. There is also an international airport in Labuan with regular flights to most large Asian cities.
The climate is tropical on the islands – it’s hot and humid. The temperature rises to +30 degrees centigrade almost every day. Two monsoon seasons last from late August to December and from late March to late May.
The national language is Bahasam Melau, but Tamil and Chinese dialects are also spoken by locals. Most of the documents including the corporate legislation are written in English.
Registering a company in Labuan: advantages
A Labuan-incorporated offshore company can bring you several important advantages including the following ones:
- The names of the company UBOs remain confidential;
- No stamp duty needs to be paid;
- Capital gains are not taxed in the jurisdiction;
- The legal system is based on the English Common Law;
- All the corporate documents are written in the English language;
- The name of the company can be written in any language including English;
- Lack of currency control;
- In comparison to other places in the region, the cost of labor is lower in Labuan and the same is true for office rent;
- Your company could be located close to such financial centers as Hong Kong and Singapore;
- In addition, North Asia, New Zealand, and Australia are also in the vicinity;
- Customs duties are reduced if you trade within the ASEAN zone;
- Malaysia has signed about 600 treaties on double taxation avoidance.
These advantages look impressive indeed. If you have business interests in Asia, you should definitely consider the opportunity of registering a company in Labuan.
Specifics of company registration in Labuan
Labuan stands out for the speed of company registration: you can launch a new company in the jurisdiction within 3 to 5 business days. In addition, there are no requirements to the registered capital. If your company has registered capital, it can be in any currency except for the Malaysian ringgit.
A single company founder will suffice and it can be an individual or a legal entity. Whoever the company founder is, their personal information will remain confidential. The company owner can decide who should know his/ her name and the fact that he/ she owns the company.
The Board of Directors can have a single member as well. The company director can be of any nationality but you have to hire a local company secretary. Board of Directors’ meetings can be held at any place in the world.
In most cases, foreign company founders declare US$ 10,000 as the company’s registered capital. They divide it into 10,000 shares, one dollar each. Depositing one share (1 dollar) would be enough.
Labuan-registered companies have to submit annual reports. The date of report submission depends on the date of company incorporation.
Different types of shares can be issued in the jurisdiction. The local currency is the Malaysian ringgit (RM) but foreign companies have to make payments in foreign currencies in most cases.
Foreign companies registered in Labuan are entitled to hire personnel and their personnel can work from any part of Malaysia, not necessarily Labuan.
No personal visit is required to set up a company in Labuan but you would probably want to take a look at the archipelago – it is a popular tourist destination. You won’t regret spending a few days in Labuan when you visit the jurisdiction with the aim to register a company there.
Taxation in Labuan
The taxation system allows choosing the tax regime that you prefer. If yours is a trade company, you can choose to pay a tax of 3% of your profits. Alternatively, you can choose to pay a fixed tax of 20,000 RM (around US$ 4,800) per year. This option is unavailable, however, to companies that conduct annual audits. Some types of non-trade companies are exempted from profit taxes in Labuan.
The place where the business deal is made, where negotiations are held, and where the work is done is considered the place where the income is acquired. Thus, you can be fully tax-exempt in Labuan.
Some other fiscal advantages available in Labuan include the following ones: no corporate tax on investment (with the exception of intellectual property) and no sales tax. In addition, companies don’t have to pay any tax on their turnover and neither the VAT. Besides, you no administrative fees are due even when you use state services in case of a merger or share transfer, for example.
Restrictions that apply to foreign companies in Labuan
You should be aware of certain restrictions that apply in Labuan if you would like to register a business company there. In particular, banking and insurance services require a license.
Besides, settlements in the national currency are disallowed to foreign companies in Labuan. There are exceptions, however. You can cover your administrative costs in RM.
Please also bear in mind that foreigners cannot engage in oil mining/ trading and shipment in the Malaysian waters. Finally, you could not set up a trust in Labuan.
Documents required for registering a company in Labuan
You have to submit the following documents to the Registrar to incorporate a company in Labuan:
- Director appointment resolution;
- Memorandum and articles of association and company by-laws;
- Standard KYC documents for the company founder and director;
- A receipt confirming payment of the company registration fee;
- Other documents depending on the particular situation.
Without doubt, you would benefit from requesting professional assistance from an experienced lawyer if you would like to register a company in Labuan. This is especially true if you don’t come from Asia: the administrative processes in that part of the world are different from the administrative processes in Europe or America.
