Published on: Mar 24, 2020
With low taxes and a business-friendly environment, Labuan is the perfect place for growth-orientated companies
Labuan was first established as an International Business and Financial Centre (IBFC) in 1990 and its business and financial activities are governed by a separate set of legislation first introduced in 1990 and then improved, extended and adapted over the past thirty years. A small island, Labuan is strategically located in East Malaysia near Asia’s main financial and business hubs including Hong Kong and Singapore. The jurisdiction is home to over 6,000 active entities who have established themselves in Labuan thanks to its business-friendly environment and proximity to the rest of Asia.
While there are a number of reasons why Labuan is a preferred choice for many companies, here are three reasons why it makes the perfect place for growth-oriented companies to set up in:
Smart tax policies
Labuan forms part of Malaysia and so benefits from many Double Taxation Agreements (DTAs) Malaysia has signed with over 70 countries around the world. In addition, the jurisdiction offers a separate tax legislation under the Labuan IBFC, further lowering the tax burden for certain entities.
Labuan has a preferential tax regime and no foreign exchange controls among other benefits. Corporate tax ranges from 3% (for international revenue sourced outside of Malaysia) to 24% (for local Malaysian revenue). The jurisdiction has an exemption for “non-trading” activities, such as holding companies and certain investment vehicles. There are no taxes on capital gains, no withholding taxes on dividends, interest, management fees, royalties and technical fees, Sales and Service Tax is not applicable for transactions within Labuan and between Labuan and abroad.
Labuan’s laws and regulations are robust, pragmatic and transparent, adhering to all international laws and standards (it is on the Organisation for Economic Cooperation and Development’s (OECD) ‘white list’) and is a member of several multilateral organisations focused on the development and regulation of international financial centres.
Where new regulations do come, Labuan often seeks a business-friendly approach. For instance, following increased substance requirements, many offshore jurisdictions have imposed requirements, even on licensed entities. Labuan, while still adhering to international rules, has taken a more flexible approach by allowing an alternative, which is to be taxed under the ordinary domestic Income Tax Act (ITA). The ITA does not provide for any substance requirements , however the tax rates are usually higher.
Flexible legal framework
The legal framework of Labuan IBFC allows for a wide range of companies and entities to be formed in order to cater to a variety of regional and international needs. Entities that can be created include companies limited by shares or by guarantee, protected cell companies, limited liability partnerships, private and charitable foundations, special purpose trusts, private trust companies and more.
The result is a jurisdiction that contains a wide and diverse array of companies that are used for a number of services including asset holding, banking and insurance, including captive insurance, trading and fund management among other areas. Labuan IBFC is also continuing to attract newer industries, with over 30 fintech companies present in Labuan and a growing insurance industry with US$288 million in gross written premiums in June 2019.
Whether it is enabling companies and fund managers to adhere to substance regulations, keeping their tax bills low or offering a flexible legal structure from which to grow, Labuan has proven over the past three decades that it can support companies and entrepreneurs in Asia.
For more information and how to set up a company in Labuan, contact Alpadis Group here