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Labuan Jurisdiction for Offshore Companies

Updated on Thursday 27th June 2019

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labuan-jurisdiction-for-offshore-companies.jpgThe Labuan jurisdiction represents an important location for opening offshore companies in Malaysia, being one of the most representative business destinations in the Asian region in this sense. The jurisdiction is a very attractive location due to its tax regime applicable to foreign companies, but also for the flexible conditions available for foreign investors. Our team of company formation agents in Malaysia can offer an in-depth presentation on the main advantages the investors can benefit from if they register a company in Labuan, Malaysia. 
 
 

Labuan offshore companies 

 
 
Those who are interested in company formation in Labuan, Malaysia, can register an offshore company following a simple procedure. An offshore company refers to any type of business which is registered outside the country of residence of the investors.
 
The main benefits enjoyed by companies in Labuan are listed below:
 
  • - Low incorporation requirements:  Labuan companies can be incorporated with only one shareholder who can be an legal or natural person.
  • - Low capital requirements: there is no mandatory minimum capital for a Labuan company in practice, 1 USD can be used to start a company.
  • - Foreign ownership: there are no restrictions on ownership in Labuan and foreign investors can own 100% of the company.
  • - Easy banking: investors find it easy to open a bank account in Labuan if they are interested in Labuan company formation.
  • - Privacy: entrepreneurs can protect their identities by using nominee director/shareholder services while remaining the beneficial owners of the company. 
 
In Labuan, Malaysia, investors can incorporate two main types of offshore companies: 
 
•    trading companies; 
•    non-trading companies (also known as holding companies). 
 
It is important to note that investors who open a company in Labuan will need to observe the requirements for the trading companies. An offshore company that is set up in this jurisdiction cannot engage solely in trade with Malaysian residents and it can trade in other currencies except the ringgit (the USD is a commonly used currency). This company is subject to one of the two taxation options, as explained below in this article by our experts. A trading company will be required to have an established presence in this jurisdiction, meaning that it will need to have a bank account and a registered office (using a virtual office can also be an option).
 
A Labuan non-trading company is a business that is engaged in activities that are limited to owning stocks, securities and properties in its own behalf. In this sense, the non-trading company is essentially a holding company based in Labuan. These companies are subject to the most attractive taxation regime available in Labuan, as described below.
 
Both of these two company types are registered under the same law, however, the taxation and accounting regimes will be differentiated according to the actual activities of the legal entity. 
 
Labuan is a preferred jurisdiction because of its taxation policies and compliance with international business standards. We invite you to watch a video that explains how you can set up an offshore company in Labuan
 

 

Labuan company formation

 
A company in Labuan is easy to set up and investors need to follow a few key steps. The process includes:
 
  1. Choosing the company structure: the International Company for many offshore businesses, as it is 100% foreign owned this Labuan.
  2. Choosing the company name: the proposed company name needs to be available; investors should propose three distinct names during this stage.
  3. Choosing the company structure: the structure of the company, the allotment of shares and the number of shareholders is established during this phase.
  4. Visa application: foreign investors will be required to handle the visa application for themselves and their dependents, if applicable. 
  5. Prepare the company documents: investors will need to prepare the Articles of Association and the Memorandum of the company.
 
Once these steps are complete, one of our agents who specialize in Labuan company formation will be able to handle the necessary submissions as well as assist during the following stages, such as the creation of a bank account.

Legislation for trading companies in Labuan, Malaysia  

 
 
As a general rule, the offshore companies in Labuan are registered following the same procedures, but the local authorities impose different laws referring to the corporate taxation of such businesses. 
 
Trading companies are regulated under the Labuan Business Activity Tax Act, which prescribes a 3% tax on corporate income. Our team of company incorporation representatives in Malaysia can offer assistance on how to comply with the taxation requirements available here and on other matters, such as the trading rules. For example, Labuan companies are limited in terms of trading with Malaysian companies or residents. 
 
Another important aspect refers to the fact that the Labuan jurisdiction is a very welcoming region for foreign investors, as they are allowed to incorporate a company with 100% foreign ownership. At the same time, foreigners can start a company with only one shareholder and one director, which can be represented by the same person. Although in Malaysia at least one of the directors of a company should be a Malaysian resident, in the case of the Labuan companies, the provision no longer applies. The conditions for company directors regarding their visas are also convenient, in the sense that the visa for Labuan can also include dependents and the work visa can be renewed and has multiple entries.
 
Labuan is a jurisdiction suited for offshore companies because of the low taxation regime, the easy Labuan offshore company set up process and the fact that foreigners can easily own 100% of the company and open bank accounts. Although a Labuan company cannot engage solely in trading with Malaysian companies, it can deal with local companies to an extent and it can be a suitable holding company as well as a trading company. In fact, many investors will use Labuan as their jurisdiction particularly because they can easily run their trading business on the ASEAN Market from this location. 
 
The statistic below highlights some of the data available for 2018 in respect to companies that are licensed in Labuan to engage in financial services:
 
  • in the second quarter of 2018, there were 40 licensed investment banks and 16 commercial banks.
  • the total deposits were larger in the case of non-residents, at 4,280.5 million USD in the second quarter.
  • the number of insurance licensed businesses was 13 in the second quarter of 2018 (for the general license)
  • the number of leasing companies was 365 in the second quarter of 2018.
 
The statistic, issued by the Labuan Financial Services Authority highlights only one area of investment. Foreign entrepreneurs can open a Labuan offshore company and engage in multiple business activities, as the aforementioned trading sector.
 
Businessmen interested in receiving further information on the Labuan jurisdiction applicable to offshore companies are invited to contact our team of company formation consultants in Malaysia.
 

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