Company formation in Labuan

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Business setup in Labuan

Labun is a unique region where investors can benefit from numerous tax advantages. The company formation procedure is much simpler in the jurisdiction. Whoever is interested in opening a company in Malaysia can do company formation in Labuan, which can have some advantages, most of which will be related to the entity's taxation.

The sovereign Federal area of Malaysia is Labuan, which is likely the independent state. On the coast of Borneo, it is a small island but is owned by Malaysia. The population of the Labuan is only around 85,000. The Labuan is the most important offshore location which is present in Malaysia.

Benefits of Company Formation in Labuan

There are the following benefits of the Company formation in Labuan that are mentioned as follows:

Less or No Tax

The benefits of the Company formation in Labuan are there are no taxes paid by the offshore non-trading companies on income that is sourced outside of Malaysia. Thus, there is no tax imposed on the foreigners. Also, one more Tax benefits in Labuan is that the corporate tax rate is only 3% for other companies.

One Shareholder

The benefit of the Company formation in Labuan is that you can form the company with just one shareholder who can also be the sole director.

Low Registration Fee

You can form a small company at a very reasonable cost compared to many jurisdictions. The registration price is very affordable.

Confidentiality

The benefits of the company's formation in Labuan are that directors' names and shareholders are not part of public records.

Less Minimum Capital

For the Company formation in Labuan, USD 10,000 is the total minimum authorized capital.

International Banks

When you do the Company formation in Labuan then you will understand that there are over 100 international bank branches in Labuan. For example, JP Morgan, Bank of America, etc hold the licenses in Labuan and also have the branches in area. Foreigners can easily open the bank and brokerage accounts.

Ideal Location

In Company formation in Labuan, you will have access to the Asian and Middle Eastern markets as Malaysia is a Muslim country in Asia.

Monetary Asia Markets

In every Asian Monetary market, there is access to the Labuan brokerages at very low setup costs compared to Hong Kong or Singapore. There is a stock market in Labuan which is called the Labuan Financial Exchange (LFX) Which will also benefit you when you have a Company formation in Labuan.

Infrastructure of corporate

One more benefit of Company formation in Labuan is that Infrastructure is offered by the Labuan for corporations for the set-up which includes a qualified workforce.

Freeport

In Labuan, there are no sales tax, import or export duties, surtax, or excise taxes imposed which makes it a Freeport and that is a good reason for the Company formation in Labuan.

Key Requirements for Company Formation in Labuan

The Company Incorporation in Labuan will have some particular requirements, which are as follows:

Shareholder and shares

For the company formation in Labuan, there are no restrictions on foreign ownership, which allows the company to be owned entirely by foreign individuals or corporate shareholders. The shareholders will have a permit to serve as the sole director, which will eliminate the need for the nominee director and a minimum of one shareholder there.

Share Capital

The minimum share capital requirement for Labuan is RM1. There are no restrictions by the Malaysian government on capital repartition, which provides flexibility for the shareholders.

Directors

In Labuan, there is no requirement for the local directors, which allows any foreigner to serve as the sole director and company shareholder.

Company Secretary

The Labuan resident company secretary needs to be appointed by all the Labuan companies within 30 days of incorporation as having a resident secretary is mandatory.

Registered Office Address

The registered office in Labuan is required by the Labuan company which is the physical or virtual office or the office address of the company secretary that means in Labuan there should be a Local Registered office address.

Documents needed for Company formation in Labuan

The Company formation in Labuan will involve the submission to the registry of the following particular documents, which are mentioned below:

  1. Copy of Passport
  2. Identification Documents
  3. Address and contact details
  4. Statutory Declaration of Compliance
  5. Article of Association
  6. Memorandum of Association

What is the process of Company formation in Labuan?

The steps for company formation in Labuan, you have to follow the following steps which are mentioned below:

Step 1- Select the company name

For the Company formation in Labuan, Enterslice will help you choose a good name also it is advised that you have to submit at least three names which will then be reviewed for availability.

Step 2- Establish shareholder ownership

In the early stage of Company formation in Labuan, your ownership proportion for the companies with some shareholders should be resolute. 

Step 3- Register business

In the application for company formation in Labuan, the company article of association, along with complete paperwork and legislative declarations, is usually involved in the application for registration.

Step 4-Apply for a Business Visa

In this process of Company formation in Labuan, the investors can choose whether or not to include any dependents on their visa application.

Step 5- Opening Bank account

If you want to operate in Labuan, then your business should have a Bank account. You have to go through your application process and the necessary paperwork properly.

Tax Benefits in Labuan

The Labuan remains attractive for foreign investors who want to start a business because of the low tax in Labuan. 3% is the corporate tax rate on annual net profits, or it is fixed at RM20,000 for the trading companies, which is comparatively lower than the worldwide average Statutory Corporate Tax Rate of Approx 24%. There are many other Tax benefits in Labuan, which are mentioned as follows:

Low paid-up capital

The Labuan Company incorporation is a fast process, and foreign investors not only have the benefit of 100% foreign ownership but also very low taxes.

Freeport regime

The territory of Labuan is the place where the free port regime applies; therefore, there are no special tariffs on trading and import/export activities. Labuan is the preferred location for many companies because of its good geographical position and the free port regime, which provides tax benefits in Labuan.

No GST taxes

Tax benefits in Labuan are that there is one major tax exemption for the companies in Labuan which is the Goods and Services Tax it is an indirect tax in Malaysia and the equal to Value Added Tax. However, it doesn’t apply in the Labuan special region.

No Withholding taxes

The company in Labuan will not be subjected to withholding taxes on dividends, interest, and royalties. However, the double tax treaties provision extends to this federal territory. Malaysia has also signed a significant number of treaties with other countries that allow double taxation relief, which is an advantage for foreign investors and is also one of the tax benefits in Labuan.

Special permits and licenses

You will also get tax benefits in Labuan, which might be associated with applying for special permits and licenses. Labuan special regime will not need any special licenses for trading, import and export, e-commerce, or businesses involved in consultancy.

What are the types of Business Structures in Labuan?

In accordance with the Labuan Companies Act 1990 (LCA 1990), you can establish various types of companies for company formation in Labuan. The types of Business structure in Labuan are mentioned below which are as follows:

Labuan International Company (IBC)

The most well-liked choice in Labuan is the IBC for foreign businesses. They will receive favorable tax treatment and are meant to conduct business which is outside of Malaysia. IBCs are exempt from the local taxes and will have fewer reporting needs. They will be able to engage in a range of activities, with the exemption of commerce in Malaysia. The IBC should fulfil the Labuan Substance Requirements to qualify for tax exemptions.

Private Company Limited By shares

In this company structure the ownership shares will be created. According to the private company Limited Liability, the shareholders have personal assets which will be protected from the debts of the company. The minimum number of shareholders and directors are needed to present.

Public Company Limited by shares

The public corporation limited by shares will issue their shares to the general public through the stock exchange same as the private company limited by shares will. It is subject to extensive regulatory limits and review because of its public nature.

Private Company Limited by Guarantee

In this, the legal form is used for nonprofit or charitable purposes. Instead of shareholders the members who will give guarantees for the particular amount for the amount of winding up. Profits usually go back while satisfying the objectives of the company instead of being distributed to the members.

Labuan Limited Partnership

The Labuan LP is a business entity that has two or more partners. The minimum number of partners of the Labuan LP should be two. One is the general partner, and the other one is a Limited partner; there can be a maximum of Fifty partners.

The partners can be corporations, where the exception of businesses is made to engage in professional activity, in this case, they will be made up of natural individuals and reinforced by the professional indemnity insurance coverage which is provided by the Labuan Financial Services Authority.

Labuan Limited Liability Partnership (LLP)

Labuan LLP is a type of company that is made up of two or other partners that jointly run or manage a firm. The Labuan LLP is a substitute corporate business structure that combines the benefits of limited liability and flexibility. It also has the legal authority to make agreements and also owns properties in its name. The Labuan LLP should have at least two minimum partners.

Trust of Labuan

The Labuan trust is not a corporate association but instead a legal preparation where a trustee holds and manages the assets for the advantage of beneficiaries. It will work as a versatile tool for the management of wealth, estate planning, and asset protection.

Branch

The foreign corporation has to establish a branch in Labuan for its business operations. The part of the parent company is the branch and will be accountable for the taxes and the particular reporting requirements.

Why do companies prefer Company formation in Labuan?

Foreign direct investments are highly valued by the Malaysian government and will provide foreign investors with a business-friendly environment in Labuan. The nation has a variety of attractive advantages in doing business in Labuan, such as facilitating and easing the incorporation of international business owners into the country's economy. There are also many tax benefits in Labuan, which makes company formation a reliable option for companies. The further reasons are as follows:

Political reasons

The Corruption Perceptions Index (CPI) was published by the Transparency International Organization. Malaysia was ranked 57th of 198 countries that were evaluated. The leading global indicator of public sector corruption is the CPI. A favourable ranking implies that there is a lower risk of corruption activities in the public sector nation, which boosts investor confidence that the company has political stability. A stable and healthy political relationship is maintained in Malaysia with neighbouring countries. With the ASEAN membership nation’s help, there has been a wide array of regional business opportunities for the Labuan because of the high market exposures in multiple countries. Labuan has become one of the most popular jurisdictions for foreign investments.

There is confidence in the businesses because of the government’s positive political ties with the neighbouring countries which attract the companies for company formation in Labuan.

Economic reasons

If compared to the global average the companies in Labuan are subject to significantly lesser corporate tax rates. The corporate tax rate applies to Labuan companies at 3% of the indictable annual audited net income resulting from Labuan trading activities.

In addition, the companies that are involved in non-trading business activities will not be subjected to corporate tax, which is lesser if compared to the Worldwide Average Statutory Corporate Income Tax Rate of almost 24% measured across 176 jurisdictions.

Social Reasons

Malaysia has a high proficiency in English according to the EF English Proficiency Index. It is ranked 30th out of the 100 countries that are listed in the EF English proficiency index. Also, Malaysia is the 3rd in Asia in terms of the English Proficiency Index. The official language of Malaysia is Malay.

The population size of Malaysia is approximately 31.95 million, and the average labour participation rate is 69% according to the World Bank. In which the foreign investors will gain a sizeable and inexpensive labour force. The large nature of the nation’s overall population will grant business owners access to the vigorous domestic market and that makes companies do Company formation in Labuan.

Technological reasons

According to the United Nations Conference on Trade and Development (UNCTAD), The rank of Malaysia is 5th among the top 10 developing countries in Asia in terms of digital willingness. Also, Malaysia has an enhancement in the global ranking from 39th place to 34th.

For the hope of digitalizing the nation’s economy, Small and Medium Enterprises (SMEs) and Start-ups in Malaysia the government has provided a wide array of government funding schemes. The primary player in technology commercialization in Malaysia is the Malaysian Technology Development Corporation (MTDC) which promotes the adoption of the technologies by the local corporate entities.

There are some recognized start-up incubators in Malaysia, which are foreign investors that can provide business opportunities to fit in effortlessly and for the national growth in the tech business sector.

Legal reasons

Following the latest annual ratings issued by the World Bank, Malaysia is ranked 12th worldwide for its ease of business. The exemplary ease of doing business will rank as an exhibit of Malaysia's highly beneficial regulated environment for business activity.

The agreements of free Trade in Malaysia grant the corporate entities in the Labuan access to the foreign market, which facilitates the increase of the trade volume with the partner countries. The development of the Labuan trade volume will create business opportunities for foreign investors.

Ensure Company Formation in Labuan with Enterslice  

We are the leading provider of services for Company formation in Labuan, Enterslice offers you Tailor-made services to meet your personal needs of businesses. With years of experience and expertise in the field, Enterslice ensures you a smooth and effective process for the setup of your Labuan Company. Our team of experts in the regulatory framework can help you understand the complexities of company registration, compliance, and licensing. We will make sure that we provide you with all the legal and regulatory requirements so that you can only focus on growing your business, our legal experts will provide you with legal advice on business operations, finances IP protection etc. We will also draft necessary legal papers for your business and review and accumulate the necessary paperwork. Tax experts of Enterslice will assist you in effectively managing your obligations identifying the chance for low tax expenses and ensuring the tax return is filed timely. Our expertise will aid companies in overcoming the difficulties which are associated with international taxes and will strengthen worldwide tax positions.

Enterslice prioritizes efficiency and transparency with us your company formation process will take less time and cost with Enterslice you can gain a competitive edge and have new opportunities in Labuan for your business.

Frequently Asked Questions

Labuan company is precisely incorporated following the Labuan International Business and Financial Centre’s guidelines and the Offshore Companies Act of 1990.

Yes, the recent legislation changes have made it possible, although it will not become a tax-exempt activity.

The non-trading activity will contain investment holding activities with the income that has been obtained through dividends or interest payments instead.

The Labuan is only tax-free for non-trading companies that meet the minimum economic substance needs for yearly domestic expenditures, which are approximately RM20,000. Companies that generate profit from their multiple income sources are called non-trading companies, and they can also have the additional need to hire one full-time employee.

The offshore company in Malaysia is the company that will incorporate in Malaysia but will do no domestic business at all. It is mainly used for the activities of businesses that are out of Malaysia.

The corporate tax rate is 3% for trading companies, and for non-trading companies, it is 0%. The companies will be taxed at the standard rate of 24% if they do not meet the minimum economic substance requirements.

US$1 is the minimum capital usually. Also, it can be higher for certain licensed entities like forex brokers, which will be subject to the minimum capital of US$120,000 instead.

For the establishment of the Labuan companies’ residents and non-residents of Malaysia, both can do.

There are no minimum capital requirements for the Labuan company and no authorized share capital requirements. There will be no par or nominal value for the shares issued.

Yes, the non-residents can open a Bank account in the Labuan. The Labuan company is an offshore financial centre that offers various types of financial services to Non-residents and international businesses.

In Labuan, the Private Fund Tax is 3%

The Labuan companies are only required to file their records if they engage with Malaysian residents or firms for business or Trading Firms.

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