The Federal Territory of Labuan is an island group, 92 sq km in size, with a population of 78,000 situated off the north-west coast of the former British Borneo and Brunei Darussalam. Labuan is part of Malaysia and comprises seven small islands of which Pulau Labuan is the largest. Labuan lies off the north-west coast of Borneo, 8 km from the Malaysian state of Sabah and is strategically located roughly equidistant from Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Manila and Singapore. It is mostly flat with a good harbour and is accessible by air, with daily services from Kuala Lumpur and from most Asian capitals.
Labuan is located on the major shipping and air routes of the Asian Region and is Malaysia’s only deepwater harbour. It has a warm humid tropical climate, with daily temperatures averaging 30°C with two monsoon seasons ie from April to June and from September to December. The main language is Bahasam Melayu but English, Tamil and various Chinese dialects are widely spoken. Many documents and publications are available in English (including the Labuan offshore Legislation).
Political & Economic History
In 1984 the administration of Labuan was taken over by the Federal Government of Malaysia which consists of thirteen states and two federal territories (ie Kuala Lumpur and Labuan). Malaysia has an unusual political system with power held in the hands of nine hereditary sultans, who elect a head of state every five years from among their number. Legislative power is exercised by a bicameral parliament comprising of a House of Representatives (Dewan Rakyat) and a Senate (Dewan Negara), Executive power is held by the Prime Minister who governs with the assistance of a ministerial cabinet. Appointments are for a five year term.
Malaysia is economically strong and considered politically stable. Under the auspice of LOFSA (the Labuan Offshore Financial Services Authority) the Malaysian government has invested heavily in improving the physical infrastructure of Labuan which is now completely modernised and boasts a state of the art telecommunications system including an Internet Gateway which provides an e-commerce platform. More than 50 of the world’s top banks have branches in Labuan.
Advantages of Labuan Companies:
- All offshore business transactions attract no stamp duty and capital gains are not subject to any form of tax
- Not subject to Malaysian exchange controls
- Malaysia enjoys tariff reductions in the ASEAN Free Trade Area (AFTA), and has signed more than 60 Double Taxation Avoidance Treaties (“DTAs”)
- Malaysia boats an English style legal system
- Labuan IBFC offers a wide range of financial products and services (including both conventional and Islamic)
- Corporate documents are written in English
- There is no requirement to disclose to the authority the names of the beneficial owners of the Company
- Company names can be in a foreign language
Features of Labuan Companies:
- Speedy setup: A Labuan Company can be incorporated in as little as 3 days.
- It may use “(L)” as part of its name. An offshore company may also have as part of its name the word “Berhad” or “Bhd” but must then add the word “(L)”.
- There are no minimum share capital requirements. The share capital may be denominated in any currency except Malaysian Ringgit. Separate classes of shares may be created with differing rights to dividends or otherwise. A minimum of one shareholder is required to establish a company. Shareholder can be individuals or corporations. Shareholders need not be resident.
- Companies require a minimum of one director.
- Corporate Directors are permitted
- Directors may be resident in any country
- Only one shareholder minimum is required
- A Local secretary is required (which OCI Provides)
- Directors meetings can be held anywhere
- The standard authorised capital is US$ 10,000; divided in to 10,000 shares of US$ 1. The minimum issued capital is one share, which may be fully or partly paid.
- An annual return in the prescribed form made up to a date not earlier than 14 days before the date of lodgment is required to be lodged each year and not later than 30 days prior to the anniversary of the date of incorporation of the company.
- Classes of Shares Permitted: Registered shares of par value, preference shares, redeemable shares and shares with no voting rights.
- There is no exchange control in Malaysia. The Malaysian currency is the Ringgit (RM). Save for certain exceptions, offshore companies in Labuan are required to carry on business in a foreign currency.
Procedure to Incorporate
To incorporate an Offshore Company in Labuan you must submit to the Registry:
- Memorandum and Articles of Association,
- Consent form to act as a director,
- Statutory Declaration of Compliance with the Companies Act
- Certificate of Identity
- Statutory declaration by persons before appointments as directors
- The incorporation fee.
Company Name Options & Restrictions
Labuan Company names must include one of the following words, or an abbreviation thereof:
Public Limited Company
Names resembling the name of an existing company or names that in the opinion of the Registrar suggest Royal or government patronage are not permitted. Names, which the Registrar considers undesirable, will be rejected. Certain names/words require consent or a license ie Bank, building society, insurance, assurance, reinsurance, fund management, investment fund, trust, trustees, Chamber of Commerce, university, municipal or their foreign language equivalents. Re Suffixes to Denote Limited Liability any of the following may be used: Limited, Incorporated, Corporation, Sociètè Anonyme, Sociedad Anonima or their relevant abbreviation. If the Malaysian word Berhad is used then it must be preceded by “(L)” to denote that the company is incorporated in Labuan.
A Labuan Offshore Company should only carry on business in, from or through Labuan. A Labuan Offshore Company may not:
(a) Do business with a resident of Malaysia (except as permitted by the Offshore Banking Act 1990);
(b) Carry on the business of Banking or Insurance or such similar business unless it is licensed so to do under the Offshore Banking Act 1990 or the Offshore Insurance Act 1990;
(c) Do business in the Malaysian currency save for defraying its administrative and statutory costs;
(d) Carry on the business of shipping or petroleum operations in Malaysia
(e) Operate as a trust company.
Exceptions to carrying on business with residents of Malaysia:
A Labuan Offshore Company is not treated as carrying on business with residents of Malaysia if:
(i) it makes or maintains deposits with a person carrying on business in Malaysia;
(ii) it makes contact with professional advisers carrying on business in Malaysia;
(iii) it prepares and maintains books and records in Malaysia;
(iv) it acquires or holds any lease or property for operational purposes or accommodation of its employees;
(v) it holds directors’ or members’ meetings within Malaysia;
(vi) it holds shares, debt obligations, or other securities in a company incorporated under the Offshore Companies Act 1990 or in a domestic company, or holds shares, debts obligations or other securities for the purposes of a transaction entered in to in the ordinary course of a money-lending business.
Labuan Offshore Trading Companies pay 3% tax on net audited profits or the sum of RM 20,000 (where no audit is required). Non-Trading companies are tax exempt.
The locality of profits from trading in goods and commodities is generally determined by the place where the contracts for purchase and sale is effected. “Effected” means more than where the contract is signed and includes the location of negotiation, conclusion and execution of the terms of the contracts.
If a Labuan Company earns commission by securing buyers for products or by securing suppliers of products required by customers, the activity which gives rise to the commission is the arrangement of the business to be transacted between the principals. The source of the income is the place where the activities of the commission agent are performed.
Double Taxation Agreements
To date Malaysia has signed 74 double taxation treaty agreements (DTAs), making its DTA network the most extensive in the region. Labuan companies can now make an irrevocable election to be taxed under the Malaysian Income Tax Act 1967 (ITA), thereby affording the Company access to all of Malaysia’s DTAs. A Labuan holding company which has a co-located office in Kuala Lumpur must make the election to be taxed under the ITA.
Malaysia’s DTA partners include: Albania, Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Brunei, Canada, Chile, China, Croatia, Czech Republic, Denmark, Egypt, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Iran, Ireland, Italy, Japan, Jordan, Kyrgyzstan, Kuwait, Kyrgyz, Laos, Lebanon, Luxembourg, Malta, Mauritius, Mongolia, Morocco, Myanmar, Namibia, Netherlands, New Zealand, Norway, Pakistan, Papua New Guinea, Philippines, Poland, Romania, Russia, San Marino, Saudi Arabia, Seychelles, Singapore, South Africa, South Korea, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Taiwan (Income Tax Exemption Order), Thailand, Turkey, UAE, UK, USA, Uzbekistan, Venezuela and Vietnam.
A set of accounting records must be kept in Labuan.
A trading company, which pays 3% of audited net profits, is required to appoint an auditor and file audited financial statements. However trading companies which elect to pay tax of RM 20,000 p.a. are not required to file financial statements. Such companies are exempt from appointing an auditor if they have not carried out licensed activities and the members of the company have resolved that no auditor be appointed.
There is a filing fee for “adoption of accounts” and if the accounts of the Labuan Company have been audited, and for the “lodgement of the said audited accounts”.
A non-trading Labuan Company is not required to appoint an auditor nor file audited financial statements.
OCI Labuan Company Formation Services
At OCI we believe in giving you more for your money than would the average IBC formation service. Hence included in the incorporation package for your Labuan Offshore Company is the following:
- Unlimited name availability inquiries
- Advice from an experienced International Corporate Lawyer on how to structure your company
- Preparation (overseen by a lawyer) of application to incorporate the company
- Preparation (overseen by a lawyer) of the company’s memorandum of association
- Preparation (overseen by a lawyer) of the company’s articles of association
- Attending to filing incorporation request with the company registry
- Attending to payment of government filing fees
- One year’s Registered Agent service in the country of incorporation
- One year’s Registered Office service in the country of incorporation
- Mailing address in the country of incorporation
- Delivery of Incorp pack by international courier (ie DHL/Fedex/TNT etc)
- Unlimited free legal consultations for 12 months
Documents included in your Incorp pack:
- Certificate of incorporation
- 2 sealed/stamped copies of the company’s Memorandum of Association
- 2 sealed/stamped copies of the company’s Articles of Association
- Resolution appointing first director/s
- Resolution appointing first shareholder/s
- Up to 5 share certificates
- Resolution to open a bank account
- Resolution to rent an office
- Resolution/s to engage a Phone, Internet & Website service provider
- Resolution to hire a staff member/s
- Resolution to appoint a company lawyer
- Resolution to appoint a company accountant
- Resolution appointing you as the company’s authorised representative in commercial negotiations
- Resolution issuing a Power of Attorney in your favour
- Agreement authorising you to represent the company in commercial negotiations
- Power of attorney authorising you to sign documents on behalf of the company
- Register of directors
- Register of shareholders
- Expression of wishes (ie an “Offshore” Will)
- Lawyer authored User Guide (“How to Use Your Offshore Company”)
Price (all inclusive): $US 2,750
With tax effective offshore company management (ie including Professional Corporate “Nominee” Director, Shareholder & Company Secretary): $ 3,150
From 2nd year: $1,850 (+ Nominees as/if required)
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