The Malaysian federal territory of Labuan is one of the fastest growing offshore centers in Asia and one of the best in which to register a business. In this article, I cover its most popular entity type, the Labuan Offshore Company, and present practical use cases for it.

 

Detailed analysis

Labuan has, in recent years, worked very hard to sell itself as a better alternative to neighboring Singapore. In my opinion, that is exactly what it is, a better alternative. At least, for most location independent entrepreneurs. Its main advantages are the lack of a local director requirement and the flat tax option.

Speaking of which, Labuan’s taxation system, distinct from the rest of Malaysia, offers excellent optimization opportunities. Companies can elect to either pay a flat tax of 20000RM OR 3% on all their profits. Please note that if a company elects to pay the 3%, it will need to go through an annual audit. This will translate into a higher maintenance cost. Companies paying the flat tax, on the other hand, are exempt from the audit requirement. Non-trading companies and companies only involved in investment activities are also exempt from the audit.

Privacy-wise, Labuan is excellent. Ownership details are not available publicly (unless the company chooses otherwise).

Immigration-wise, a Labuan company can be used to sponsor Malaysian work permits for both management and staff. Generous tax allowances are available, up to 50% of locally-sourced income. It is important to understand, however, that the issuance of those permits is subject to a number of requirements being met. The requirements include a minimum share capital payment, a minimum salary for all permit holders, residential and business substance in Labuan and more.

Banking-wise, a Labuan company can open accounts with any of the Malaysian banks as well as the foreign banks operating in the country (in both MYR and other currencies). This includes Citibank, HSBC, OCBC, Standard Chartered, UOB etc. Accounts can also be opened in Singapore and other countries. Quality payment processing services are available in Malaysia, including Braintree and PayPal.

In terms of cost, registering a Labuan company will cost you around 1500-2000 USD. The annual maintenance, not including the audit, is around 1500 USD.

 

Registration

Your first step will be to hire a local company formation agent (I recommend Gary Wong at labuantax.com). Your company formation agent will then guide you through the registration process, which takes about a week to complete. Once your company is registered, you will be able to open bank accounts for it. This is usually done in person, although you can also use a service like TransferWise Borderless if travel is not an option (Malaysian companies are fully supported and can get local bank details in all available currencies). Once you have a bank account, you will be able to apply for payment processing accounts (if needed) as well as any other business services. I recommend the Braintree + PayPal combo as it is the best one available locally.

 

Case scenarios

Labuan Offshore Company for Malaysian residency

For most location independent entrepreneurs, registering a Labuan company will be the only efficient way to qualify for residency in Malaysia. MM2H may be cheaper in terms of fees but it comes with several work restrictions.

 

Labuan Offshore Company for investors

Only trading companies are subject to corporate taxation in Labuan, investment-only and dormant companies are both fully exempt. As mentioned above, they are also exempt from the annual audit. Better yet, they can make full use of Malaysia’s tax treaties. This makes Labuan a fantastic option for investors, day traders and those wishing to park assets.