Labuan is a small island located off the northwestern coast of Borneo, Malaysia.
Since 1990, it has been designated as the Labuan International Business and Financial Centre (Labuan IBFC) — a special jurisdiction established by the Malaysian government to attract international investors seeking a low-tax, transparent, and well-regulated business environment.
A transparent and investor-oriented tax regime.
Companies incorporated in Labuan are governed by the Labuan Business Activity Tax Act (LBATA) and are classified into two main categories:
- Trading Activities – such as international trading, consulting, management, leasing, and financial services
- Non-Trading Activities – such as holding shares or passive investments
For Trading Activities, companies that meet the substance requirements — meaning they have a physical office, full-time employees, and genuine operating expenses in Labuan — are subject to a tax rate of only 3 % on audited net profits.
Certain Non-Trading Activities may qualify for 0 % tax, depending on compliance with current regulations.
Previously, companies could opt for a fixed RM 20,000 annual tax, but this option has been removed under the revised LBATA framework. All Labuan entities must now meet substance requirements to enjoy the preferential 3 % or 0 % tax rates.
100 % Foreign Ownership Allowed
Labuan companies can be 100 % foreign-owned, with no local shareholder requirement.
They may also:
- Open bank accounts in Malaysia or overseas
- Conduct international transactions freely
- Establish holding or SPV (Special Purpose Vehicle) structures for regional or global investment holdings
This flexibility makes Labuan a strategic hub for entrepreneurs seeking efficient and compliant cross-border business operations.
Regulated by the Labuan FSA
The Labuan Financial Services Authority (Labuan FSA) is the statutory regulator directly under the Malaysian Ministry of Finance.
It oversees company registration, financial licensing, and compliance with Anti-Money Laundering (AML/CFT) standards.
Labuan’s framework aligns with OECD and FATF guidelines, ensuring transparency, legal integrity, and international recognition.
Ideal for Global Business Structures
Labuan companies are particularly suitable for:
- Holding Companies
- Consulting and Financial Services Firms
- Trading and Import-Export Businesses
- Fintech, Digital Asset, or e-Commerce Ventures
Key Advantages of Setting Up a Labuan Company
1. Low and Transparent Tax Rate
Only 3 % of audited net profits for trading activities with substance, or 0 % for qualifying non-trading activities.
2. 100 % Foreign Ownership
No nationality restrictions; full ownership and management control granted to foreign shareholders.
3. Simple Accounting and Reporting
Annual audited accounts are required, but filing procedures remain straightforward and business-friendly.
4. Access to Malaysia’s Double Taxation Agreements (DTA)
Labuan entities may, under specific conditions, access Malaysia’s DTA network covering more than 70 countries — reducing or eliminating double taxation on cross-border income.
5. Strong Regulatory Oversight
Supervised by the Labuan FSA, ensuring compliance, reputation, and stability for international investors.
Conclusion
Labuan is not a tax haven, but a legitimate low-tax jurisdiction recognized under Malaysian law and regulated by the Labuan FSA.
It offers a credible, cost-efficient, and compliant platform for entrepreneurs and corporations seeking to establish cross-border structures in Asia and beyond.
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