It may carry out any business that is permitted in Malaysia in, from or through Labuan, including trading and investment activity.
Labuan investment activity is defined as an activity relating to the holding of investments in securities, stocks, shares, loans, deposits or any other properties held by a Labuan entity on its own behalf.
Labuan trading activity includes banking, insurance, trading, management, licensing, shipping operations or any other activity.
A Labuan company would need to be licensed if it intends to undertake specific businesses as defined under the Labuan Financial Services and Securities Act 2010 (LFSSA) or the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA), which may include the banking, insurance/insurance-related, fund management, leasing, factoring and company management businesses.
Residents and non-residents of Malaysia are permitted to establish Labuan companies. Section 7(5) of LCA allows a Labuan company to deal with a resident subject to the filing of notification to Labuan FSA within 10 working days of the transaction.
Business transactions of Labuan companies must be made in currencies other than the Malaysian Ringgit, except for the purpose of defraying administrative and statutory expenses as well as receiving fees and commissions.
Labuan companies can own controlling stakes in a Malaysian domestic company and are also allowed to undertake shipping operations with non-residents.
A summary of the description of Labuan business activities and its tax treatment is shown in the following table:
| Description | Tax Treatment |
|---|---|
| Labuan Investment Activity Holding of investment securities, stock, shares, loans, deposits or any other properties held by a Labuan entity on its own behalf./td> | Not subject to tax |
| Labuan Trading Activity Includes banking, insurance, trading, management, shipping operations, licensing or any other activities. | 3% of net profits per audited accounts |
| Carry out both Labuan Trading and Investment Activities Deemed to be Labuan Trading Activity | Same tax treatment as Labuan Trading Activity: 3% of net profits per audited accounts |
| Non-Labuan Business Activities | Tax under domestic income tax act – 25% (YA2014) |
Should a Labuan company or structure prefer not to be taxed under LBATA, it may make an irrevocable election to be taxed under the Income Tax Act 1967 (ITA).
The LCA requires a Labuan company to employ the services of a trust company to act as its incorporation agent. The services offered by a trust company include, but are not limited to, the following:
A Labuan trading company may apply to Labuan FSA to establish marketing offices outside of Labuan Island and within Malaysia, to carry out its marketing activities without losing its Labuan business activity status.
A Labuan holding company may apply to Labuan FSA to co-locate its operational and management office in Kuala Lumpur, provided it makes an irrevocable election to be taxed under ITA instead of LBATA.
With the exception of insurance brokers and captives, all Labuan companies with such a marketing or co-located office are required to maintain a management office in Labuan.
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