LABUAN OFFSHORE IN MALAYSIA

Labuan offers a range of financial services including offshore banking, insurance, trust business, fund management, investment holding and investment banking. Fund management activities have been given a boost with the recent introduction of offshore securities legislation.

LOFSA, the Labuan Offshore Financial Services Authority, was established in 1996 as a single regulatory agency or a one-stop agency for the offshore centre. There are 63 offshore banks, nearly 50 insurance and insurance related companies and 20 trust companies, as well as numerous legal and accounting firms.

An offshore company in Labuan can take two forms. Potential offshore investors can either set up an offshore company or a foreign offshore company, either by incorporating or registering their companies to participate in the offshore activities and to enjoy the attractive tax treatment provided under the Labuan Offshore Business Activity Tax Act 1990. The company must also employ the services of a trust company which is incorporated under the Companies Act 1965 and registered under the Labuan Trust Companies Act 1990 to discharge its statutory obligations.

 

 

DEFINITION OF OFFSHORE COMPANIES

Simply put, an offshore company is a normal limited liability structure used legally by organisations and individuals throughout the world to trade, hold wealth, own property, and carry on business just like any other company.

What makes an offshore company distinct from a domestic company?

Unlike companies incorporated in an individual's or a corporation's home country, an offshore company incorporated in an offshore centre may offer the owner :

These features make offshore companies ideal structures for safeguarding an individual's privacy, protecting personal wealth, minimizing tax and maximizing a corporation's profit.

Why do tax havens and offshore financial centres offer low or zero tax?

The governments of many countries actively seek international investment and trade to stimulate their own economies. The offshore industry has developed as a result of this straightforward objective.

Many of these countries are known as tax havens. Traditionally, tax havens are free from foreign exchange controls and have introduced specific legislation and corporate structures, designed exclusively for international business and foreign investment. An International Business Company, or an IBC, is the most widely used corporate vehicle in this regard with the widest variety of applications.

 

THE LABUAN OFFSHORE COMPANY

A Labuan offshore company shall only carry on business in, from or through Labuan. An offshore company may not carry on business with a resident of Malaysia except as permitted by the Offshore Banking Act 1990 and may not carry on the business of banking or insurance. A Labuan offshore company has the following characteristics

TAXATION

An offshore company may elect to pay either 3% tax on audited net profits or pay a flat rate of RM20,000 per annum which would negate the requirement to appoint an auditor and file audited financial statements.

SHAREHOLDERS

The minimum number of shareholders required is one. Details of shareholders are not available for inspection by the public. No resident of Malaysia, other than a trust company or a domestic or foreign company granted a licence may hold shares in an offshore company.

DIRECTORS

A minimum of one director, either corporate or individual is required. Directors do not have to reside in Labuan. Details do not appear on the public file.

SECRETARY

An offshore company must have at least one resident secretary who must be an officer of a licensed Labuan trust company. Additional secretaries who are not resident in Labuan may be appointed.

ANNUAL REPORTING

An annual return must be lodged annually, not later than 30 days before the anniversary of the date of the company’s incorporation. As dealt with above a Labuan offshore company can dispense with the requirement to file annual audited accounts so long as the members of the company resolve at a general meeting not to appoint an auditor. In this case an offshore company can elect to pay a flat rate of tax of RM20,000 per annum or the same amount as an annual registration fee. If, however, the offshore company intends to take advantage of the 3% tax on audited net profits then accounts must be audited by an approved auditor and filed.

RESTRICTIONS ON NAME AND ACTIVITY

Offshore companies are allowed to have names in a foreign language, provided they use Roman characters and the letter L as part of its name.

LOCAL REQUIREMENTS

An offshore company must maintain a registered office, resident secretary and where applicable must maintain accounting records in Labuan.

 

GENERAL

Type of Company

Offshore Trading

Offshore Non Trading

Political Stability

Good

Common or Civil Law

Common

Disclosure of Beneficial Owner

No

Migration of Domicile Permitted

Yes

Tax on Offshore Profits

3% on profit or RM20,000

Nil

CORPORATE REQUIREMENTS

Minimum Number of Shareholders

One

One

Minimum Number  of directors

One

One

Bearer Shares Allowed

No

No

Corporate Directors Permitted

Yes

Yes

Company Secretary Required

Yes

Yes

Standard Authorized Share Capital

US$ 10,000

US$ 10,000

LOCAL REQUIREMENTS

Registered Office / Agent

Yes

Yes

Company Secretary

Yes

Yes

Local Directors

No

No

Local Meetings

No

No

Government Register of Directors

Yes (not public)

Yes (not public)

Government Register of Shareholders

Yes (not public)

Yes (not public)

ANNUAL REQUIREMENTS

Annual Return

Yes

Yes

RECURRING GOVERNMENT COSTS

Minimum Annual Tax / License Fee

RM 2,000

RM 2,000

Annual Return Filing Fee

RM 100

RM 100

 

 

WHY CHOOSE OFFSHORE?

 

Protect Wealth. Save Tax. Reduce Operating Costs.

Individuals and corporations go offshore for a number of reasons:

Use the information and links set out below to help you find an offshore solution that works for you.

» International trading
» Holding portfolios of stocks, bonds and cash
» Holding Investments in Subsidiary or Associated Companies
» Utilising Double Taxation Treaties
» Privacy and Wealth Protection
» Personal Service Companies for expatriates and individuals
» Property and Land Ownership
» Employment Companies
» Patent, Royalty and Copyright Holding
» Stock Market Listings and Capital Raising Exercises
» Financing
» Ship Management + Yacht Owning

International Trading - By interposing offshore companies into international trading transactions it may be possible to accumulate profits arising out of these transactions.

Holding portfolios of Stocks, Bonds and Cash - Cash assets are held offshore, and may earn deposit interest gross or be placed in collective cash funds.

Holding Investments in Subsidiary or Associated Companies - Capital gains arising from the disposal of particular investments can be made without taxation. In the case of dividend payments, reduced levels of withholding taxes can be achieved through the use of a company incorporated in a zero or low tax jurisdiction that has double tax agreements with the contracting state.

Utilising Double Taxation Treaties through Intermediary Holding Companies. Companies wishing to invest in countries where a double tax agreement does not exist between both countries can establish an intermediary company in a jurisdiction where there is a suitable treaty.

Privacy and Wealth Protection - High net worth individuals gain privacy and save on professional fees by using offshore companies as Personal Holding Companies. These entities may be suitable for inheritance planning and reducing the costs and time delays in probate.

Personal Service Companies - Individuals who provide professional services, such as contractors, entertainers, aviators, film executives etc., can realise considerable savings where fees earned are accumulated tax free in Personal Service Companies based offshore. Payments may also be structured to minimise income tax.

Property and Land Ownership - Offshore entities are regularly utilized to own property and real estate.

Employment Companies - Payroll costs and travel expenses may be reduced by paying employees working overseas from your offshore base. This may also provide tax relief and social security saving benefits for the employees.

Patent, Royalty + Copyright Holding - Intellectual property including computer software, technical knowledge, patents, trademarks and copyrights, can be owned by, or assigned to, an offshore company upon acquisition of the rights. The rights can then be franchised to companies around the world and the resultant income can be accumulated offshore. A carefully selected jurisdiction can withhold taxes on royalty payments with the commercial application of double tax treaties.

Financing - Offshore companies can be established to fulfil an inter-group treasury management function.

Ship Management + Yacht Ownership - Modern ship and pleasure craft registration locations provide low-cost registration fees and tax exemption income derived from shipping and chartering activities.

Stock Market Listings and Capital Raising Exercises - Many large corporations in economically and politically uncertain countries often diminish the perception of risk by moving ownership of assets and the base of their operations offshore.