guide to labuan company vs sdn bhd

Labuan Company vs Sdn Bhd: A Definitive Guide

Typical work permit The Labuan Financial Services Authority reported an 8% increase in Labuan company incorporations in 2023, and statistics from the Companies Commission of Malaysia showing over 50,000 new Sdn Bhds in the same period.

That’s our way of saying both business entities are robust and viable options.

ssm vs lfsa

However, the two business entities have key differences which this article seeks to clarify for the benefit of business owners.

Here’s how we’ll break it down:

  1. We’ll start with the similarities of Labuan companies and Sdn Bhds
  2. We’ll move on to key differences and their business implications 
  3. We’ll leave you with links at the end to incorporation requirements of both

Let’s begin.


For context, Labuan companies are regulated by the Labuan Financial Services Authority, while Sdn Bhds fall under the Companies Commission of Malaysia

Both authorities aim to create a business-friendly environment, resulting in the following similarities between Labuan companies and Sdn Bhds:   

  • can be fully foreign-owned (with some exceptions)
  • require a minimum of one director and shareholder
  • have no limit on how long they can exist provided annual license is renewed
  • can open foreign exchange (FX) accounts and Malaysian Ringgit (RM) accounts
  • can acquire property in Malaysia (Labuan companies limited to own use)
  • are subject to comparable mandatory annual audit procedures
  • require the appointment of a statutory compliance officer
  • enjoy the benefits of Double Tax Agreements
  • are limited to a maximum of 50 shareholders
  • allow work visas for foreign directors and employees

This list shows why we consider both fully viable options for many businesses. However, the differences truly highlight their specific advantages and ideal applications.

Key differences

The table below shows what sets each business entity apart from one another.

AspectLabuan CompanySdn Bhd
Local director requirementNo local director requirementsAt least one director must have a local address and reside in Malaysia.
Paid-up capital requirementUSD11. RM1 if 100% local-owned
2. At least RM500,000 if foreign-owned
3. At least RM350,000 if half foreign and local-owned 
Paid up capital for work permit eligibilityNone1.RM250,000 if local-owed
2. RM350,000 if at least 30% foreign-owned
3.RM500,000 – Rm1,000,000 if foreign-owed
Typical work visa validity 2 years12 months
Typical work visa processing time2 months 6 months
Physical office requirementRequired to enjoy 0-3% tax treatmentNot required (with exceptions for certain business activities)
Tax treatment1. 3% tax for trading activities2. 0% for non-trading activitiesProgressive rate for local companies:
1. 15% on first RM150,000
2. 17% on next RM450,000
3. 24% on anything above RM600,000

Flat rate for foreign companies of 24%
Director’s fee tax treatment100% tax exemptStandard income tax rate of up to 30%
Expatriate salary tax treatment50% tax rebate (subject to certain conditions)Standard income tax rate of up to 30%
PrivacyLFSA does not make company information publicly availableSSM makes company information publicly available

Implications for business owners

We think It’s fair to say the main difference is to do with ease of foreign and local company ownership.

SSM’s policies are on average more favourable for local entrepreneurs and businesses.

example of local sdn bhd being more beneficial for malaysian business owners

This makes a Sdn Bhd a more attractive business entity for Malaysian residents as it offers them the following benefits:

  1. Very low paid up capital requirements
  2. Local directorship guidelines
  3. Ease of hiring foreign talents, and
  4. Lower capital needs for joint ventures incentivising foreigners to partner with locals

LFSA, by comparison, makes it more attractive for the average fully foreign-owned business to set up a Labuan company and do business here thanks to the following policies:

  1. More relaxed directorship guidelines
  2. No paid up capital requirements for work permit application
  3. On average, a Labuan Work Permit is approved in half the time as an Employment Pass and is valid for twice as long
  4. Foreigner-friendly tax treatments on company and personal income, and
  5. Significantly more privacy on company details

Broadly speaking, we’d advise our non-Malaysian readers to consider a Labuan company, especially if you don’t have a trusted local business partner. Meanwhile, local residents should opt for a Sdn Bhd and enjoy all the perks that come with it.  

We hope you now have more clarity on which business entity better serves your goals.

As promised, here are some links you should find useful.

You can always get in touch with us for more tailored advice, and all the best!

Let MISHU help incorporate your company

Whether a Labuan company or Sdn Bhd is the better business entity for your goals, the MISHU team can help you swiftly incorporate your company and obtain the necessary work visas and business licenses. Get in touch!

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