Labuanโs tax advantages have long attracted interest as an ideal location to incorporate an investment holding company which drives income solely from ownership of assets.
Our guide examines these advantages and provides an overview of requirements and processes involved in opening a Labuan investment holding company, including:
- types of investment holding companies
- incorporation requirements
- economic substance requirements, and
- steps and fees in the incorporation process
Note: While a Labuan investment holding company can also be set up as a public limited company, our guide is about incorporating as a private limited company.
Let’s begin.
Labuan companies in general
All Labuan companies fall under the jurisdiction of the Labuan Financial Services Authority (LFSA) and are subject to guidelines laid out in the Labuan Companies Act 1990 and Labuan Business Activity Tax Act 1990.
Here are key characteristics of a Labuan company:
- can be 100% foreign owned
- 0 – 3% tax rates under the Labuan Business Activity Tax Act 1990
- access to over 75 Double Taxation Agreements (DTAs)
- no income estimation or bi-monthly deductions
- strong privacy protections prohibiting public disclosure of shareholding, management, or transactions
The low tax rates and robust privacy for both local and foreign businesses make Labuan companies an attractive location for both local and foreign businesses.
For a more in-depth look, check out our FAQs on Labuan offshore companies.
Labuan investment holding companies
A Labuan investment holding company does no trading and exclusively holds and manages investments on behalf of a Labuan entity. This type of company is classified as a non-trading Labuan Business Activity.
There are two types of activities a Labuan investment holding company can engage in:
- Pure equity investment holding: Companyโs only holdings are shares
- Non-pure equity holding: Companyโs holdings include various assets such as real estate, bonds, and mutual funds
As they are considered non-trading activities, both types of investment holding companies enjoy a 0% tax treatment. However, a Labuan holding company dealing in non-pure equity holding has slightly higher economic substance requirements.
If a Labuan company engages in both trading and non-trading activities, it will be subject to tax treatment of trading companies, which is 3% of annual profits.ย ย
Use cases for Labuan holding companies
Labuan holding companies serve several common purposes:
- Consolidation: Combine foreign firms under one holding entity while maintaining ownership structures.
- Acquisition of overseas assets: Ideal for IPOs or RTOs on major stock exchanges like Singapore, Hong Kong, or Dubai with zero tax implications.
Additionally, as a non-trading activity, a Labuan holding company owes no withholding tax on payments to overseas parent companies.
Economic substance requirements
In 2019, the LFSA introduced new economic substance standards to require that a company have sufficient presence in Labuan to qualify for the 0-3% tax rates under the Labuan Business Activity Tax Act.
The table below shows requirements for pure and non-pure equity Labuan holding activities.
Type of Non-Trading Activity | Full-Time Employees in Labuan | Annual Operating Expense in Labuan |
Pure equity holding activities | 0 | RM20,000 |
Other than pure equity holding activities | 1 | RM20,000 |
If a Labuan holding company can meet these requirements, they qualify for the 0% tax rate.ย
Incorporation requirements
Requirement | Details |
Share capital | Minimum one share with no minimum share par value |
Directors | At least one director, who must be a resident director |
Shareholders | At least one shareholder, who can be a foreigner residing overseas |
Company Secretary | At least one Secretary which is a Labuan Trust Company |
Registered Office | A registered office which is the principal office of a Labuan Trust Company |
Economic substance | Meet prescribed number of staff and annual operating expense based on business activity |
Some additional clarification:
- Share capital can be in any currency except MYR
- The shareholder and director can be the same person
- A Labuan Trust Company is a licensed entity that helps incorporate Labuan companies in full compliance with regulatory requirements
- If a Labuan holding company does not meet its economic substance requirements, it will be taxed at the standard rate for Malaysian private limited companies which is 24%
7 steps to incorporate a Labuan holding company
For the purposes of this post, weโve summarised our guide to registering a Labuan company into a more concise list of seven steps:
No. | Step | Details |
1 | Engage a Labuan Trust Company | Engage only providers registered with the LFSA. |
2 | Appoint a Company Secretary | Provided by your Labuan Trust Company to assist in incorporation and regulatory compliance. |
3 | Reserve a company name | Pay USD 15, subject to Labuan FSA approval within 24 hours. Valid for three months. |
4 | Company incorporation | Costs USD 1,500 for local companies and USD 2,000 for foreign companies. Completion typically within 24 hours post Labuan FSA approval. |
5 | Visa application for foreign owners | Obtain a Labuan Work Permit with joint approval, processed in 45-60 days. Fee: USD 350. |
6 | Open bank account | Follow bank-specific Know Your Customer (KYC) procedures |
7 | Business readiness compliance | Ensure economic substance requirements are met |
And with that, your Labuan investment holding company can begin operating!
Do note that there will be an annual fee of USD800 for local companies and USD 1,500 for foreign companies.
We hope this guide helped and get in touch if youโd like more tailored advice for your business goals.
Let MISHU help register your Labuan holding company
MISHUโs team is experienced in helping companies swiftly incorporate their Labuan company. We would be happy to sit down over a virtual cup of coffee and understand your needs, including for specific business licenses and employment passes โย so let us know if youโd like help!