Labuan Offshore Company: 9 Frequently Asked Questions

Since 1989, Labuan’s reputation as a tax haven in Southeast Asia has made it a top location for foreign-owned business across the world. This trend only continues to grow, as the 2022 Market Report from the Labuan International Business and Financial Centre recorded a 17% increase in total new incorporations in 2022 compared to 2021, of which:

• only 24% were from Asia and the Pacific region
• 61% hailed from the financial sector
• 22% were players in the digital financial services space

The report also highlighted impressive growth in revenue across certain key Labuan industries such as insurance, banking, and commodities trading.

In light of the continuous interest in Labuan as an offshore business destination, MISHU thought it would be useful to compile the nine most commonly asked questions we receive from prospects about the Pearl of Borneo. 

Or you can always check out our Labuan Incorporation page to get in touch.

Let’s begin!

1. What are the benefits of incorporating in Labuan?

This is probably the top question we get, and we’re happy to answer that there are numerous benefits that make Labuan an attractive offshore destination for international businesses:

Tax Savings

The rate of tax imposed on Labuan offshore companies is only:

• 3% of audited net profits for trading activities such as banking, trading, and shipping operations
• 0% for non-trading activities such as holding of investments in securities, stock, shares, loans, deposits, or properties situated in Labuan

Note that this tax rate is only granted for Labuan companies that comply with tax substance requirements (minimum number of full-time employees and annual operating expenditure). 

In addition to attractive corporate tax rates, Labuan offshore companies also enjoy:

• Perpetual tax exemptions
• Relaxed tax filing obligations
• No income estimation or bi-monthly deductions
• Benefits under Malaysia’s Double Tax Agreements with over 75 countries

Confidentiality

Labuan respects the need for personal and corporate confidentiality. The registrar will not disclose important information such as the shareholders, directors, or beneficiaries of the company, nor will they be publicly published unless with your permission.

Relaxed Capital & Shareholding Requirements

A minimum of one share is required and there is no minimum capital requirement.

The minimum number of shareholders in an offshore company is also just one, and the shareholder may be an individual, a corporation or a trust company holding the shares as a nominee, or on trust. Additionally, the sole shareholder can be a foreigner residing overseas.

Labuan Employment Pass

Incorporating a company in Labuan entitles you to a Labuan Employment Pass which allows travel to Malaysia. Foreign business owners thus get to enjoy entry privildges under Labuans relaxed paid up capital requirements.

Contact us to take full advantage of what Labuan has to offer.

2. What are the requirements to set up a Labuan company?

While specific requirements vary depending on business type, across the board, these are basic requirements for a foreign business in Labuan:

1. Share capital: Minimum one share with no minimum share par value and in any currency
2. Number of directors: At least one director, who must be a resident director
3. Number of shareholders: At least one shareholder, who can be a foreigner residing overseas
4. Company secretary: At least one secretary which is a Labuan Trust Company
5. Registered office: A registered office which is the principal office of a Labuan Trust Company
6. Economic substance: Meet prescribed number of employees and annual operating expenditure based on business activity

3. Does a Labuan company still need to be audited?

Yes, all Labuan companies must conduct an annual audit and maintain proper accounting records which are to be kept at the registered office of the company, and open for inspection at all times.

4. What type of foreign companies can open in Labuan? 

At a high level, there are three types of foreign companies that can open in Labuan.

1. Pure equity holding company – Businesses whose sole source of income is through share ownership of other entities. 
2. Investment company – Businesses that gain income through investments in securities, stock, shares, loans, deposits or any other properties situated in Labuan.
3. Service company – Businesses that provide non-physical services such as expertise, skills, knowledge, or labour, for example:
   • Administrative services
   • Accounting
   • Backroom processing
   • Payroll services
   • Agency services
   • Management services
   • Talent management
   • Insolvency related services
   • Financial services

Keep in mind this list of service companies is not exhaustive, so contact us to find out if Labuan is a good fit for your company.

5. How long does it take to incorporate a company in Labuan?

The average Labuan incorporation takes about 14 days from the moment you engage a Labuan Trust Company due to the following pre-incorporation preparatory steps.

1. Appoint a Labuan Trust Company

All Labuan company incorporations in Labuan IBFC must be done through a Labuan Trust Company, a list of which can be found here. 

However, keep in mind a Labuan Trust Company can help you obtain the necessary licenses for specific businesses to operate.

2. Prepare necessary documents

• Memorandum and Articles of Association of the proposed company
• Statutory declaration of compliance by the trust company
• Consent to act as a director(s)
• Individual forms filled up by each director

Note: Activities that require licensing must have prior approval to conduct such business before incorporation. For a list of Labuan business-specific licenses, click here.

3. Prepare registration fees

As of now, the Labuan FSA authorities charge USD2,000 to register a foreign company in Labuan, not including various other professional service fees.

4. Reserve a company name

Business owners have the freedom to choose any name, including abbreviations or words from other languages, so long as an official and accurate English translation is provided. Bear in mind, however, that Labuan FSA has the authority to reject a name at their discretion.

The fee to reserve a name is RM50 and approval is within 24 hours, after which the name will be reserved for three months.

Once an application to incorporate has been submitted, approval only takes 24 hours. 

For a complete overview, check out our guide to offshore Labuan company registration here!

6. What are the drawbacks of incorporating in Labuan?

There are no real drawbacks specific to Labuan, but here are a couple of disadvantages of offshore companies in general:

Difficult to prove ownership

The high degree of privacy and confidentiality afforded could make it difficult for potential investors and business partners to run a background check on your business or yourself.

Additionally, in cases where it becomes in the owner’s best interests to publicly declare ownership, proving this can be a time and resource consuming process.

Forgoing home country benefits

Operating within Labuan’s jurisdiction may impose limitations on specific activities or advantages that would otherwise be available in the company’s home country, such as specific tax rebates or deductions. 

That said, Labuan offers some pretty stellar tax advantages, so unless you’re already based in another tax haven, this is unlikely.

7. What is the cost of forming a Labuan company?

The Labuan Financial Services Authority charges a company registration fee of USD 1,500 for a local Labuan company, and USD 2,000 for a foreign Labuan company, which doesn’t include various additional professional service and license application fees.

Also, once you start operating, there will be an annual fee of USD800 for local companies and USD 1,500 for foreign companies. 

8. Can I open an offshore bank account for my Labuan company?

Yes, Labuan Companies can open both onshore and offshore accounts, and a Labuan Trust Company can advise you on which banks are more suitable for your nature of business.

9. Do I need to physically travel to Labuan for incorporation?

Nope – just get in touch with MISHU and we’ll handle everything for you, speaking of which, we think it’s time for the sales pitch!

Let MISHU incorporate your offshore Labuan Company

MISHU’s 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 – so let us know if you’d like help!