Labuan, Malaysia: A Prime Destination for Offshore Company Incorporation

Labuan is a federal territory of Malaysia, consisting of seven small islands in the South China Sea. It is located on the major shipping and air routes of the Asian region, and is Malaysia’s only deepwater anchorage. Labuan is also one of the few offshore financial centers in Asia, offering a wide range of business and financial services to companies operating in various sectors. In this article, we will explore the benefits of incorporating a company in Labuan, the procedures and requirements, and some interesting statistics about Labuan’s economy and development.

Benefits of Incorporating in Labuan

There are many reasons why foreign investors and entrepreneurs choose Labuan as their preferred jurisdiction for offshore company incorporation. Some of the main benefits are:

• Low tax regime: Labuan has a favorable tax system for offshore companies, which can enjoy a corporate tax rate of 3% on annual net profits or a flat fee of RM20,000 for trading activities. Non-trading offshore companies are exempt from tax. There are also no sales tax, value-added tax (VAT), custom duties, stamp duties, or withholding taxes on dividends, royalties, and interest payments. Labuan has signed double tax avoidance treaties with 68 countries, including Singapore, India, China, the United States, and Canada, which can help offshore companies avoid taxation in their home countries.
• Emerging Asian Fintech Centre: Labuan is an attractive destination for fintech businesses, as it provides a conducive environment and streamlined licensing procedures for innovative financial services. Labuan has issued licenses for digital banking, digital asset exchange, crowdfunding, peer-to-peer lending, robo-advisory, and e-wallet services. Labuan also allows offshore companies to conduct e-commerce, import, export, and consultancy activities without requiring a trading license. Fintech businesses can leverage on Labuan’s strategic location and access to the Asian market, as well as its modern infrastructure and internet gateway.
• Free port regime: Labuan is a free port, which means that there are no special tariffs imposed on trading companies carrying out import and export activities. Labuan also has a well-developed transportation network, with a modern airport and seaport that connect to major cities in Asia and beyond. Labuan’s free port regime facilitates the movement of goods and services, and enhances the competitiveness of offshore companies in the global market.
• Easier compliance: Labuan has a simple and efficient process for offshore company incorporation, which can be completed within 24 hours. The requirements are minimal, as offshore companies only need to have one director and one shareholder, who can be the same person. The director and shareholder can be of any nationality and do not need to be resident in Labuan. The minimum paid-up capital is RM1, and there is no requirement for annual audit or filing of accounts. Offshore companies also enjoy a high degree of privacy and confidentiality, as their information is not publicly disclosed by the authorities.
• Asset protection: Labuan offers a secure and stable jurisdiction for offshore companies to protect their assets and wealth. Labuan has a robust legal system, based on the common law and the Labuan Companies Act 1990, which provides clear and comprehensive rules and regulations for offshore businesses. Labuan also has a strong regulatory framework, overseen by the Labuan Financial Services Authority (LFSA), which ensures the compliance and integrity of the offshore financial sector. Labuan has a sound banking system, with more than 50 of the world’s top banks having branches in Labuan. Offshore companies can open corporate bank accounts in any currency, and enjoy the protection of the Deposit Insurance System. Labuan also has a flexible and favorable trust and foundation law, which allows offshore companies to set up trusts and foundations for estate planning and charitable purposes.

Procedures and Requirements for Incorporating in Labuan

The general process of incorporating an offshore company in Labuan involves the following steps:

• Reservation of company name: The applicant must choose a unique and acceptable name for the offshore company, and submit an application to the LFSA for reservation. The application fee is RM50, and the approval is within 24 hours. The name will be reserved for a period of three months.
• Appointment of a licensed Labuan trust company: The applicant must appoint a licensed Labuan trust company, which will act as the agent and registered office of the offshore company. The trust company will conduct its own due diligence on the applicant, and assist with the preparation and submission of the incorporation documents.
• Submission of incorporation documents and fees: The application for incorporation of an offshore company must be accompanied by the following documents and fees:
  • Memorandum and Articles of Association of the proposed company
  • Statutory declaration of compliance by the trust company
  • Consent to act as a director
  • Individual forms filled up by each director
  • Incorporation fee, based on the paid-up share capital of the company:
    • RM1,000 for share capital of RM50,000 and below
    • RM2,000 for share capital exceeding RM50,000 but less than RM1 million
    • RM5,000 for share capital of RM1 million and above
  • Registration fee, based on the type of company:
    • RM2,600 for Labuan company
    • RM5,300 for foreign Labuan company
• Approval and issuance of certificate of incorporation: Upon lodgement of complete documentation and payment of fees, as well as clearance from the due diligence process conducted by the LFSA, the offshore company can be approved for incorporation within 24 hours. The LFSA will issue a certificate of incorporation, which is the official document that confirms the existence and registration of the offshore company.

Statistics about Labuan’s Economy and Development

Labuan has a dynamic and diversified economy, which is driven by various sectors, such as offshore financial services, oil and gas, tourism, manufacturing, and agriculture. According to the latest statistics from the LFSA, Labuan’s gross domestic product (GDP) grew by 3.6% in 2022, reaching RM4.4 billion. The offshore financial sector contributed 28.8% to the GDP, followed by the oil and gas sector with 25.8%, and the services sector with 23.9%. Labuan’s per capita income was RM48,800 in 2022, which was higher than the national average of RM46,900.

Labuan has also experienced significant growth and development in its offshore financial sector, which offers a comprehensive range of products and services, such as banking, insurance, leasing, fund management, trust and foundation, Islamic finance, and fintech. As of December 2022, there were 6,112 Labuan entities registered with the LFSA, comprising 1,920 Labuan companies, 1,904 Labuan foundations, 1,557 Labuan trusts, 487 Labuan insurance and insurance-related entities, 144 Labuan leasing entities, 51 Labuan banks, 29 Labuan fund management entities, 13 Labuan Islamic financial entities, and 7 Labuan fintech entities. The total assets of the Labuan entities amounted to RM1.8 trillion, while the total deposits and premiums collected were RM77.6 billion and RM8.9 billion, respectively.

Labuan has also made significant efforts to enhance its competitiveness and attractiveness as an offshore financial center, by introducing various initiatives and reforms, such as:

• The Labuan Business Activity Tax (Amendment) Act 2018, which revised the tax regime for Labuan entities, and introduced the concept of substance requirements, such as having adequate number of full-time employees and annual operating expenditure in Labuan.
• The Labuan Financial Services and Securities (Amendment) Act 2018, which expanded the scope of activities and services that can be offered by Labuan entities, and introduced new categories of licenses, such as digital banking, digital asset exchange, crowdfunding, and peer-to-peer lending.
• The Labuan Islamic Financial Services and Securities (Amendment) Act 2018, which aligned the Islamic financial sector with the conventional financial sector, and introduced new categories of licenses, such as Islamic digital banking, Islamic digital asset exchange, Islamic crowdfunding, and Islamic peer-to-peer lending.
• The Labuan Foundations (Amendment) Act 2018, which enhanced the flexibility and efficiency of the Labuan foundation law, and introduced new features, such as the establishment of a foundation for charitable purposes, and the appointment of a protector or supervisory person.
• The Labuan Trusts (Amendment) Act 2018, which enhanced the flexibility and efficiency of the Labuan trust law, and introduced new features, such as the establishment of a trust for charitable purposes, and the appointment of a protector or enforcer.

Conclusion

Labuan, Malaysia is a prime destination for offshore company incorporation, as it offers many benefits, such as low tax regime, emerging Asian fintech centre, free port regime, easier compliance, and asset protection. Labuan has a simple and efficient process for offshore company incorporation, which can be completed within 24 hours. Labuan has a dynamic and diversified economy, which is driven by various sectors, such as offshore financial services, oil and gas, tourism, manufacturing, and agriculture. Labuan has also introduced various initiatives and reforms to enhance its competitiveness and attractiveness as an offshore financial center, by expanding the scope of activities and services, and introducing new categories of licenses.