For both entrepreneurs and investors, it is essential to launch a firm in a tax-efficient and business-friendly environment in today’s globalized world. The Malaysian federal territory of Labuan presents an exceptional chance for foreign companies to establish themselves and run their operations inside a strict regulatory environment.
An offshore financial hub called Labuan offers businesses in a variety of industries a wide range of commercial and financial services. It is a desirable location for foreign firms because it offers advantageous tax incentives, a strong regulatory environment, and access to global markets.
Refer to our guide on Labuan company incorporation to know more about the company formation process.
Table of Contents
Benefits of setting up an offshore company in Labuan
Due to its low tax rates, Labuan is still a desirable place for international investors to establish a business. The corporate tax rate for trading enterprises is established at RM20,000 or 3% of annual net income. Comparatively speaking, this is less than the about 24% worldwide average statutory corporate income tax rate.
For offshore businesses that don’t trade, there are no taxes. Additionally, there are no customs charges, sales taxes, value-added taxes (VAT), or stamp duties. Dividends, royalties, and interest payments don’t have any withholding taxes attached to them.
Non-Labuan residents who serve as the company’s directors are exempt from paying personal income tax on their director fees.
Companies can avoid paying taxes in their home country due to the existence of double tax avoidance treaties with 68 nations, including Singapore, India, China, the United States, and Canada.
You might be taxed through the transfer and distribution of assets and income if there are no double tax avoidance treaties in place. This would therefore eliminate the goal of establishing your firm in a low tax environment.
The laws of Labuan provide the members of the company with privacy and anonymity, which is a significant benefit that draws foreign investors. The board members and business members are under no obligation to reveal their identities if they choose not to.
Additionally, business owners have the right to withhold information about earnings, losses, and significant financial transactions. Investments from throughout the world are drawn to countries that respect businesses’ rights to privacy. People can distance themselves from the corporation by choosing not to disclose their information. The increased anonymity serves to safeguard private property and financial stability.
Easy transfer of ownership
Using an offshore holding company is a realistic administrative method that reduces probate when the owner passes away who owns various properties in different nations.
If he had real estate in foreign nations that is registered in his name. His family or heirs will have to deal with probate in such nations after they pass away. This involves drawn-out and challenging procedures for navigating different inheritance rules. They might even have to pay financial costs if they are to receive the real estate holdings.
When investing in real estate through an offshore corporation, such as a Labuan company, you have the option of 100% single ownership or joint ownership. There will be no inheritance tax and shares can be transferred for disposals or transfers.
Free port system
Labuan offers access to the Asian market due to its location on the main air and sea routes. Additionally, because it is a free port, no additional taxes are levied against any businesses that engage in import and export business. As a result, its favorable geographic location and free port system draw in foreign investors to establish trading firms.
Flexible capital structure
The capital structures of Labuan enterprises are flexible, allowing them to issue different classes of shares, such as ordinary shares, preference shares, and redeemable preference shares. Because of this, businesses can modify their shareholding structure to meet their unique needs.
Labuan operates in a highly regulated environment that promotes accountability, honesty, and compliance. It adheres to global norms and best practices, such as those established by the Organization for Economic Cooperation and Development (OECD), making it a desirable jurisdiction for companies seeking regulatory stability.
Low maintenance costs
Directors and executives of offshore corporations frequently have fewer legal responsibilities than those of LLCs. Because they are more affordable, the majority of offshore enterprises choose virtual office services for their accounting requirements, personnel needs, or physical office.
In Labuan, establishing an offshore business is a quick and easy process. This results in lower startup and ongoing costs for an offshore business.