Labuan Tax Profile

LABUAN TAX PROFILE

AN EFFICIENT AND FLEXIBLE TAX SYSTEM
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Tax Profile of a Labuan Company

Labuan operates under its own regulatory framework overseen by the Labuan Financial Services Authority (Labuan FSA). It offers a balanced approach to regulation, providing investor protection while also promoting business growth and innovation.

Labuan offers attractive tax incentives for entities operating within its jurisdiction. This includes low or zero taxes on income, capital gains, dividends, and other corporate taxes. However, it’s essential to comply with substance requirements to avail these benefits.

Labuan’s tax framework is an ideal ecosystem for global companies to house their international dealings and transactions. A Labuan business activity is a Labuan trading or Labuan non-trading activity carried out by a Labuan entity in, from or through Labuan. 

All non-trading activity undertaken by a Labuan entity does not attract any tax (0% tax ). Labuan non-trading activities mean activities relating to the holding of investments in securities, stocks, shares, loans, deposits or any other properties situated in Labuan by a Labuan entity on its own behalf.

Labuan IBFC provides that all Labuan companies or entities that carry out Labuan trading activity are subject to a tax rate of 3% on its audited net profits, subject to adhering to economic substance requirements laid out in the Gazette Order issued by the Government of Malaysia.

A Substance-enabling Jurisdiction

Substance is a common tax concept used in assessing cross-border tax situations, which calls into question the level of operational activity and decision making process which is conducted in a particular jurisdiction.

In general, a company needs to demonstrate that it has substance via its functional structure such as a physical office, staff administering the day-today operations of the company, business spending and the necessary operating tools or equipment, in order to evidence substance in that jurisdiction.

As there are specific requirements towards the establishment of economic substance for companies and entities in Labuan IBFC, curating cost-efficient economic substance is possible.

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