Starting July 1, 2025, Malaysia is broadening both Sales Tax (ST) and Service Tax (SST) as part of Budget 2025 reforms.
1. Sales Tax (ST):
- Luxury and non-essential goods, including premium seafood (king crab, salmon), imported fruits (e.g., strawberries, mangoes), industrial machinery, silk fabrics, racing bikes, and antiques will now face 5–10% ST.
- Essential items like everyday groceries, medical supplies, books, and pet food remain ST-zero rated.
2. Service Tax Expansion (SST):
New taxable services will now include, at various rates:
- 8% on financial fees/commissions, leasing/rental services (excluding residential & offshore leases), and beauty/wellness services (facials, spa, etc.).
- 6% on construction (non-residential), private healthcare for non-Malaysians, and education for non-citizens or high-tuition programs.
Why Labuan Companies Gain in This SST Climate
- Zero Sales & Service Tax:
Labuan entities are completely exempt from ST and SST on qualifying offshore transactions, even when domestic Malaysia faces expanded SST. - Zero Tax on Investment Holding Companies:
Whether pure or non-pure (mixed) investment holding, Labuan companies pay zero tax on passive income, including dividends, interest, rental, capital gains, and royalties, with no withholding tax for payments to non-residents. - 3% Trading Tax:
Labuan trading entities remain subject to 3% tax on audited profits, assuming economic substance compliance, but SST doesn’t apply.
Labuan vs. Domestic Malaysia – SST & Tax Impacts
Entity Type | Sales Tax | Service Tax | Corporate Tax |
Domestic Malaysia Company | ✔ (5–10%) | ✔ (6–8%) | 24% |
Labuan Trading Company | ❌ | ❌ | 3% (audited) |
Labuan Investment Holding Company | ❌ | ❌ | 0% |
Why This Matters for Your Business?
- As SST scope widens, Labuan entities, particularly service providers, financial licensed entities, investment holding firms, become even more attractivefor companies looking to avoid indirect taxation on cross-border operations.
- Businesses like investment holding, wealth structuring, fund management, and offshore service provisioncan now operate free from both SST and withholding tax in Labuan.
- Upfront planning ensures compliance and positions your organization to benefit from Malaysia’s evolving tax infrastructure.
Labuan International Business and Financial Centre (Labuan IBFC) offers a practical solution for qualifying businesses with legitimate cross-border activities , helping them remain competitive and tax-efficient in a changing landscape.
At Silverknows Trust, we guide clients on how to strategically leverage Labuan structures. Stay ahead of rising tax costs, talk to our advisors today to structure your Labuan entity properly and stay compliant.