Labuan Company (Labuan Co.)
Labuan Company (under Labuan Companies Act 1990)
Company formation in Malaysia
The Labuan Co. is best suited for: International holding companies and investment vehicles, Companies seeking low-tax trading or non-trading structures with legitimate substance, Islamic finance and Sharia-compliant financial services, Commodity trading and shipping companies. Labuan entities conducting trading activities (including banking, insurance, shipping, and commodity trading) are taxed at 3% of net profits under the Labuan Business Activity Tax Act. Labuan entities conducting non-trading activities (holding investments, receiving dividends, interest, or royalties) are not subject to tax on such income, provided substance requirements are met. To qualify for Labuan tax rates, the company must meet minimum substance requirements: at least one full-time employee based in Labuan and minimum annual operating expenditure of MYR 20,000 (non-trading) or MYR 50,000 (trading). Failure to meet substance requirements means the company is taxed under the Malaysian Income Tax Act at the standard 24% rate. No withholding tax applies on distributions from a Labuan company to non-resident shareholders. Labuan companies may access Malaysia's double tax treaties if they meet the substance requirements and are treated as Malaysian tax resident.
- International holding companies and investment vehicles
- Companies seeking low-tax trading or non-trading structures with legitimate substance
- Islamic finance and Sharia-compliant financial services
- Commodity trading and shipping companies
Key Facts
Step-by-Step Formation Process
Engage a Labuan licensed trust company
All Labuan company incorporations must be facilitated through a Labuan trust company licensed by the Labuan Financial Services Authority (Labuan FSA). The trust company acts as the registered agent and assists with incorporation, compliance, and annual filings.
Reserve a company name
Submit a name reservation with Labuan FSA through the trust company. The name must not be identical to existing registered entities and must end with "Ltd." or "Corp."
Prepare and file incorporation documents
Submit the memorandum and articles of association, details of directors and shareholders, registered office address in Labuan, and the incorporation fee. The registered office must be at the premises of the licensed trust company in Labuan.
Obtain the Certificate of Incorporation
Labuan FSA issues the certificate of incorporation upon approval. The company is then registered as a Labuan entity and subject to the Labuan Business Activity Tax Act.
Meet substance requirements and open a bank account
Labuan companies must meet minimum substance requirements: at least one full-time employee in Labuan and minimum annual operating expenditure of MYR 20,000 for non-trading activities (MYR 50,000 for trading activities). Open a bank account — Labuan has several licensed banks, and some Malaysian mainland banks also service Labuan entities.
Required Documents
- Memorandum and Articles of Association
- Passport copies and proof of address for directors and shareholders
- Registered office address at a Labuan licensed trust company
- Declaration of compliance
- Details of beneficial ownership
- Business plan or description of intended Labuan business activities
Cost Overview
Tax Treatment
Labuan entities conducting trading activities (including banking, insurance, shipping, and commodity trading) are taxed at 3% of net profits under the Labuan Business Activity Tax Act. Labuan entities conducting non-trading activities (holding investments, receiving dividends, interest, or royalties) are not subject to tax on such income, provided substance requirements are met. To qualify for Labuan tax rates, the company must meet minimum substance requirements: at least one full-time employee based in Labuan and minimum annual operating expenditure of MYR 20,000 (non-trading) or MYR 50,000 (trading). Failure to meet substance requirements means the company is taxed under the Malaysian Income Tax Act at the standard 24% rate. No withholding tax applies on distributions from a Labuan company to non-resident shareholders. Labuan companies may access Malaysia's double tax treaties if they meet the substance requirements and are treated as Malaysian tax resident.
Pros & Cons
- Low tax rate: 3% of net profits for Labuan trading activities, or a flat MYR 20,000 (whichever is elected)
- Non-trading activities (holding investments, IP licensing) can be taxed at 3% of net profits or elect the flat MYR 20,000
- Flexibility to transact in any foreign currency — Labuan is designed as an offshore financial center
- No withholding tax on distributions from Labuan companies to non-residents
- Access to Malaysia's double tax treaty network (subject to meeting substance requirements)
- Recognized international midshore jurisdiction — not blacklisted by the EU or OECD
- Strong regulatory framework for Islamic finance and Sharia-compliant structures
- Must use a licensed Labuan trust company as registered agent — adds ongoing cost
- Minimum substance requirements (employees and operating expenditure in Labuan) must be maintained to qualify for the low tax rate
- Labuan companies cannot generally transact with Malaysian residents in ringgit — doing so may trigger mainland Malaysian tax obligations
- Labuan's regulatory environment has been tightened significantly since 2019 to meet OECD BEPS standards
- Banking access can be limited — some international banks are cautious about Labuan entities
- Not suitable for businesses primarily serving the Malaysian domestic market
Other Structures in Malaysia
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