Understanding Labuan as Tax Haven in Malaysia
Labuan is a jurisdiction in Malaysia from offshore that gives support, confidence, and stability for investors who want to cut taxes, so their wealth is protected. Most of the time, this is great for a business destination when it comes to competitiveness, efficiency, and better financial control.
Labuan as a tax haven in Malaysia will be discussed in this article to find out more about it if you plan to set up a business there. It is primarily intended for foreign or businesses not to have to pay a lot of taxes.
Learn more about it now.
The Meaning of Tax Haven
Tax haven normally pertains to an area or geographical location outside a country’s jurisdiction, which imposes small restrictions on the legitimate business activities within its jurisdiction. It most importantly leads to minimal or no liability in tax to foreign individuals or businesses. Most of the time, the place has a political and economic static environment.
These offshore havens have international banking facilities, financial services, and confidentiality of their clients’ deposits and earnings.
Tax havens are mainly for foreigners of that country since it can attract foreign capital and funds into the country because they offer these incentives. The majority of tax havens do not require that the business or individual is their country to receive these tax benefits.
What Makes Labuan Special?
Labuan is an island of Malaysia located offshore, and it has the benefit of having low tax regimes, but it still remains to have the protection of Malaysia’s laws and regulations. That means the entities of Labuan benefit from almost all the Double Taxation Agreements (DTAs) and Malaysia signed with more than 70 countries while they profit from tax exemptions under the Labuan International Banking and Financial Center (IBFC).
Labuan is considered the ‘pearl of Borneo’ and located off the eastern Sabah coast, which is a Malaysian state and a border of Brunei. It is located strategically in close proximity to Jakarta, Hong Kong, Singapore, and Kuala Lumpur. Technically, Labuan has seven islands – the island proper and six smaller satellite islands and has tropical weather. Labuan offers several ferry connections to Brunei and mainland Malaysia. Its airport has two daily flights going to Kuala Lumpur and 1 flight to Kota Kinabalu, which is the state capital of Sabah. There is a deep port in Labuan and has plans to develop the airport even more.
There are only 100,000 residents in Labuan, and the workforce is highly skilled.
The Taxes You Must Pay in Labuan
The investors from abroad who want to open a company in Labuan must remember that there is a yearly corporate tax rate of 3% that is applicable to firms that have trading activities. Non-trading companies have no taxes with the establishments located in Labuan. Here are the aspects why Labuan is located as a tax haven, and why choose it:
- No sales tax is applied in Labuan, Malaysia
- There is a registered income of over RM 500,000 that are levied with the goods and services tax
- No withholding tax is imposed on capital gains, interests, dividends, and royalties.
- The Labuan trading companies can opt to pay a corporate tax of 3% or a flat rate of RM 20,000 tax.
- Taxes are not imposed for the non-trading companies located that are in Labuan.
The Single-Digit Tax Rate is Low or None
The Labuan offshore companies that are into trading must pay 3% on their net audited earnings or RM20,000, or whichever is lower. For the non-trading companies, they are not required to pay tax. The investment vehicles in Labuan are not taxed.
There is Confidentiality
The Labuan jurisdiction does not ask for disclosure requirements. Labuan does not keep a public register of trusts and private foundations that are registered and established within the jurisdiction. It has a familiar secrecy ownership level, but it is only a fraction of the total cost compared to other offshore locations.
DTA Protection in Malaysia Is Beneficial
Malaysia has signed double taxation agreements with many countries, so their investors do not have to pay taxes twice. There are reduced taxes that attract the attention of foreign entrepreneurs with the businesses in Labuan.
Investment Holding Companies Do Not Get Taxed
There is no imposed tax for the investment holding companies located there. However, you must know what the regulations are that stand at the base that forms holding companies in Malaysia.
If you need Malaysia tax planning experts, you should get in touch with 3E Accounting because they can assist you in this. Their experts are knowledgeable and equipped with the right tools to deliver what you expect.