Setting Up a Business in Labuan

Michael MicheliniBlog, Corporate, Incorporation0 Comments

Setting up an offshore company can be a complicated process, but also a terrific idea if you want to reduce your tax burden. Little known to many of us is this thriving tax haven in Asia called Labuan.

Here’s a quick overview of Labuan from Wikipedia:

Labuan is a federal territory of Malaysia consisting of Labuan Island and six smaller islands off the coast of Sabah. The capital Victoria “is best known as an offshore financial center offering international financial and business services via Labuan International Business and Financial Centre (IBFC) since 1990.” The Labuan IBFC is Malaysia’s only offshore financial hub.

The financial hub “offers benefits such as 3% tax on net audited results or a flat rate of Malaysian Ringgit (MYR) 20,000 to trading companies; low operational costs; liberal exchange controls; and a host of other advantages including readily available, experienced and professional service providers.”

Since 1990, Labuan has “become a base for more than 6,500 offshore companies and more than 300 licensed financial institutions including world leading banks.” (Source)

Should You Relocate Your Business?

Relocating a business is tough, stressful and expensive – but if it’s a thriving business, what entrepreneur wouldn’t want to learn more about reducing costs and increasing profit margins by legally avoiding huge corporate taxes? In other countries like the United States, corporate tax varies from 30% to 35%, while in China it’s 25% and in the United Kingdom it’s 19%.

In Labuan, it’s tax-free if starting a non-trading company and only a 3% tax rate if opening a trading company. Imagine the money you could save in a year or in about 10 years.

Obviously, relocating your business to Labuan could be a strategic business decision that could save your company significant money and unshackle your enterprise from the chains that are holding it back – taxes.

Advantages of Doing Business in Labuan

If you’re looking for a place to facilitate your businesses and manage your wealth, then Labuan is an ideal place to do just that. Client confidentiality and international best standards and practices are just some of the benefits of setting up in Labuan, but here are some more advantages of opening a company there:

  • Tax neutral – foreign-owned companies are tax-exempt & enjoy low levels of taxation (tax-free if non-trading & 3% if trading).
  • Anyone can open a bank account in Labuan in a straightforward and transparent way.
  • Fewer obligations of directors/officers – company structure can consist of one director and one shareholder, and both positions could be just one person.
  • Low setup & maintenance costs/requirements.
  • Many companies ready to help you incorporate.
  • You can be anywhere in the world and enjoy Labuan’s tax exemption.
  • No audit report is required for non-trading companies.
  • You can choose a tax system that fits your business plans (either pay 3% tax or pay a fixed $6,000).
  • Only requires minimum of $1 paid up capital.
  • Stable law, hence stable corporate tax.
  • No sales tax, VAT, custom duties and stamp duties.
  • Promotes confidentiality.

How to Set Up a Business in Labuan

First off, you need to prepare the following to streamline the process:

  • Nature of Business
  • Company Name
  • A list of directors and officers
  • Paid-Up Capital – the amount and the denomination of the currencies of the share capital with which it is proposed to be registered
  • Type of Bank Account needed

The Process

1. Incorporating the company – there are companies that could do this for you. They could help you in accounting, taxation, administration, business set up, and marketing. In preparation, you need to provide the following documents:
a. Memorandum and Articles of the company
b. Declaration of Compliance
c. Director/Shareholder consent
(source)

Once the documents are completed, they must be submitted to IBFC to complete the company incorporation.

2. Work Visa application (both work and entry visa)

3. Work permit application

To be eligible for a Labuan work permit, the applicant must be one of the following:
a. Top managerial officer (managing director, principal officer)
b. Executive Officer, Chief Financial Officer, Chief Operating Officer
c. Middle Management (manager, assistant manager)
d. Professional (accountant, lawyer, consultant, underwriter)
e. Technical Expert
(source)

4. Corporate Bank account opening – There are select banks that do not require personal appearance to open an account (e.g., Fidelity Asia Bank). However, the account opening takes a few weeks.

5. Physical office – as proof of commercial substance

If you’re doing business in Asia, Labuan is a serious jurisdiction to consider. English and banking is improving at a rapid rate, and we would place Labuan in third after Singapore and Hong Kong, respectively, for the region. This is because English and banking is still better in these 2 areas, with the previous Western influence.

But like all banking in Asia, it is still a bit strict. That is what makes us hesitate from advising most people to go ahead with a Labuan corporate structure.

If you’re doing business in Asia, Labuan is a serious jurisdiction to consider. English and banking is improving at a rapid rate, and we would place Labuan in third after Singapore and Hong Kong, respectively, for the region. This is because English and banking is still better in these 2 areas, with the previous Western influence.

But like all banking in Asia, it is still a bit strict. That is what makes us hesitate from advising most people to go ahead with a Labuan corporate structure.

Why is banking strict in Asia? As regulators have gotten more strict around the world, they have put pressure on banks to police their current and potential clients. Therefore, bankers simply feel taking on smaller clients is a greater risk than reward.

What has your research and experience about Labuan told you so far? It is a growing and hot topic that we will continue to follow. Your comments below will help us grow the knowledge and share with others.