With effect from the Year of Assessment 1991, Labuan Offshore business activity act 1990 was introduced. It creates what is perceived as a tax haven for Labuan companies carrying on business in or from Labuan. In the year 2010, the principal act has been renamed to be known as Labuan Business Activity Tax Act 1990.
Labuan companies involved in trading activities like banking, insurance and trust and fund management are given a choice of either paying income tax at the rate of 3% or a lump sum amount of RM20,000 for each of year of assessment.
Alternatively, Labuan companies may also pay tax under the income tax act 1967 at 24%. Labuan companies are required to carry out their Labuan business activity in or from Labuan, with persons who are not resident in Malaysia and in foreign currency. However, there are certain exceptions in the case of banking or insurance businesses.
With effect from 1 January 2019, Labuan entity carrying on Labuan business activity shall:
- First, have at least 2 to 4 employees and an amount of annual operating expenditure ranging from RM 50,000 to RM 3,000,000 in Labuan.
- Second, the lump sum amount of RM20,000 has been removed and all Labuan entities shall be taxable at the rate of 3%.
- Third, Labuan is now allowed to carry out business activity with local Malaysian companies, but may not be able to claim a tax deduction in most cases; and
- Fourth, Labuan is now allowed to transact in Malaysia Ringgit.
The amendments to Labuan open up better opportunities for Malaysian businesses, while setting up higher barriers to penetrate Labuan.
If you are not sure your company suitable to move to Labuan, please call us at 011-1217 8183.