Introduction

Labuan tax payment obligations are crucial for companies operating in Malaysia’s Labuan International Business and Financial Centre (IBFC). Under the Labuan Business Activity Tax Act (LBATA) and the Income Tax Act 1967 (ITA), entities must comply with payment deadlines, recovery rules, and reporting obligations. This guide explains how Labuan tax is paid, the consequences of late payment, director’s liability, and Country-by-Country Reporting (CbCR) requirements.

Tax Payment for Labuan Entities

Under Section 11 of LBATA, Labuan entities must settle their tax liability in full when submitting:

• Form 1 (Return of Profits) and
• Statutory Declaration (Form 5 or 6)

📌 Deadline: 31 March of the following year, regardless of the financial year-end.

Entities taxed at 3% (with substance) or 24% (without substance compliance) must follow the same deadline.

Tax Adjustment and Refunds

If the Director General of Inland Revenue (DGIR) issues a final tax assessment:

• Any shortfall → must be paid immediately.
• Any excess tax paid → will be refunded to the entity.

This ensures fairness and consistency with the ITA’s tax recovery principles.

Penalty for Non-Payment

Failure to pay tax by the due date results in:

• A 10% penalty on the unpaid amount, and
• Possible civil proceedings to recover tax as a government debt.

Non-compliance can also affect the entity’s reputation with the Labuan Financial Services Authority (LFSA).

Director’s Liability

Under Section 16A LBATA, if tax remains unpaid, resident directors during that period are jointly and severally liable with the company.

A director includes anyone who:

• Holds a position of authority in managing the company, or
• Owns or controls 20% or more of the company’s shares (directly or indirectly, including via associates such as spouse, children, or trustees).

👉 This provision ensures directors cannot avoid accountability for unpaid taxes.

Country-by-Country Reporting (CbCR)

To align with OECD standards, Multinational Enterprise (MNE) groups must file CbCR if:

• Consolidated group revenue ≥ RM3 billion, and
• The Labuan entity is the ultimate holding company or part of the group.

CbCR Penalties for Non-Compliance:

• Fine up to RM1 million, and/or
• Imprisonment up to 2 years.

CbCR enhances transparency, prevents profit shifting, and protects Malaysia’s tax base.

Key Takeaways

• Deadline: All Labuan tax payments due by 31 March annually.
• Penalty: 10% surcharge for late payment + civil recovery.
• Director’s liability: Resident directors may be personally liable.
  
• CbCR: Mandatory for MNEs with RM3 billion+ revenue.

ANC Group – Your Personal Tax Advisor

Tax consulting is the core service of ANC Group. Our tax professionals provide clients with comprehensive tax support and guidance. We offer tax consulting and compliance services for expatriates, entrepreneurs, and listed and non-listed companies.

Our tax consulting services include business tax, transaction tax, personal tax, and corporate income tax. We don’t just guide you in interpreting and applying complicated taxation rules, but to explore new opportunities and business trends.

ANC Group keep you abreast with Malaysia tax updates and any changes in the local regulations.

We work closely with industry specialists, authorities, and associated professionals within ANC Group to provide the best-in-class integrated tax planning solutions. ANC specialists coordinate the accounting and taxation services to bring your business to success.

If you need professional tax advisory services regarding the Malaysia Income Tax Act 1967, our team is ready to assist you. Contact us here to discuss how we can support your business.