Taxation for Labuan International Company – Tax Rate and Compliance
Many foreigners prefer to register Labuan Company to eligible to enjoy 100% foreign ownership and the other attraction is the flexible tax declaration. All business owners of Labuan International Company must perform regular compliance for the companies they own, to avoid any future complications and penalty.
Maintaining an active Labuan International Company with relevant authorities is extremely important with 4 main Malaysia Government departments to comply. The purpose of compliance for the purpose:
1. To avoid penalty and get messy from Malaysia Inland Revenue on late submission
2. To avoid complications for renewal of your Work Visa with the Immigration Department
3. To keep your banking well managed, with active status at all times to avoid blacklisting in the Malaysia Central Bank System
4. Keep your company record for all matters on company information on statutory records status clean with the Labuan FSA
Comparison of Corporate Tax of Labuan International Company and Malaysian Sdn Bhd is as follows:
The Corporate Tax of a Labuan International Company is very flexible, simply by way of declaring one of the 4 options as follows:
- For Dormant-Inactive Company: no tax and no audit report is required
- For Investment Holding Company- no tax and no audit report is required
- For Trading, Import and Export Company- tax 3% on net profit with audit report is required
- For Trading Company- You may opt to a lump sum of RM 20,000 (USD 5,000) tax and no audit report is required
Malaysian Sdn Bhd Company does not offer such tax flexibility. All Sdn Bhd companies have to prepare audit account whether it is dormant, active and the pay tax rate is fixed as follows:
First RM 500,000: the tax rate is 19%
and for every additional RM 1, the rate rate is 24%
Comparison of Income Earned by Expatriates under Labuan International Company and Malaysian Sdn Bhd Company as follows:
All individual foreigners earning salaries, fee, bonuses in Malaysia is subject to personal tax. The difference between earning from Labuan International Company and Malaysian Sdn Bhd company is as follows:
For Labuan International Company: No tax for all directors’ fee and a rate of 50% tax savings for expatriate’s employees’ salaries, the rate will depend on their resident status.
For Malaysian Sdn Bhd Company: The tax rates varies according to resident status for all expatriates as follows:
‘Local-resident’ tax status (stay > 182 days/year in Malaysia), the tax rate will range from 0 -28% of the net income
‘Non-resident’ tax status (stay <182 days/year in Malaysia), the tax rate will be 28% flat of the net income.
Taxation for Labuan International Company – Accounting Books
All Labuan International Companies will have their financial period ending on 31st Dec annually. The dateline submission to Inland Revenue is 31st March, often extendable to 31st May. We recommend your company accounts to be ready by latest end Jan to allow time for auditing process (if any) and another 2 weeks for preparation of all tax papers to meet 31st March dateline.[Read more: Compliance of a Labuan Company]
The tax compliance is very important especially when your Labuan International Company deals with Malaysian entities and others international companies of different jurisdiction which may complicate the accounting records. Labuan International Company is required to notify Labuan Authority if they deal with a Malaysian resident, except in June 2010 on Sec 7 (6) enacted Labuan Companies Act 2010 provides that the Labuan International Company need not notify Labuan Authority of any transactions with a Malaysian resident where it:
- carries on any licensed activity with a resident approved under the Labuan Financial Services and Securities Act 2010 or the Labuan Islamic Financial Services and Securities Act 2010
- makes or maintains deposits with a person carrying on a business within Malaysia
- makes or maintains professional contact with any counsel, attorney, accountant, bookkeeper, trust company or a corporation wholly owned by a trust company to act or be appointed as a resident director or a resident secretary of a Labuan company, management company, investment adviser or other similar person carrying on business with Malaysia
- prepares or maintains books and records within Malaysia
- holds within Malaysia meetings of its directors or members
- acquires or holds any lease of any property for the purpose of its operations or as accommodation for its officers or employees
- a resident of Malaysia holds shares of a Labuan International Company
The lifting of the notification requirement and the allowances as detailed above also enshrines provisions of the liberalization which further facilitate the setting up of Labuan International by Malaysian companies and individuals for non-Ringgit business transactions.
We will guide you every step of the way in getting the right with timely compliance. Stay touch with us always. If you need assistance, you may plug on any of our services as follows:
1. Preparation of Corporate Tax Filling
2. Preparation of Personal Tax Filling
3. Preparation of Accounting Records
4. Auditing your Account Books
Feel free to call us at +603-2181 2882 or email us the enquiry form to find out more if Labuan International Company is right for you and understand all requirements on compliance and taxation issues. We ‘simplify your investment’ in Malaysia.