A Comprehensive Guide: 5 Key Steps in Registering a Labuan Company

Labuan is part of Malaysia's federal territory and has become a renowned global business hub. Its strategic location in Asia-Pacific and business-friendly environment have contributed to its prominence. With a robust regulatory framework and favourable Labuan tax regime, Labuan appeals to entrepreneurs and multinational companies seeking to establish a presence in Asia. 

The island boasts modern infrastructure and is recognised as an international financial centre. It is an ideal destination for diverse business activities such as banking, insurance, trust services, and investment holding.

This article will delve into the 5 key steps in registering a Labuan company. We provide straightforward insights, whether you're an experienced entrepreneur or new to international business, to help you confidently embark on your Labuan business journey. 

5 Key Steps in Registering a Labuan Company

Step 1: Choose the Type of Labuan Company Structures

When deciding on the type of Labuan company structures to establish, it's essential to consider your business's specific needs and objectives. Each type of Labuan company structure offers distinct advantages and is tailored to different purposes:

1. Labuan Offshore Company
This type of company is well-suited for a wide range of international business activities. Whether you're involved in trading, consultancy, or e-commerce, a Labuan offshore company provides a flexible and tax-efficient structure. The offshore Labuan allows you to conduct business globally while benefiting from the Labuan tax regime, which includes low corporate tax rates and exemptions on certain types of income.

2. Labuan Holding Company
A Labuan Holding Company may be ideal if your primary objective is to hold investments and assets. This entity type is commonly used for holding shares in other companies, real estate properties, intellectual property rights, and other valuable assets. By establishing a Labuan Holding Company, you can enjoy Labuan tax incentives such as reduced withholding taxes on dividends, interest, and royalties from subsidiaries.

3. Labuan Trust Company
A Labuan Trust Company offers a robust and reliable framework for businesses that manage trusts and provide fiduciary services. Labuan is recognised as a jurisdiction for trust administration and wealth management services. Establishing a Labuan Trust Company allows you to offer trust services to clients globally, benefiting from Labuan's well-established legal and regulatory framework for trusts.

Step 2: Name Reservation For Labuan Company Registration

Choosing the right name for your Labuan company is a critical step in the incorporation process. For more information, refer to the Labuan company search by Labuan FSA. 

Step 3: Prepare the Required Documentation For Labuan Corporation

Before incorporating your Labuan company, preparing all required documents is crucial.  

Check out the license and operational application forms from Labuan FSA based on your business type. Additionally, engaging a licensed Labuan trust company is mandatory under the Labuan company requirements, which include Labuan company directors, a company secretary and many more. 

Step 4: Pay The Relevant Fees (Registration Fees & Annual License Fees)

These fees cover the administrative costs associated with the incorporation process and are typically required by the regulatory authorities. For more information, refer to Fee Structures For New Labuan Entities. 

Step 5: Post-Registration Procedures for a Labuan Company

Once your Labuan company has been successfully incorporated, there are several important post-registration steps to ensure your business is fully operational and compliant with local regulations. Here is a guide to the post-registration procedures:

a. Opening a Corporate Bank Account

A corporate bank account is essential for managing your Labuan company's financial transactions. Select a bank that offers services aligned with your business needs. Labuan hosts several international and local banks that provide various corporate banking services. You may refer to this List of Labuan Banks and Investment Banks. 

b. Engage With The Recruitment Agency

Partnering with a recruitment agency streamlines recruitment, providing access to expertise and a vast talent pool. They handle sourcing, screening, and presenting candidates, saving time and resources. With tailored services, they ensure you find the right talent for your Labuan company, allowing you to focus on core business activities while they manage the recruitment process efficiently. Here are some popular recruitment agencies that you can engage to hire your talented staff. 

i. Jobstreet

ii. Indeed

iii. Hiredly

c. Hold The Annual General Meeting (AGM)

During the Annual General Meeting (AGM), the company presents its financial statements and evaluates its performance. Key decisions, such as dividend payouts and Labuan company director appointments, are deliberate. Following the AGM, meticulous record-keeping is essential. The meeting minutes are carefully documented, capturing all resolutions and decisions made. These minutes serve as a legal record, ensuring transparency and accountability within the company. The chairperson must sign off on the minutes, affirming their accuracy and legitimacy in the company's records.

d. Prepare Financial Statements That Align With Audit Requirements.

Prepare audited financial statements depending on your company's business activities. This typically includes the balance sheet, income statement, and cash flow statement. Based on its size and type of business, determine if your company is exempt from auditing requirements. If a Labuan company audit is required, appoint a qualified auditor and ensure the audit is completed on time.

e. Labuan Company Tax Filing

ACCA indicates that Labuan businesses are categorised into trading and non-trading activities. Starting January 1, 2019, Labuan companies involved in business activities must comply with specific regulations. Firstly, they must hire a certain number of full-time employees in Labuan, ranging from two to four, depending on the activity type. 

Additionally, they must allocate a minimum amount of expenses for annual operational costs in Labuan, ranging from RM50,000 to RM3 million, depending on the nature of the activity. These expenses cover various expenditures such as professional fees, salaries, rent, and fees paid to Labuan FSA for licenses.

Moreover, the Labuan tax-corporate rate imposed is 3% of audited net profits for trading activities, while it remains at 0% for non-trading activities, provided that Labuan entities comply with the substantial tax activity requirements outlined by the Labuan FSA.

Below is the comparison table of tax features from KPMG. 

Common FAQ

1. Is It Possible for a Labuan Company to Pay Business Zakat Instead of Taxes?

A company can pay Labuan business zakat, but it does not replace taxes. As evidenced by a Labuan Islamic religious authority receipt, the company may receive a tax rebate for the zakat Labuan paid. However, if the rebate exceeds the tax liability for the year, the excess is not refunded or credited for future tax liabilities.

2. Do Labuan Tax Incentives Apply to All Types of Labuan Entities?

Yes, Labuan IBFC tax incentives are available to all Labuan entities as specified in the Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2018.

3. What Are the Minimum Capital and Shareholding Requirements for a Labuan Company?

Labuan companies must issue at least one share, but there is no specified minimum capital requirement. They can issue shares of various classes and rights, except bearer shares. Shares can be denominated in any currency except Malaysian Ringgit. Additionally, a Labuan company must have at least one or more Labuan company shareholders, an individual, a corporation, or a Labuan trust company acting as a nominee or trustee.

4. What Labuan Business Service Providers Can Labuan Company Engage?

By engaging LFSA-approved service providers, you can be confident in the quality and legitimacy of their assistance throughout the Labuan corporation's establishment and operation.

a. Labuan Underwriting Manager plays a crucial role in the insurance sector by evaluating risks associated with insurance policies and determining appropriate premium rates. Their expertise helps insurance companies make informed decisions to mitigate risks effectively.

b. Labuan Insurance Manager oversees and directs insurance company activities, ensuring they operate under regulatory requirements. Their role involves monitoring compliance, managing operations efficiently, and safeguarding the interests of policyholders and stakeholders.

c. Labuan Trust Company provides various financial services related to trusts, including trust administration, asset management, and fiduciary services. These services facilitate wealth management, estate planning, and asset protection for individuals, families, and businesses.

d. Labuan Auditor plays a crucial role in ensuring the accuracy and integrity of financial information. They examine financial statements, assess internal controls, and verify compliance with accounting standards and regulatory requirements. By conducting thorough audits, they assure stakeholders regarding the financial health and transparency of Labuan companies.

5. When Should Labuan Companies File Annual Tax Returns and Statutory Declarations?

A Labuan company engaged in Labuan business operations, which are Labuan trade activities, must file the annual tax returns and statutory declarations within three months of the start of the assessment year, regardless of the financial year-end.

6. What Are the Benefits of Establishing a Company in Labuan?

Labuan offers a highly favourable environment for businesses looking to optimise their operations and tax strategies. Here are the main benefits:

a. Attractive and Simple Tax System
Labuan offers a favourable tax environment. Its corporate tax rate is 3% for trading companies and 0% for non-trading companies. This significantly reduces the tax burden on businesses, making it an attractive destination for companies looking to optimise their tax liabilities.

b. Robust Legal Framework
The legal framework in Labuan is modern, internationally recognised, and enforced by the Labuan Financial Services Authority (Labuan FSA). This provides businesses with a stable and secure environment and ensures compliance with global standards and best practices.

c. Access to Double Taxation Agreements (DTAs)
Labuan entities can benefit from Malaysia's extensive network of over 70 DTAs with other jurisdictions. This helps minimise tax liabilities and avoid double taxation on international income, providing significant tax efficiencies for cross-border business activities.

d. Comprehensive Business Solutions
Labuan offers a full range of business solution structures that cater to cross-border transactions, business dealings, and wealth management needs. This makes it a versatile hub for various financial activities.

Conclusion

Setting up a company in Labuan involves a well-defined process that substantially benefits businesses. The key steps on how to register company in Labuan include selecting the appropriate company type, reserving a unique company name, preparing and submitting the necessary documentation, reviewing and approving it, and completing post-approval procedures such as opening a corporate bank account and ensuring initial compliance. By following these steps, entrepreneurs and companies can successfully navigate the registration process and establish a robust presence in Labuan.