Malaysia’s purpose-built offshore jurisdiction for international trading, holding, and financial services. 3% corporate tax on trading profit, 0% on passive holding, 100% foreign ownership. We coordinate with a licensed Labuan Trust Company to handle every step.
What Is a Labuan Company?
A Labuan company is a legal entity incorporated under the Labuan Companies Act 1990, regulated by the Labuan Financial Services Authority (Labuan FSA), and operating within the Labuan International Business and Financial Centre (Labuan IBFC) — Malaysia’s federal mid-shore jurisdiction located off the coast of Sabah.
Unlike a Sdn Bhd (which is governed by the Companies Act 2016 and supervised by SSM), a Labuan company sits within an entirely separate corporate and tax regime designed for international business. Over 300 licensed financial institutions, including major banks, captive insurers, fund managers, and family offices, operate from Labuan.
A Labuan company is the right choice when your business is internationally focused — cross-border trading, regional holding, fund management, fintech, IP licensing (with caveats), or wealth structuring. It is not designed for purely domestic Malaysian operations; for that, a Sdn Bhd is the correct vehicle.
Key Features of a Labuan Company
- 3% corporate tax on audited net profits from Labuan trading activity, 0% on Labuan non-trading (pure passive holding) activity
- Election option — under Section 3A of the Labuan Business Activity Tax Act 1990 (LBATA), a Labuan company can elect to be taxed under Malaysia’s Income Tax Act 1967 instead (24%) when that produces a better outcome
- 100% foreign ownership — no Bumiputera or local equity requirement
- No withholding tax on dividends paid to foreign shareholders
- No capital gains tax on disposal of investments held by a Labuan holding company
- No exchange control restrictions on foreign-currency operations
- Confidentiality — beneficial ownership information held by the Labuan Trust Company is not publicly disclosed by the registrar
- Fast incorporation — Certificate of Incorporation typically issued in 3–5 working days
- Recognised by Asian banks for offshore corporate accounts in Malaysia, Singapore, and Hong Kong
- OECD-compliant — Labuan meets BEPS Action 5 substance standards, removing it from grey-list scrutiny
Trading vs Non-Trading Activities
The classification of your business activity determines your tax rate. This is the single most important decision in setting up a Labuan company.
Labuan Trading Activities (3% on audited net profit)
Active commercial operations including:
- International trading (import/export, commodities, distribution)
- Banking and licensed financial services
- Insurance and reinsurance
- Management services
- Shipping operations
- Licensing of rights (excluding pure IP — see below)
- Consultancy and advisory services
Labuan Non-Trading Activities (0% tax)
Strictly passive activities:
- Holding investments in securities, stocks, shares
- Holding loans, deposits, or real estate on the company’s own behalf
- Pure investment-holding entities
⚠️ Important — Mixed activities are treated as trading. If a Labuan company carries on both trading and non-trading activities in the same financial year, its entire income is deemed to be from trading and taxed at 3%. This is why we recommend separate Labuan vehicles for active trading versus passive holding when both are needed.
⚠️ Intellectual Property income is excluded. Under the OECD BEPS Action 5 framework, income derived from IP rights (patents, trademarks, copyrights) held by a Labuan company is taxed at Malaysia’s standard 24% rate under the Income Tax Act 1967, not the 3% Labuan rate.
Statutory Requirements
Directors
- Minimum 1 director
- Following the Labuan Companies (Amendment) Act 2022, at least one director must be a resident (this can be satisfied via the Labuan Trust Company’s resident director service)
- Foreigners can be directors with no nationality restriction beyond the resident-director rule
Shareholders
- Minimum 1 shareholder, no maximum
- Individuals or corporate entities, any nationality
- 100% foreign ownership permitted
Mandatory Labuan Trust Company (LTC)
- Every Labuan company must appoint a licensed Labuan Trust Company
- The LTC is the only entity authorised to file incorporation documents with Labuan FSA
- The LTC also serves as the registered office, resident secretary, and primary compliance point throughout the company’s lifecycle
- We coordinate with established Labuan Trust Companies on your behalf — you do not deal with them directly unless you wish to
Registered Office
- A registered office in Labuan is mandatory, provided through the appointed LTC
Share Capital
- No minimum share capital requirement
- At least 1 issued share required
- Shares may be denominated in any currency (subject to LBATA rules)
- Different share classes permitted
Economic Substance Requirements
- Mandatory under the Labuan Business Activity Tax (Amendment) Act 2020 to qualify for the 3% / 0% preferential tax rates
- Baseline: minimum 2 full-time Labuan-based employees + minimum MYR 50,000 annual operating expenditure within Labuan
- Specific activity categories (banking, insurance, fund management) have higher headcount and OPEX thresholds
- Failure to meet substance = company taxed at the standard Malaysian rate of 24% under the Income Tax Act
Documents Required
For each director and shareholder (individuals):
- Certified passport copy
- Proof of residential address — utility bill or bank statement, dated within the last 3 months
- Recent CV or professional profile
- Source of funds documentation
- Bank reference letter
For corporate shareholders:
- Notarised certificate of incorporation
- Notarised constitution / memorandum and articles of association
- Latest audited financial statements
- Board resolution authorising the Labuan share subscription
- Corporate structure chart showing ultimate beneficial owners
About the Labuan company:
- Three proposed names in priority order
- Detailed business plan describing intended activities and target markets
- Proposed share capital structure and currency
- Trading vs non-trading activity classification
- Economic substance plan — proposed Labuan staffing and OPEX
Translations: Documents not in English must be accompanied by certified professional translations.
Our Incorporation Process
We work in seven phases, coordinating directly with a licensed Labuan Trust Company and the Labuan FSA. Most clients receive the Certificate of Incorporation within 5 working days of complete document submission:
- Phase 1 — Free Consultation & Structure Design (Day 0). We confirm Labuan is the right jurisdiction, classify your trading vs non-trading activity, model your economic substance requirements, and recommend the optimal share capital and currency structure. Written recommendation within 24 hours.
- Phase 2 — KYC & Document Collection (Days 1–5). We coordinate KYC for every director, shareholder, and ultimate beneficial owner. The Labuan Trust Company conducts its own due diligence layer.
- Phase 3 — Name Reservation (Days 5–6). Application submitted to Labuan FSA via the COR@L corporate registry portal. Approval typically within 24 hours. Reserved name is valid for 3 months.
- Phase 4 — Incorporation Application (Days 6–8). Memorandum and Articles of Association, consent letters, statutory declaration of compliance, and all KYC submitted via the LTC. Labuan FSA reviews in 1–3 working days for standard applications.
- Phase 5 — Certificate of Incorporation (Days 8–10). Certificate issued by Labuan FSA. Your Labuan company legally exists.
- Phase 6 — Tax Election & Registration (Days 10–14). We file your Section 3A election (LBATA vs ITA) based on the structure designed in Phase 1. Tax registration with the Inland Revenue Board (LHDN).
- Phase 7 — Bank Account & Substance Setup (Weeks 3–8). Corporate bank account opening with a Labuan, Malaysian, or international bank. We coordinate the substance plan — recruiting Labuan employees, securing Labuan office space, and setting up local OPEX accounts. Some banks require a face-to-face meeting; we attend with you.
You receive a project tracker showing every milestone.
What’s Included
- Free pre-incorporation consultation and structure recommendation
- Coordination with a licensed Labuan Trust Company (LTC)
- Activity classification (trading vs non-trading)
- Memorandum and Articles of Association drafting
- Name reservation via COR@L
- Full incorporation submission to Labuan FSA
- Certificate of Incorporation
- Beneficial Ownership documentation under Labuan Companies (Amendment) Act 2022
- Section 3A LBATA tax election filing
- LHDN tax registration
- Registered office in Labuan (via LTC)
- Resident secretary appointment (via LTC)
- Resident director arrangement (where required)
- Corporate bank account introduction and meeting attendance
- Economic substance plan — staffing, office, and OPEX coordination
- 2026 compliance calendar (annual return, audit, tax filing deadlines)
- Optional add-on: Labuan Director’s Work Permit (offshore-friendly EP equivalent)
Why Choose Horizon Hub for Labuan Setup
- End-to-end coordination. You deal with one project manager. We handle the LTC, Labuan FSA, LHDN, and the bank in parallel.
- Substance-first design. We do not sell Labuan as a “set and forget” tax haven. Your structure is built for substance compliance from day one — protecting the 3% rate from challenge.
- Activity classification done right. Misclassifying a mixed business as non-trading is one of the most expensive mistakes in offshore planning. We model your activities carefully before incorporation.
- Multi-jurisdiction integration. We design Labuan structures that integrate cleanly with Sdn Bhd operating subsidiaries, foreign holdings, and international banking partners.
- Multilingual. English, Russian, Chinese, Arabic, and other major business languages supported.
- Post-incorporation continuity. Annual returns, audits, tax filings, substance maintenance, and license renewals — same project manager throughout.
Frequently Asked Questions
What is the difference between a Sdn Bhd and a Labuan company?
A Sdn Bhd is a domestic Malaysian company under the Companies Act 2016, supervised by SSM, taxed at 17–24% on Malaysian-source income. A Labuan company is governed by a separate offshore regime (Labuan Companies Act 1990 + LBATA), supervised by Labuan FSA, and taxed at 3% (trading) or 0% (non-trading holding) on international business activity. Use a Sdn Bhd for Malaysian operations; use a Labuan company for international trading or holding.
Can a Labuan company do business with Malaysian residents?
Yes, with prior notification to Labuan FSA. However, transactions with Malaysian residents are taxed at the standard Malaysian corporate rate (17–24%) rather than the Labuan rate. For active Malaysian operations, a separate Sdn Bhd subsidiary is usually the better structure.
Can I deal in Malaysian Ringgit through a Labuan company?
Generally no — Labuan companies are designed for foreign-currency international business. Limited Ringgit transactions are permitted for administrative and statutory expenses (rent, salaries, government fees).
What economic substance do I actually need?
The baseline is 2 full-time employees physically based in Labuan plus MYR 50,000 annual operating expenditure within Labuan. Specific licensed activities (banking, insurance, fund management) require more. We model your exact requirement during the consultation.
What happens if I cannot meet substance requirements?
The company is taxed under Malaysia’s Income Tax Act 1967 at the standard 24% corporate rate, not the 3% Labuan rate. The company itself remains valid — only the tax preferential treatment is lost. We design your substance plan from day one to prevent this.
How long does Labuan incorporation take?
With complete documents, the Certificate of Incorporation is typically issued within 3–5 working days of submission to Labuan FSA. End-to-end (engagement to operational company with active bank account and substance), expect 6–8 weeks.
Do I need to visit Labuan?
Not for incorporation. The company can be set up entirely remotely through your LTC. Bank account opening may require a video call or, occasionally, a face-to-face meeting — we coordinate this with you.
Is my information confidential?
The Labuan registrar does not publicly disclose beneficial owner information. KYC is held by your LTC and Labuan FSA under strict confidentiality rules. This is not the same as a Sdn Bhd, where the Beneficial Ownership Register is now part of the Companies Amendment Act 2024 framework.
Can I move from Sdn Bhd to Labuan, or vice versa?
You cannot directly convert between the two regimes — they are separate corporate structures. However, you can incorporate one and use it to acquire shares in the other (for example, a Labuan holding company owning a Malaysian Sdn Bhd operating subsidiary). This is one of the most popular cross-border structures we set up.
Ready to Set Up Your Labuan Company?
Free 30-minute consultation. Written recommendation within 24 hours covering activity classification, substance plan, and ideal structure. No obligation.
- ↑ Back to Company Formation (parent)
- → SDN.Bhd Registration (alternative for Malaysian-domiciled operations)
- → Foreign Branch & Representative Office (operate under your parent company name)