Labuan IBFC's Tax-Efficient Structure Attracts Shrewd Investors

Author:Ms Jennifer Chang
Profession:Labuan IBFC Inc

Labuan International Business and Financial Centre (Labuan IBFC) provides a wide spectrum of financial products and services for corporations and individuals, both in the conventional and Islamic space. The jurisdiction has moved beyond banking, capital markets, leasing and insurance to also include protected cell companies, partnerships, trusts, foundations and an international shipping registry, among others.

Conducting business in Labuan IBFC is affordable due to low operational overheads, business tax exemptions, personal income tax exemptions for foreign talent, a strong network of banks and financial institutions with global reach and the ability to access most of Malaysia's list of double tax agreements (DTA) with foreign jurisdictions. Modern commercial real estate and co-working facilities are also widely available and relatively inexpensive.

However, she believes that it is Labuan IBFC's simple and straightforward tax system that encourages investors to take advantage of the attractive tax exemptions offered under the Labuan Business Activity Tax Act, 1990 (LBATA). Moreover, its unambiguous fiscal framework provides an ideal ecosystem for global companies to house their international dealings and transactions.

Flexibility in tax payments

Although Labuan is a federal territory within Malaysia, there are special tax exemptions for companies conducting Labuan business activities.

Under the LBATA, a Labuan-based company carrying out trading activities within Labuan IBFC will be taxed at 3% based on its audited accounts. In addition, Labuan registered companies are given the flexibility to pay an annual flat rate of RM20,000 instead. According to Ms. Chang, this is a relatively competitive tax regime.

The RM20,000 option is available to Labuan companies each year. Before filing the tax return, a company can complete a separate form to elect for the RM20,000 fixed sum instead of the usual 3% tax rate. In her experience, Ms. Chang said, clients with losses for the year usually opt to retain the 3% tax rate and would not make the RM20,000 election.

The option of a fixed amount of tax versus 3% tax rate is made available annually to suit each company's circumstances. This flexibility is a feature unique to Labuan IBFC.

Ms. Chang added: "If the company is a non-trading company, there's no tax at all." Being passive in nature, a non-trading Labuan company can hold investments from anywhere in the world, including Malaysia, and yet be...

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