Guide to Make Labuan Your Profit Centre
How do you retain your profit in Malaysia though Labuan Company and yet be fully compliant?
CP TRUST has dealt with more than 40 different nationalities, operating diverse business fields from trading to various financial and consultancy services. They mainly conduct international trades with some tapping into Malaysia market, which is permissible.
Case Study 1: International Consultancy Company
Objective: A Bangladeshi client through his Labuan Company provides consultancy to a European company. The Labuan company opted to pay a flat fee of RM20,000 tax with submission of management account instead of 3% on net profit with audited report. Subsequent, the net profit earned distributed to its shareholders though the issuance of dividends payable directly to the shareholders, individual bank accounts in Malaysia. There is no personal tax for dividends received by individuals.
Case Study 2: Malaysia Financial Services Company
Our Malaysian business client finds it easier and assured all profits earned are fully in compliance with tax regulation. Malaysian businessmen used to set up offshore company in Hong Kong. With tighter compliance and coming Common Reporting Standard (CRS), it is difficult to open bank account in Hong Kong. In additional, it is not advisable to retain profits outside Malaysia which may attract tax authority preview. Businesses conducted through a Labuan entity, the profits are fully declared with the Labuan Inland Revenue Board. Hence, these monies will not deemed as “black money” as tax papers are legal and they are available anytime for checking for tax authority if required.
Case Study 3: China Electronic Trading Company
One of our China client sells electronic items, targeting Malaysia and ASEAN countries. Using Labuan Company, it is greatly advantageous as there is no need for trading license for its local Malaysian transactions. A single Labuan entity allows the profits earned from Malaysian transactions to be taxed at 24% while earnings from international transactions remain to be taxed at 3% or pay flat fee of RM20,000 in a single audit report. Through the Labuan entity, he is no longer subject to higher requirements of paid up capital of RM1 million and wholesale retail trade license needed from Malaysia Ministry of Trade and Consumerism. He is able to enjoy all Labuan tax benefits such as tax exempt on directors fee, no withholding tax, DTA (Double Tax Agreements), waiver of stamp duty on Labuan instruments, etc.
Why creating a substance is important for your business?
Nowadays each country tax authority is looking at ways to increase revenue for the country. The world is becoming increasingly globalized, and cross-border activity is now the norm. That means that countries across the world need to work together cooperatively and collaboratively in order to ensure that taxpayers are paying the correct amount of tax in the appropriate jurisdiction. With the Automatic Exchange of Information (AEOI) in place, your data will be shared easily from 2018, there is no way one can escape not paying tax and without any compliance for your company. It is a crucial to have commercial substance in place to justify your business activities in, through and from Labuan. The key is that the company must be able to tax proof its economic substance. [Read: What is substance and how to adopt it?]
All Labuan entities have to perform yearly compliance on tax filing and annual return. Unlike jurisdictions such as Seychelles, BVI, most of them do not have any compliance, hence this may attract tax scrunity. The strict requirement of compliance is one of the components that has made Labuan a whitelist jurisdiction. With this recent new wave of requirement of OECD with the new introduction BEPS system, all jurisdictions are required to have some form of compliance. Some countries like China and Indonesia have warned their citizens who use shady offshore entities, that they will be checked.
Labuan FSA has a strong legislation is placed with newly revamped guidelines and legislation in 2010 is to overcome all compliance requirements to meet world standard set up by OECD. Since this overhaul, Labuan IBFC is categorized whitelist jurisdiction by OECD and Labuan also has been recognised by Hong Kong, Singapore and Australia for listing in their exchanges. [For more of LabuanIBFC, please click here!]
Let us know if you need assistance in creating substance for your company. Email us at firstname.lastname@example.org