Latest Labuan Tax 2019
Labuan New Tax Legislation was introduced to all Labuan industry players with the recent meeting organized by Labuan Financial Services Authority (LFSA) on 17th Jan 2019.
The Labuan IBFC’s new friendly tax introduction has been carefully crafted to boost export of Malaysia products and services. Labuan made it viable for all foreigners using one single entity in Malaysia to reach the international and Malaysia market, as opposed to holding two entities with two different tax treatment ie Labuan Tax and local Malaysia Income Tax Act 1967. For Malaysia entrepreneurs who like to start an export business, Labuan company is a perfect fit, small tax of 3% with eligibility to apply for tax certificate to tax-proofing your business! [Read: CRS for Labuan Company]
The Latest Labuan Tax 2019 changes effective from 1st January 2019 is as follows:
- The flat tax fee of RM20,000 is abolished for trading companies including all licensed entities.
- Dealing with Malaysia entities is allowed with a tax rate of 3%. The Malaysian companies which transact with a Labuan entity are entitled to a tax deduction on expenditure incurred, limited to 3% of the allowable expenditure, as opposed to 100% before.
- Investment holding remains as zero tax with the submission of yearly Management account
- Income from intellectual property assets held by a Labuan entity is subjected to the prevailing rate under the Income Tax Act 1967 of 24%.
- The new tax law also tackles the CRS requirement of commercial substance for tax proofing by introducing the needs of staffs and minimum spending, particularly for license entities and some special entities were introduced.
- Investment Holding of the Special Entities is the pure investment holding for subsidiaries structure, not the investment company holding assets ie properties, funds, etc.
Impact on Dealing with MALAYSIANS under Labuan New Law 2019
The three (3) major deductions not allowed by Malaysian companies payment made to Labuan company under the Labuan New Tax law 2019 is explained as follows:
A) 33% on Interest Payment
Labuan company receiving interest payment from Malaysia companies
Labuan company will be entitled to 3% tax and Malaysia companies will not be entitled to a 33% deduction. The interest payable by Malaysian companies to Labuan company on loan, etc will not be entitled to a deduction to reduce the tax of the company.
B) 33% on Leasing Payment
Labuan company receiving rental income from Malaysia real estate or leasing payment from leasing assets to Malaysian companies
Labuan company will be entitled to 3% tax and Malaysia companies will not be entitled to a 33% deduction. The lease or rental amount payable by Malaysian companies to Labuan company will not be entitled to a deduction to reduce the tax of the company.
C) 97% on Others Payment
Labuan Company buys products or services from Malaysia companies
Labuan company will be entitled to 3% tax and Malaysia companies will not be entitled to a 97% deduction. The deduction is not a concern since it is a sales transaction for the Malaysia companies.
Labuan company sells products or services to Malaysia companies
Labuan company will be entitled to 3% tax and Malaysia companies will not be entitled to a 97% deduction. The Malaysia companies will be impacted as these purchases is not entitle for deduction to reduce the tax of the company.
As long as your Malaysian counterpart willing to accept the non-deductibility as mentioned above, Labuan company is entitled to the tax rate according to the latest Labuan Tax 2019 law. Alternatively, you may also opt to pay a 24% tax rate dealing with Malaysian companies.
|Type of Payment||Amounted Not allowed for Tax Deduction||Amount Allowable for Tax deduction|
What is the effect of your annual corporate tax filing?
The Latest Labuan Tax 2019 changes will take effect from 1st Jan 2019 (Year Assessment 2020), hence the new corporate tax filing will be as follows:
- For Trading Company, your financial reporting will be a single tax rate of 3% and will be subjected to audit. If you have been paying a flat fee of RM20,000, for 2019 (Year Assessment 2020) accounts, you will need to appoint Labuan approved auditor to audit your accounts. For 2018 (Year Assessment 2019), you are still eligible to pay the flat tax of RM20,000.
- Investment Holding company remains unchanged at zero tax rate and submission of management account (without audit) is required.
- For Labuan licensed entities and special entities, please adhere to new tax guidelines for the requirement of staff employment and minimum annual spending.
Note: The above tax may be redefined if needed by the relevant authorities from time to time when deems right.
Latest Labuan Tax 2019- the legislation guide issued by Ministry of Finance Malaysia:
Labuan New Tax Rate 3% Legislation
Labuan Substance Requirement for License Entities and Special Entities Legislation
Revised of Substance and Annual Spending
Additional to Revision of Substance Requirement
|Labuan Entity||Minimum No. of Employees in Labuan||Minimum Spending in a Year (RM)||Estimated Amount in (USD)|
|A. Labuan Insurer|
B. Labuan Reinsurer
|Labuan Underwriting Manager||3||100,000||25,000|
|Labuan Insurance Manager||3||100,000||25,000|
|Labuan Insurance Broker||2||100,000||25,000|
|Labuan Captive Insurer||2 - 1st party captive|
3 - 3rd party captive
|Labuan International Commodity Trading Company||3||3,000,000||750,000|
|a. Labuan Bank|
b. Labuan Investment Bank
|Labuan Trust Company||3||120,000||30,000|
|Labuan Leasing Company||2||100,000||25,000|
|Labuan Credit Token Company||2||100,000||25,000|
|Labuan Development Finance Company||2||100,000||25,000|
|Labuan Building Credit Company||2||100,000||25,000|
|Labuan Factoring Company||2||100,000||25,000|
|Labuan Money Broker||2||100,000||25,000|
|Labuan Fund Manager||2||100,000||25,000|
|Labuan Securities License||2||100,000||25,000|
|Labuan Fund Administrator||2||100,000||25,000|
|Labuan Company Management||2||100,000||25,000|
|Labuan International Financial Exchange||2||120,000||30,000|
|Self Regulated Organisation||2||120,000||30,000|
|Investment Holding Company for assets,etc||1||20,000||5000|
|Holding Company (for pure equities holding)||not required||20,000||5000|
|Trading Company that carries out administratibe, accounting, legal, management services, talent management, backroom processing, payroll, agency services and insolvency related services||2||50,000||12,500|
CP TRUST is now part of TRICOR, we are now able to serve you the full range of services as follows to manage the needs to comply with the new tax changes:
CP TRUST is now part of TRICOR GROUP, we are glad to be able to provide a one-stop solution to assist all our clients from bookkeeping to tax advisory and auditing to tackle new Labuan tax law. Our support email ID is email@example.com. For know more about Tricor, please visit TricorGlobal.com.
We have recently expanded our office space to a total of 10,000 sq ft to offer our clients rental solutions and with our full support team, we able to provide Human Resource solutions from recruitment, manage staff and payroll.
With Tricor, we have accounting and licensed tax departments, feel free to drop us an email, should you need to meet us for tax advisory to restructure for your current set up. We offer affordable solutions to all our clients especially for those who like to switch over the accounting and audit services from your current provider at a very affordable price.
To register a new Labuan entity, please send us your inquiry form or email us at firstname.lastname@example.org for an appointment!