New Labuan Tax Legislation 2019
All you need to know
A new Labuan Tax Legislation was introduced to all to Labuan industry players with the recent meeting organized by Labuan Financial Services Authority (LFSA) on 17th Jan 2019.
Labuan IBFC’s new friendly tax introduction is carefully crafted to boost the export of Malaysia products and services. The latest Labuan legislative changes have made it more viable for foreigners to use one single entity in Malaysia to reach the international and Malaysia markets. This was not possible before. Previously, all foreigners will need to have two entities with two different tax treatments to two tax authorities, they are the Labuan Tax and the local Malaysia Income Tax Act 1967.
For Malaysia entrepreneurs who like to start an export business, Labuan company is a perfect fit, a 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 (common reporting system by OECD) 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.
|No.||Type of Labuan Entities||FTE||OPEX (RM)|
i. Pure Trading
involved in goods trading, import export trade, online trading
To be confirmed
To be confirmed
ii. Other Trading
Carries out administrative, accounting and legal services including backroom processing, payroll services, talent management, agency services, insolvency related services and management services
i. Pure Equity Holding
Holds shares and receives from subsidaries
ii. Non-pure Equity Holding
Overseas investment in property, bonds, stocks, futures, options etc
Notes: Labuan Authority stated that OPEX in Labuan includes only invoices and bills issued from Labuan. This includes staff costs, Labuan office rents, annual fees, and secretary fees.
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) 25% 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 25% 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) 25% 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 25% 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 to 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.
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 latest legislation guide issued by Ministry of Finance Malaysia:
Labuan New Tax Rate 3% Legislation
Labuan Substance Requirement for License Entities and Special Entities Legislation
Circular on Revision of Non-Deductibilities(Dec 23, 2019)
LIC Circular 1
LIC Circular 2(1)
LIC Circular 2(2)
TRICOR’s ‘one Labuan Platform’ set up to serve you with the convenience of ‘one-stop solution’ offering the full range of Labuan services as follows to manage the needs to comply with the new tax changes:
We are glad to be able to provide a one-stop solution to assist all our clients from bookkeeping to tax advisory, structuring, and auditing to tackle new Labuan tax law. We have also 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 Labuan, 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.
Our support email ID is email@example.com. To know more about Tricor Group, please visit TricorGlobal.com.
To register a new Labuan entity, please send us your inquiry form or email us at Tricor.firstname.lastname@example.org or call us at +603-27839191 (Labuan Division) for an appointment!
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