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LABUAN - Malaysia's International Offshore Financial Centre

Tax is imposed on an offshore company in or from Labuan that is carrying out offshore business activities as provided for under the Labuan Offshore Business Activity Tax Act 1990 (LOBAT) effective from the year of assessment 1991.

Offshore business activities are categorised into:

  1. Offshore Trading Activity - includes banking, insurance, trading, management, licensing or any other activity which is not an offshore non-trading activity; does not include shipping and petroleum operations.

  2. Offshore Non-Trading Activity - refers to an activity relating to the holding of investments in securities, stocks, shares, loans, deposits and immovable properties by an offshore company on its own behalf.

    When BOTH activities above are carried out by an offshore company, that company is deemed to be carrying on an offshore trading activity.

Corporate Taxation

Preferential tax treatment under the LOBAT is available to offshore companies undertaking offshore trading and non-trading activities. An offshore company carrying on an offshore trading activity, will be taxed at a rate of 3% of net profits as per the audited accounts of the company or at a fixed rate of RM20,000 upon election by the company. Alternatively, the company may opt to pay a fixed fee of RM20,000 to the Registrar of Companies. However, from year of assessment 1999, the option to pay an administrative fee was deleted. The income of an offshore company from an offshore non-trading activity will not be subject to tax.

Abatement of Tax for Professional Services

Income derived by a person or his employee or a company from qualifying professional services rendered to an offshore company in Labuan is exempt from tax up to an amount equivalent to 50 percent of the adjusted income from that source. This exemption is applicable from the year of assessment 1992 to the year of assessment 1997. From 1997 a 65% abatement of statutory income is available for each year of assessment from year of assessment 1997 to year of assessment 2000.

Abatement Of Tax For Business Relating To Or Letting Of A Qualifying Asset

Income of a person derived from the carrying on of a business which relates to a qualifying asset, or the letting of a qualifying asset, in Labuan, is exempt from tax up to an amount equivalent to 50 percent of the adjusted income from that source.

Abatement Of Tax For Employment

Income derived by a non-citizen individual from an employment exercised in a managerial capacity in an offshore company in Labuan is exempt from tax up to an amount equivalent to 50 percent of the gross income from that employment for a period of six years commencing from year of assessment 1992 to year of assessment 1997. This abatement has been extended to year of assessment 2000.

Tax Exemptions

Dividends paid out or received by Labuan offshore companies are not subject to tax.

No withholding tax on royalties, interest, technical or management fees paid by an offshore company to a non-resident or another offshore company.

No sales tax, import duties, excise duties and export duties except for petroleum and petroleum products.

Stamp Duty Exemption

All instruments made in connection with an offshore business activity by an offshore company are not subject to stamp duty.

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