As an entrepreneur, we understand that you might be constantly looking to set up your company at the most beneficial location possible. It is also known that setting up an offshore company, for example, versus a traditional company, has far more perks for the business.
Though it may seem like a tough process and you might feel lost, fret not; based on extensive research, we have compiled a guide below to help you understand the ins and outs of setting up an offshore company in Malaysia based in Labuan.
In this guide, we have also included key information you need to know, such as the documentation needed, the time frame and processing fee you will incur, the regulations you must adhere to and, of course, the accounting and taxation requirements for a Labuan company.
While the process of setting up may be easier than a traditional company in Malaysia, setting up any company requires you to align its business needs and goals to your registration requirements. We hope this guide will shed some light and guide your decision-making!
What Is Labuan Offshore Company?
An offshore company is a firm that typically refrains from conducting business in its place of formation. As a result, the firm can be formed to benefit from low tax rates and is free from interference from its home government.
Therefore, A Labuan offshore company refers to a business registered in Labuan. If you were to set up an offshore company based in Labuan, your business would enjoy tax incentives, simpler regulatory processes and higher confidentiality when it comes to business operations.
An important note to remember is that despite it being an offshore company, the business that you set up in Labuan will still be subject to rules and compliance requirements.
Benefits of Setting Up an Offshore Company in Malaysia
Often, the key reasons why many look to register an offshore company in Malaysia are the perks that it provides. Let’s take a look at some of the key benefits :
1. Foreign Ownership
Unlike registering for a company in Malaysia, starting an offshore company in Malaysia does not require you to be a citizen or a local partner.
You can have complete control over your business in Labuan.
2. Pay little to no taxes
Offshore companies in Malaysia will get to enjoy tax incentives. They might have to pay a small amount of tax, but taxes like GST and sales and service taxes are completely exempted.
On top of that, holding companies do not have to pay taxes and do not need to conduct annual audits.
3. Easy to set up and dissolve
Unlike traditional set-up procedures, offshore companies in Malaysia are set up through a much simpler process, with less paperwork and time taken.
Likewise, the process of dissolving an offshore company in Malaysia is also rather straightforward. Just transfer all the company shares, and you’re done!
4. High Privacy
If you run businesses with high net-worth clients, celebrities or other famous people, having an offshore company in Malaysia should be the way to go.
This is because Labuan offers much higher privacy, whereby information about shareholders and directors is not publicised. This will enable you to run the business’s operations more smoothly!
Documentation Required for Registration of Offshore Company in Malaysia
For you to set up an offshore company in Malaysia, you will still need to collect several important documents for registration purposes. Let’s look at some of the key documents needed :
- Company name
- Memorandum of Association (MOA)
- Copy of ID/Passport
- Proof of residential address (utility bills/bank statement)
- Shareholder and Director information
- Detailed business plan for the offshore company
- Declaration of compliance by the trust company
- Director’s consent
- Business licenses, if needed
Now that you have all these documents let’s look at the step-by-step guide below on registering for an offshore company in Malaysia.
Steps to Register an Offshore Company in Malaysia
As I have mentioned earlier, the steps needed to establish an offshore company in Malaysia are rather straightforward and simple. If you follow the steps below closely, you should be able to register and operate an offshore company immediately!
Step 1: Pick a business entity
As with starting any business, ensure you are clear about your business goals to choose a fitting business entity. Several entities are available for the set-up of your offshore company. They include :
- Company: This is the perfect structure for bigger companies. Providing limited liability sets your business’s operations separate from the owners’.
- Partnership: frequently employed by small firms when two or more people agree to split the earnings and liabilities of a single company.
- Foundation: primarily set up for charitable purposes, but it can also function as a special kind of company, managing resources and carrying on operations for the members’ advantage.
Step 2: Choose a business name.
Choose a name for your company that is according to Malaysian law. Ensure that another business doesn’t already use the name. You should also check its availability and reserve the name with SSM while you prepare your documentation
Step 3: Prepare data and information needed
Gather all the documents needed for your registration process. It is crucial that these documents are organized and prepared earlier to ensure a smooth registration process.
Step 4: Submit all documents
Once all the documents are collected, submit them accordingly for the registration process to be completed. Pay any fee that is required accordingly.
Step 5: Certificate of Company Incorporation
Get your Certificate of Incorporation upon approval and start running your business operations.
Timeframe and Processing Fees
The time frame and processing fee to set up an offshore company in Malaysia will vary on a case-by-case basis. Firstly, it highly depends on how meticulously you have collected and presented all the documentation for registration.
Provided that all documentation is available, our research suggests that it will take anywhere from 2 weeks to 4 weeks for the certificate of Incorporation to be produced and for a corporate bank account to be set up.
In terms of fees, below are generally what you will need to pay aside from fees incurred should you engage any professional consultants to aid the registration of your offshore company in Malaysia.
Note that although some of these fees are a one-time payment, the ‘Yearly Fee’ section highlights recurring costs you will incur for as long as you are running your offshore company in Malaysia.
General Fees:
- Reservation of company name: RM50
Paid-up capital Fee:
- Companies with RM50,000 and below in capital: RM1000
- Companies with more than RM50,000 but less than RM1 million in capital: RM2000
- Companies with more than RM1 million capital and above in capital: RM5000
Registration Fee:
- Foreign Labuan company: RM6000
Yearly Fee:
- Labuan company : RM2600
- Foreign Labuan company: RM5300
Accounts and Taxes for Labuan company
Now that you have set up an offshore company in Malaysia based in Labuan, there are still some accounting and taxation matters that you need to consider to run your offshore company smoothly.
According to the Labuan Business Activity Tax Act of 1990 (LBATA), your Labuan business activity is taxable as long as you are a Labuan entity.
The good news is only the annual audited taxable net profit, as shown in the signed audited report, is subject to the 3% tax rate that applies to Labuan entities. Income from other non-trading activities, like owning securities of a Labuan firm, is automatically exempt from all forms of taxation.
The perks that an entrepreneur like you can get from setting up an offshore company in Malaysia make it attractive. Let’s look at some of the tax exemptions that you will receive as an offshore company in Malaysia :
1. No indirect tax – offshore businesses in Labuan are granted free-port status. Therefore, Labuan entities that are located in Labuan are exempt from indirect taxes like sales and service taxes.
2. Stamp duty – All documents that a Labuan corporation executes during its business are exempted from paying any stamp duty.
3. Exchange control – Exchange control refers to the restriction imposed by the government on currency exchange transactions. In Labuan, no exchange control limitations will apply to the organization.
4. Payments made by Labuan entities – Income received from Labuan entities are eligible for the following exemptions:
- Dividends that Labuan Company was given
- Dividends paid, credited, or distributed by Labuan Company from profits generated by Labuan business operations
- Distributions to beneficiaries of the Labuan trust
- Interest that a resident received from Labuan Company
5. Withholding tax – The following amounts are free from withholding requirements and paid to non-residents by Labuan entities:
- Royalties
- Interest
- Technical support, guidance, or services
Maintaining Compliance: Annual Requirements and Audits
As an offshore company in Malaysia located in Labuan, your business must fulfill certain annual requirements and audits to continue operating.
Failure to comply with these requirements will cause a penalty or fine to be imposed. Let’s take a look at the requirements :
- Electronically file annual tax returns by 31 May every year
- Yearly fee payment according to the company’s authorized capital. Click here for the amount.
- File monthly SST returns if you make more than MYR 500,000 per annum
- Audit your financial statement annually to be approved by the Board of Directors by March and subsequently for auditors to complete the audit process by May every year.
Limitations of Labuan Offshore Company in Malaysia
It is without a doubt that establishing an offshore company in Malaysia based in Labuan has many advantages and benefits to entrepreneurs. However, it is also important to understand and be aware of certain limitations that exist when setting up an offshore company in Malaysia.
Based on our extensive research, we have summarized a few key limitations that you must take into consideration before setting up your offshore company :
1. Restricted Local Business Operations
Essentially, certain local business activities within Malaysia are off-limits to Labuan offshore businesses. Direct involvement in retail trading or offering local financial services, for instance, necessitates extra permits or licenses that can conflict with the structure of an offshore firm.
2. Proof of operations
You must prove that you are operating in Labuan to guarantee a lawful corporate operation in the country. This may be challenging for smaller firms as fees are still incurred, particularly for maintaining a physical presence in Labuan with local workers.
3. Restricted Access to Local Market
An offshore company in Malaysia, based in Labuan, is usually set up for the purpose of trading globally. That said, access to the local market (like Malaysia) is not allowed and, therefore, poses restrictions to an organization that wants to do business with Malaysians.
4. Recurring Costs
Although there is no doubt that Labuan is a tax haven, there are still annual fees and costs that your offshore company in Malaysia will incur. To see what you need to pay annually, click here.
That said, you should weigh these recurring costs against all the possible tax savings to see if setting up an offshore company is worthwhile.
Read also: How to Register A Company in Malaysia: Complete Guide
Conclusion
Thanks for sticking to this guide till the end! And if you have concluded, then Congratulations! You’re ready to set up an offshore company in Malaysia on your own. We surely hope that this guide has helped you navigate the process of setting up an offshore company in Labuan.
At this point, I’m confident that you have grasped the key advantages of owning an offshore company based in Labuan. To recap, they include low taxation incentives, the freedom to be fully owned by a foreign individual, and an easy set-up process.
Aside from being able to enjoy these benefits, we have also highlighted in this guide certain limitations that may be present. Although all the tax exemptions, ease of setting up, and other benefits may seem attractive, you must weigh the pros and cons, as some limitations may outweigh the positives. Remember to choose wisely according to your business goals!
That said, creating an offshore company in Malaysia is certainly not a one-size-fits-all solution. If your business is more suitable to be operated in Malaysia itself, then explore our comprehensive guide on “How to Register A Company in Malaysia: Complete Guide” to set up your business on the mainland.
Ultimately, the road to success relies on you being well-informed and making sound business decisions. Always fall back on what is best for your business and operations. Good luck, and we hope to have provided you with enough guidance to navigate your next steps!
