Labuan Introduction
New
laws which, it is hoped, will substantially improve Labuan’s
competitive edge in international financial markets came into
effect in February 2010. The new laws allow for the creation
of Labuan foundations, limited liability partnerships, protected
cell companies (insurance and mutual funds), shipping operations,
Labuan special trusts and financial planning activities. These
complement the existing available range of products and services
and aim to provide investors with a wider choice of financial
products to maximise investment opportunities.
Labuan
is part of Malaysia, and Malaysian company law applies there.
Most foreign companies wanting offshore status in Labuan will
use Offshore Company or Limited
Partnership status, see below. These offshore forms are
subject to Malaysian Company law except as described below.
Regular Malaysian companies can be used in Labuan, but will
not receive the tax and other privileges accorded to Offshore
Companies.
Generally,
companies incorporated in Malaysia are regulated by the Malaysian
Companies Act, 1965. The types of companies are:
- a company
limited by shares, which can be private or public;
- branch
of a foreign company;
- partnership
or sole proprietorship.
Foreign
investors normally conduct their businesses in Malaysia in
the form of a private company limited by shares.
Incorporation of a company requires an application to be made
to the Registrar of Companies to approve the proposed name
by submitting the following forms:
1. Memorandum and Articles of Association
2. Statutory declaration of compliance with the Companies
Act
3. Certificate of identity
4. Consent to act as director
5. Statutory declaration by persons before appointments as
directors
Companies pay registration fees based on the amount of authorized
capital, and both filing and stamping fees apply for submission
of the above documents.
A company must have a minimum of two directors and one secretary,
having their principal or only place of residence in Malaysia.
A register of directors is kept at the registered office of
the company and is available for public inspection.
Audited profit and loss accounts and annual returns are required.
Partnerships and sole proprietorships must register with the
Registration of Businesses before they can begin to operate.
There is a registration fee and an annual renewal fee.
In
July 2008, the
Labuan Offshore Financial Services Authority (Lofsa) announced
that its aim was to have 50,000 companies registered in the
financial centre by the year 2012.
Malaysia's
Deputy Finance Minister Datuk Ahmad Husni Hanadzlah made the
comment as he wound down a debate on the Labuan Offshore Financial
Services (Amendment) Bill 2008 in parliament, explaining that
Labuan would reach its target by focusing on niche areas such
as private equity and Islamic finance.
According
to Ahmad there were 6,425 offshore companies registered in
the Labuan Financial Centre as of March 2008. There were also
58 banks with total assets of USD26.6bn, 132 insurers with
more than USD60mn in capitalisation, 106 leasing companies
with USD16bn in leases, 22 fund management companies and 46
listed instruments worth USD16.1bn.
Private
companies, denoted as "Sendirian Berhad" or "Sdn.
Bhd.," may be limited or unlimited. A private limited
company restricts the right to transfer its shares, limits
its membership to no more than 50, prohibits public subscription
to its shares, and prohibits invitation to the public to deposit
money with the company for fixed periods or payable by call
A
private company may be classified as an 'exempt private company'
if its shares are not beneficially owned directly or indirectly
by any corporation and it has not more than 20 members. An
exempt private company need not submit its balance sheet and
profit and loss account with its annual return, and it may
make loans to directors and companies in which the directors
own interests.
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Malaysia Company Limited by Guarantee
In
a company limited by guarantee, the liability of members is
limited to a specified amount undertaken to be contributed
to assets on the company's termination. These are generally
nonprofit organizations.
Public
limited companies, denoted as "Berhad" or "Bhd.,"
are companies whose shares may be offered to the public for
subscription. Companies may apply to the stock exchange for
permission to have their shares listed. A public company is
a company other than a private company. A public company must
be issued a certificate by the Registrar of Companies (ROC)
before it can commence business. It is required to issue a
prospectus that is approved by the ROC before it can invite
the public to purchase shares in the company.
A
listed company on the Kuala Lumpur Stock Exchange is required
to have an independent audit committee.
Malaysia Foreign Company
Companies
incorporated outside Malaysia that do business in Malaysia
are classed as Foreign Companies by the Companies Act. Before
local establishment, a Foreign Company is required to deposit
the following with the Companies Registry:
1. A certified copy of its certificate of incorporation
2. A certified copy of the charter, statutes, and/or articles
of the company that define its constitution.
3. A list of its directors and secretary
4. A memorandum of appointment stating the names and addresses
of two or more persons resident in Malaysia authorized to
act legally and responsibly on the company's behalf
A
Foreign Company is required to lodge with the ROC within two
months of its AGM, a copy of its balance sheet made up to
the end of its last financial year and supporting documents,
if applicable. In addition, it must lodge an audited statement
showing the assets used in and the liabilities arising out
of its operations in Malaysia and an approved auditor's report
which complies with the provisions of the Companies Act.
Malaysia Branch of a Foreign Company
The
registration of a foreign branch in Malaysia requires an application
to be made to the ROC to approve the proposed name of the
intended branch.
The
foreign company's Memorandum and Articles of Association (duly
translated in English if it is in a foreign language) and
certain other prescribed documents relating specifically to
the foreign company must be submitted together with the application.
Upon approval of the proposed name, the Memorandum of Appointment
of Agent or Power of Attorney appointing at least one person
residing in Malaysia as the local agent and other prescribed
documents relating to the registration of a foreign branch
must be lodged with the ROC.
On
payment of a registration fee, which depends on the amount
of the authorised share capital (converted to Ringgit Malaysia)
of the foreign company, a Certificate of Registration of a
Foreign Branch will be issued by the ROC. The registration
fee payable is the same as the fee payable by a Malaysian
company (see above). The certificate is conclusive evidence
of the existence of the foreign branch. The registration of
a foreign branch generally takes three to six weeks.
Labuan Offshore Company
The
Offshore Companies Act 1990 (OCA) provides for the establishment
of offshore companies and the registration of foreign offshore
companies in Labuan. In addition, a foreign company incorporated
under the laws of another country may also apply to be registered
as being continued in Labuan. Every offshore company may be
a company limited by shares or by guarantee. The abovementioned
companies may participate in the offshore activities and enjoy
the attractive tax treatment provided under the Labuan Offshore
Business Activity Tax Act 1990.
Amendments
to modernize the OCA started to be considered in 2006.
It
is a requirement under the OCA that an offshore company must
employ the services of a trust company, which is a company
incorporated under the Companies Act 1965 and registered under
the Labuan Trust Companies Act 1990, to provide trust company
services to the offshore companies. The trust company provides
the registered office, Resident Secretary and performs the
secretarial duties of the offshore company, such as lodgment
of any documents required under the OCA, and also makes available
any of its Trust Officer for appointment as Resident Director.
Residents
and non-residents of Malaysia are permitted to establish offshore
companies in Labuan. The offshore company may carry out any
business that is lawful in Malaysia in, from or through Labuan,
but banking, insurance and insurance-related businesses, fund
management, leasing, factoring and company management would
require the offshore company to be licensed. Shipping operations
in Malaysia are prohibited.
An
offshore company must have at least one director and Resident
Secretary who must be a Trust Officer of a trust company.
There is no minimum capital requirement and the company may
issue shares of different classes and of different rights
but no bearer shares are allowed. Offshore companies are required
at all times to have a registered office in Labuan. No person
in an offshore company could divulge to others any information
concerning share holding, management and any business, financial
or other transactions of the company.
An
Offshore Company (or an Offshore Foreign Company) is only
permitted to carry on business in, from or through Labuan.
An Offshore Company traditionally may not:
- carry
on business with a resident of Malaysia except as permitted
by the Offshore Banking Act 1990;
- carry on
the business of Banking or Insurance or such similar business
unless it is licensed so to do under the Offshore Banking
Act 1990 or the Offshore Insurance Act 1990;
- carry
on business in the Malaysian currency except for defraying
its administrative and statutory expenses;
- carry
on business of shipping or petroleum operations in Malaysia
or carry on business as a trust company.
The Offshore Companies
Act was amended recently to allow Malaysians to own offshore
companies, as well as to permit foreign-owned offshore companies
to invest in Malaysia subject to certain conditions.
Manufacturing
activities are normally carried out by companies incorporated
under the Malaysian Companies Act. An activity which is neither
offshore trading nor offshore non-trading will be subject
to tax under the regular tax regime.
Offshore
insurance and banking businesses are permitted to maintain
a marketing office in Kuala Lumpur until the Government decides
that the management office should be relocated in Labuan.
An
Offshore Company is not treated as carrying on business with
residents of Malaysia if:
- it makes
or maintains deposits with a person carrying on business
in Malaysia;
- it makes
contact with professional advisers carrying on business
in Malaysia;
- it prepares
and maintains books and records in Malaysia; it acquires
or holds any lease or property for operational purposes
or accommodation of its employees;
- it holds
directors’ or members’ meetings within Malaysia;
- it holds
shares, debt obligations, or other securities in a company
incorporated under the Offshore Companies Act 1990 or
in a domestic company, or holds shares, debts obligations
or other securities for the purposes of a transaction
entered into in the ordinary course of a money-lending
business..
Offshore
Companies are allowed to have names in a foreign language,
provided they use the Latin alphabet. The words: Bank, building
society, insurance, assurance, reinsurance, fund management,
investment fund, trust, trustees, Chamber of Commerce, university,
municipal or their foreign language equivalents require approval.
To
denote limited liability, any of the following are permitted:
Corporation, Incorporated, Limited, Sociètè
Anonyme or Sociedad Anonima or the relevant abbreviations.
If the Malaysian word Berhad is used then it must be preceded
by "(L)" to denote that the company is incorporated
in Labuan.
The
following are some of the features of an Offshore Company:
- Beneficial
ownership does not have to be disclosed;
- The minimum
issued capital is one share, which may be fully or partly
paid;
- Registered
shares of par value, preference shares, redeemable shares
and shares with no voting rights are all permitted;
- Bearer shares
are not permitted
- There must
be a registered office and agent in Labuan;
- There is
a minimum of 1 director and 1 secretary which can be corporate;
- There is
a minimum of 1 shareholder;
- An annual
return must be filed;
- A set of
accounting records must be kept in Labuan.
Offshore
Companies that are trading can elect to pay 3% on net audited
profits or the sum of RM 20,000. Offshore Companies that do
not trade do not pay tax. Non-trading (i.e. investment and
holding companies) and trading companies which elect to pay
tax of RM 20,000 p.a. are not required to file financial statements,
and do not have to employ an auditor unless they are offshore
banks or insurance companies.
A
trading company which pays 3% of audited net profits is required
to appoint an auditor and file audited financial statements.
In
May 2007, it
emerged that the Malaysian Finance Ministry was working with
the financial authorities of Labuan to establish a new tax
structure aimed at attracting more companies to the Labuan
International Offshore Financial Centre (IOFC).
Speaking
at the release of the Labuan Offshore Financial Services Authority
(Lofsa) annual report for 2006, Tan Sri Dr Zeti Ahktar Aziz,
Bank Negara Governor and Lofsa chairman, said that new tax
initiatives would be included in the 2008 budget, due to be
announced in September 2007, along with new company forms
to better cater for the requirements of offshore investors.
"With
the new incentives, LOFSA will be able to compete with other
offshore centres in the Asia-Pacific region and the world,"
Zeti told reporters.
“We
want to be competitive and relative to other offshores as
the environment is changing very significantly," she
added.
In
September 2007, the measures were unveiled by the Prime Minister.
Abdullah
stated in his 2008 budget speech that in future, companies
registering in the Labuan offshore sector would have the option
of having their offshore business income taxed under the Income
Tax Act 1967, in addition to under the Labuan Offshore Business
Activity Tax Act 1990.
"In
the light of greater global competition, we need to ensure
that Labuan remains competitive as an international offshore
financial centre. Given that investors in Labuan undertake
a wide range of financial services, a flexible tax regime
is necessary," the Prime Minister explained.
The
Labuan Offshore Business Activity Tax Act 1990 (as amended
2004) provides for the reduction or complete exemption of
income tax in respect of certain business activities carried
on by offshore companies in Labuan. Chargeable profits derived
by an offshore company from an offshore trading activity are
subject to tax at a rate of 3%. An offshore company which
carries on an offshore non-trading activity is exempt from
income tax altogether.
The
Income Tax Act 1967 applies to any activity other than offshore
business activity carried on by an offshore company, meaning
that they pay normal taxes.
The registration fee payable by an Offshore Company is RM1,000
to RM5,000 depending on its authorised capital; an Offshore
Foreign Company pays RM6,000. In addition, the annual fee
for an offshore company at the time of writing is RM1,500
(Approx: USD430) for an offshore company and RM5,300 (USD1,395)
for a foreign offshore company.
Labuan Offshore Limited Partnership
An
offshore limited partnership can be set up in Labuan and consists
of not fewer than two and not more than 20 partners. There
must be at least one general partner. An offshore limited
partnership can be formed for the purposes of a specific project
or for carrying on an offshore professional partnership (which
is restricted to the fields of accounting, actuarial science,
engineering, law and other fields that may be prescribed).
The
Labuan Offshore Limited Partnership Regulations 1999 specified
the process for setting up a Limited Partnership, and the
fees payable to LOFSA.
Labuan Trusts
An
offshore trust can be created by a will or other instrument
of writing including a unilateral declaration of trust. The
duration of an offshore trust shall not exceed 100 years unless
otherwise provided in the terms of the trust. A foreign trust
may be enforceable, recognised or registered in Labuan. Similarly,
a Labuan offshore trust can be transferred to another country.
Labuan
trusts are regulated under the Labuan Offshore Trusts Act
1996 ("the Act"). The Act was gazetted and commenced operation
on 31 October 1996. An offshore trust which is validly created
in accordance with the Act, whether in Labuan or abroad, may
be registered with the Labuan Offshore Financial Services
Authority. A registered offshore trust is subject to the provisions
of the Act.
In
November 2001, the Association of Labuan Trust Companies Malaysia
(ALTCM) persuaded the Board of the Labuan Offshore Financial
Services Authority (LOFSA) to change the status of Labuan
trust firms from domestic to offshore companies.
Previously,
trust companies in Labuan were incorporated under the regular
Companies Act unlike other offshore entities which are incorporated
under the Offshore Companies Act 1990 which meant that the
trust companies paid higher taxes. By being offshore companies
the trust firms are able to enjoy a more attractive tax structure,
having to pay only a 3 per cent tax of their net audited profit.
In
February 2008, an Exposure Draft was published to provide
guidance on the requirements to be observed by all offshore
trusts created under the Labuan Offshore Trusts Act 1966 (LOTA)
and managed under Shariah principles. The Exposure Draft aimed
to ensure that Shariah compliant offshore trusts created in
the Labuan IBFC are based on necessary requirements under
LOTA and Shariah principles.
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13/07 
