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Introduction
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. Registration fees are on a scale from
RM 1,000 for capital below RM 100,000 to RM 70,000 for capital
above RM 100m.
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.
Private Company Limited by Shares
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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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.
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Public Company Limited by Shares
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.
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.
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.
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 planned 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 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 standard
authorised capital (currently) is US$10,000; divided into
10,000 shares of US$1;
- 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 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.
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 is RM2,600 while for a foreign offshore
company it is RM5,300.
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, as follows:
- Registration
fee RM 1,000
- Certificate
of registration RM 50
- Fee for
renewal of registration RM 50
- Fee for
filing notice of changes to details on file RM 50
- Fee for
filing notice of dissolution RM 50
- Fee for
filing an appliation to restore the name of the partnership
which has been struck off RM 100
- Annual
fee to be paid by the offshore limited partnership RM
1,000
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.
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