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
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
Generally, companies incorporated in Malaysia are regulated
by the Malaysian Companies Act, 1965. The types of companies
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
3. Certificate of identity
4. Consent to act as director
5. Statutory declaration by persons before appointments as
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.
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
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
A listed company on the Kuala Lumpur Stock Exchange is required
to have an independent audit committee.
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.
Labuan 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.
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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
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
- 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
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
- 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
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
- 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
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
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,"
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
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.
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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.
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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
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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