Offshore Jurisdiction Review—Labuan

 

Labuan is a rather complex offshore jurisdiction with cleverly written laws and tax codes. This article is by no means exhaustive, but should serve as a good primer on what’s going on in Labuan.

History

Labuan entered history books in the 14th century when the Majapahit Empire fell and Labuan became a part of the Sultanate of Brunei.

Not a lot happened until 1846, when the British gained control over Labuan. The island was named Victoria under British rule and served as a naval base for combating piracy in the region. The British saw potential for Labuan to become an important hub similar to Singapore.

Labuan was granted independence in 1963. It then became a part of Sabah and joined Malaysia. This lasted until 1984, when Sabah ceded Labuan, which pronounced itself a federal territory of Malaysia, gaining greater independence in the process.

Today, Labuan is a tourist attraction and growing financial center.

Labuan Offshore Companies

There are two types of offshore companies in Labuan: trading companies; and non-trading, or holding, companies.

A Labuan non-trading company is a company which engages “an activity relating to the holding of investments in securities, stock, shares, loans, deposits or any other properties by a Labuan entity on its own behalf”—it’s effectively a holding company.

Both forms of companies are registered under the same law; but different taxes, fees, and requirements apply depending on what the company is doing.

There is a third category, called a Labuan Charged Company. This is a company that opts to be taxed under federal Malaysian law, which grants access to Malaysia’s (as of this writing) 73 double-taxation agreements (DTAs)—a rather impressive range, with good coverage of Europe and Asia.

Labuan is becoming the favored jurisdiction in Asia for its combination of tax efficiency and reputability, owing to compliance with international standards on due diligence and transparency.