Labuan Off Shore Company: Why

This is the second post in this series about forming a Labuan Off Shore Business. The first one talked about my own experience registering my own Labuan Off Shore Company.

Restrictions

I tend to be a “bad news first” kind of person, so I’ll start with what the restrictions you have as a Labuan Off Shore Company.

The biggest one is that you are not allowed to do business with Malaysian citizens. Here is the text from my Corporate Terms and Conditions:

1) Corporate Limitation:

Unless a specific exemption applies, generally a Labuan Company is not permitted to carry on business activities with a resident of Malaysia. Further no dealing in Malaysian Ringgit is allowed, except for the purpose of defraying administrative and statutory expenses and receiving fees and commissions. If you wish to do business with Malaysian resident you are required to consult us to determine if your tax exposure under local tax laws before doing so.

For Aha Moments Inc, that isn’t a problem. We do all of our business with advertisers and affiliate programs outside of Malaysia.

Another blanket restriction that I’ve found:

  • An Offshore Company is not permitted to engage in the business of shipping or gas/oil operations in Malaysia;
  • An Offshore Company is not permitted to operate as a trust company.

So with those restrictions in place…

What other kinds of businesses can be formed as Labuan Off Shore Companies?

I’m no expert; I’m learning this as I go, and sharing the information here. It seems as though the instrument of the Labuan Off Shore Company was created for companies to have this tax haven. There are provisions for existing foreign companies to “continue” in Labuan.

Banking, Insurance and other financial investment firms can be formed, but need to be licensed in Labuan which is a whole other process.

The highlights

So here’s the “good news second” section. Offshore companies are designed to be a tax haven. That means we pay a 3% or RM 20,000 tax. If you choose to pay the 3% on net profit, then audited accounts need to be filed and you need to have an approved auditor do that for you. The companies that form these offshore companies, like Law and Commerce can find an auditor for you.

Another highlight is the “paid up capital”. For a Labuan Offshore Company, the minimum paid up capital is $1. This is very attractive to those who have experience setting up a foreign owned Sendirian Berhad or the Malaysian version of a limited liability company.

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Why is this all relatively new?

In 2010, a new regulation was put in place that restricted people with work permits from a Labuan Offshore Company to set up an office in only in Labuan, Kuala Lumpur or Johor Bahru. (That document can be found here although the bulk of it is in Bahasa). Since that time, some office space has been open for rent in Labuan allowing you to have a registered address in Labuan while living elsewhere in Malaysia.

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.

A copy of the Labuan Off Shore Business Activities Act of 1990 can be found at http://www.agc.gov.my/Akta/Vol.%209/Act%20445.pdf