Labuan Offshore Activities

Labuan Offshore Activities

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 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.

Labuan Employment and Residence

To facilitate offshore activities in Labuan, a liberal immigration policy has been adopted. Multiple entry visas are issued to expatriates who have been granted employment permits to work with offshore companies in Labuan.

The normal Malaysian rules, which are softened in many situations in Labuan, are as follows:

Any person who wishes to enter Malaysia to take up employment with a Malaysian company or firm must apply for an employment pass from the Department of Immigration.

Employment passes are issued for a specified period, usually two to three years, and are renewable for an additional two to three years.

Employment passes are granted on a case-by-case basis, generally for positions that require special technical knowledge or expertise not available locally or for positions that cannot be filled by local Malaysian citizens.

To obtain employment passes, expatriates must have a valid passport from their home country, a contract from their employer, a cover letter and three passport-size photos, which may be black and white or color.

The employer of an expatriate must submit an application to the Department of Immigration and await a decision, which may take one month. After the employer receives a letter of approval, it must submit the passport of the employee and pay for the employment pass and the levy. The levy is applicable only to expatriates earning less than a designated amount per month or to expatriates holding employment passes valid for less than two years.

Licensed manufacturing companies that wish to hire expatriates must present copies of their manufacturing licenses. Service companies with foreign equity of more than 30% must seek the approval of the Foreign Investment Committee before hiring expatriates. Companies engaged in construction and project management must register with the Construction Industry Development Board before hiring expatriates. Companies engaged in the retail, trade, wholesale and direct-sales sectors that have foreign equity of more than 30% must seek the approval of the Committee on Wholesale and Retail Trade before hiring expatriates.

It is illegal to work without a valid employment pass; therefore, a foreign national may not work in Malaysia until he or she has received a work permit and all other necessary documents.

To obtain an extension, expatriates must submit new applications for extension three months before the expiration of their passes.

Expatriates who have not completed their terms of contract but wish to take up employment with other companies must leave the country for six months before taking up new employment.

In 2003, the Malaysian government decided to make it easier for companies to hire skilled foreigners, allowing for automatic approvals to be granted for the recruitment of highly skilled workers where there is no available local expertise.

From June 2003, the government further relaxed rules on employing expatriates, granting that manufacturing companies with foreign paid-up capital of at least US$2m be automatically permitted ten expatriate positions, with those to include five key posts. Under the amended rules, expatriates could be employed for up to ten years for executive posts and five years for non-executive posts.

Manufacturing companies with foreign paid-up capital of US$200,000–2m, meanwhile, were permitted automatic approval for up to five expatriate posts, including at least one key post.