The federal territory of Labuan is a group of tropical islands off the coast of Sabah and was established as Labuan International Business and Financial Centre (Labuan IBFC) to attract international financial activities. Right from the start, the Malaysian Government had taken pains to avoid the label 'tax haven' for Labuan, and had been vigilant against being used for international money laundering. However, its tax rate of 3% on net profit or a flat amount of RM20, 000 per year clearly calls to mind as a tax haven.
Tax Rate in Labuan
The corporate tax of a Labuan company is very flexible and simply by declares as one of the following:
- Dormant, non-trading and investment holding company – no corporate tax.
- For trading company, there is 2 tax rate:
(1) A tax rate of 3% on net profit
(2) An amount of RM 20,000 tax regardless of your company turnover
- For company having business with Malaysia company, it have to pay a 25% of corporate tax (not advisable)
All Labuan Company have their financial year end on every year of 31st December. Director has to prepare the management account and audit reports (for tax rate of 3%) submit to Malaysia Inland Revenue. Company have to maintain management account, complete audit report, filed annual return, tax submission, Form E and Form BE (if applicable) to complete annual compliance procedure.
Labuan Non-Trading Activity
Labuan non-trading activities refer to the holding of investments in securities, stocks, shares, loans, deposits or any other by a Labuan entity on its own behalf.
Labuan Trading Activity
Labuan trading activities included banking, insurance, trading, management, licensing, shipping operations or any other activities not considered as a Labuan non-trading activity.
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