Taxable Activities

Offshore Trading Activity includes banking, insurance, trading, management, licensing or any other activity which is not an offshore non-trading activity.
 

Offshore Non-Trading Activity means an activity relating to the holding of investments in securities, stock, shares, loans, deposits and immovable properties by an offshore company on its own behalf.
 

Where an offshore company carries on both an offshore trading activity and an offshore non-trading activity, it shall be deemed to be carrying on an offshore trading activity.
 

Taxation

Offshore trading activity is taxed either at: 
 

• A rate of 3% on chargeable profits (i.e. net profits as reflected in audited accounts), or
• An election to pay a flat tax of RM20,000.
   

Offshore non-trading Activity
 

• No tax is payable for profits earned by an offshore company when it is engaged in offshore non-trading activity.
   

Stamp Duty Exemption

Pursuant to the Stamp Duty (Exemption) Order 2000 [P.U. (A) 9/2000] dated 20 January 2000, the following are exempted from stamp duty.
 

• All instruments which are executed by an offshore company in connection with an offshore business activity
• All Memorandum and Articles of Association of an offshore company.
• All instruments of transfer of shares in an offshore company.
   

Other Tax Exemptions

Exemptions are granted from the domestic Malaysian Income Tax Act 1967 for Labuan Offshore Companies.
 

• Dividend paid by an offshore company out of income derived from an offshore business activity or out of exempt income is not subject to tax. Such dividend will be paid gross without any tax deduction at source.
• Interest paid by an offshore company to a non-resident person or a resident person or another offshore company is not subject to tax.
• Technical or Management fees paid by an offshore company to a nonresident person or to another offshore company are not subject to tax.
• Abatement of Tax for Employment Income derived by a non-citizen resident in Labuan from an employment exercised in a managerial capacity in an offshore company in Labuan is tax exempt up to an amount equivalent to 50 per cent of the gross income from that employment. This exemption applies up to the year of assessment 2000 and has been extended for another five years to year of assessment 2004.
   

Double Taxation Agreements

Labuan offshore companies offer the benefit of being able to access certain of Malaysia’s double taxation agreements for the minimization of withholding and capital gains taxes.

As at 15 August 2002, Malaysia has entered into double taxation agreements with more than 47 countries, namely, Albania**, Argentina*, Australia, Austria, Bahrain, Bangladesh, Belgium, Canada, China, Czech Republic, Denmark, Egypt**, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Jordan, Malta, Mauritius, Mongolia, Myanmar**, Namibia**, Netherlands, New Zealand, Norway, Pakistan, Papua New Guinea, Philippines, Poland, Romania, Russia, Saudi Arabia*, Singapore, South Korea, Sri Lanka, Sudan**, Sweden, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, United Kingdom, USA*, Uzbekistan, Vietnam and Zimbabwe**.  (* Limited DTA, ** Not effective (Gazetted DTA’s)

Amongst other benefits, there are no withholding taxes on dividends paid by Labuan companies.

It should be noted that certain countries with which Malaysia has entered into double taxation agreements do not permit the application of the treaty to Labuan. Specific advice should be sought prior to applying for treaty benefits in the context of Labuan.

Note: The above information is of a general nature only and is not intended to be relied upon as, nor to be a substitute for professional advice or in formulating any business decisions without first seeking such advice. Accordingly, the material should be viewed as a general guide, and professional advice should be obtained for specific situations. We are also not responsible to ensure that the information above is updated on a timely basis. No liability can be accepted by Cachebank and/or its partners in this respect.

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