Taxation of Companies in Labuan

Updated on Friday 21st September 2018

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Companies in Malaysia are subject to taxation according to the current Government tax system. Labuan is a good location to base a company in the Malaysian area because of its favorable geographical location and good future prospects for development, especially in the financial sector.

Foreign investors in Malaysia can choose among a number of legal entities when deciding to open a business in the country. A new company will be taxed on its profits derived from Malaysia, at the current corporate tax rate.

The experts at our law office in Malaysia are able to help you understand the taxation principles in the country.

The corporate tax in Labuan

Corporate taxation in Malaysia applies according to the residence of the legal entity. A company is a Malaysian resident if it has its management centre in the country or it is otherwise controlled from here. Corporations are taxed on the income they produce from a Malaysian source. Income derived from another country by a Malaysian company is free from tax except for a number of business fields, like insurance, banking or the shipping sector/air transportation.

The taxable corporate income includes business profits from the ongoing trade or business, dividends, interest and royalties received by the company, premiums, income from rent or other types of income. No withholding tax applies on dividends in Malaysia. A 10% withholding tax applies for royalties and the rental of a movable property while a 15% tax applies to interest payments.

More than 70 double tax treaties concluded with countries worldwide guarantee double taxation relief for companies that derive income both from Malaysia and another country. Our attorneys in Malaysia can help you determine if and how you can benefit from double taxation relief.

The following video is a summary of the tax advantages in Labuan:


Other taxes on companies in Labuan

The corporate income tax is the main tax levied on companies incorporated in Labuan. Other taxes on companies levied in Malaysia include the capital duty tax, the real property tax, the payroll tax and the social security tax, payable both by the employer and the employee.

The tax year is generally the same as the accounting year and companies must file the tax returns under a self-assessment regime. The tax return is due within a seven month period until the end of the fiscal year. Failure to comply with the existing deadlines results in penalties. One of our Malaysian lawyers can give you more information about accounting and annual reporting compliance. 

Our law firm in Malaysia provides companies with a series of legal services, including consultation in taxation laws and related matters. For more information about corporate laws in the country please do not hesitate to contact us.