Labuan IBFC

Labuan International Business and Financial Centre (Labuan IBFC) presents a comprehensive suite of solutions, striking an ideal balance between client confidentiality and compliance with international best standards and practices.

Key Facts

Labuan International Business and Financial Centre (Labuan IBFC) presents a comprehensive suite of solutions, striking an ideal balance between compliance with international best standards and practices and creating a business conducive environment.
Its business-friendly environment, anchored by a simple and attractive tax system, is well-supported by a robust, modern and internationally-recognised legal framework enforced by a centralised regulator, Labuan Financial Services Authority (Labuan FSA).
Labuan IBFC boasts a wide range of business and investment structures facilitating cross-border investments, business dealings and wealth management needs. These unique qualities offer sound options for regional businesses going global or global businesses looking at penetrating Asia’s burgeoning markets.
Strategically located in the heart of Asia Pacific, Labuan IBFC is well positioned to tap into one of the fastest growing regions in the world, presenting the perfect opportunity for businesses seeking to connect with Asia’s economies and beyond.

A Well-Regulated Jurisdiction

Labuan IBFC, regulated by Labuan FSA, has a comprehensive, modern and globally-recognised regulatory framework.

The jurisdiction’s adherence to international standards and best practices set by the international standards setting bodies in financial services and prudential supervision, including protocols on anti-money laundering and exchange of information and regulatory requirements reinforces Labuan IBFC’s commitment to ensuring a safe and secure business environment.

Modern Legislation

Labuan IBFC’s comprehensive regulatory framework provides for a broad range of legal entities including companies limited by shares or by guarantee, foundations, protected cell companies, and partnerships. Businesses in Labuan IBFC are generally governed by the following eight modern Acts:

Labuan Business Activity Tax Act 1990
Labuan Companies Act 1990
Labuan Trusts Act 1996
Labuan Financial Services Authority Act 1996
Labuan Financial Services and Securities (Amendment) Act 2022
Labuan Islamic Financial Services and Securities (Amendment) Act 2022
Labuan Foundations Act 2010
Labuan Limited Partnerships and Limited Liability Partnerships Act 2010

The introduction of the world’s first omnibus legislation governing all Shariah-compliant businesses in an international business and financial centre - provides a greater degree of comfort and certainty to businesses and investors as it covers every aspect of Shariah-compliant financial services, with the establishment of its own Shariah Supervisory Council.

Simple Tax Structure

Labuan IBFC’s simple and straightforward tax system applies to Labuan entities carrying on a Labuan business activity under the Labuan Business Activity Tax Act 1990. It has an unambiguous fiscal framework that provides an ideal ecosystem for global companies to house their international investments and transactions.

Our Fiscal Policy

Key Facts

Inland Revenue Board of Malaysia (“IRB”) being the agency responsible for the administration of tax matters

Compliant with international tax standards and practices

The income tax legislation in Labuan is the Labuan Business Activity Tax Act 1990 (“LBATA”), which has been updated in recent years to comply with the Organisation for Economic Co-operation and Development’s (“OECD”) and Inclusive Framework on Base Erosion and Proﬁt Shifting (“BEPS”)

Economic substance requirements were introduced as a pre-requisite for the preferential tax rates under the LBATA to be applied

Labuan is a Federal Territory of Malaysia, with a unique set of investor-friendly yet robust laws and tax rules.

Located in the heart of the Asia Pacific region, Labuan International Business and Finance Centre (Labuan IBFC) is easily accessible from major economic centres such as Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Manila, and Singapore. Labuan IBFC is regulated by the Labuan Financial Services Authority (“Labuan FSA”), with the Inland Revenue Board of Malaysia (“IRB”) being the agency responsible for the administration of tax matters.

As a leading and substance-enabling mid-shore jurisdiction, Labuan offers innovative, cutting-edge solutions to meet investor demands, whilst being compliant with international tax standards and practices. Guidelines on regulatory matters are issued regularly on the Labuan FSA website, found at the link here: https://www.labuanfsa.gov.my/legislation-guidelines/guidelines.

The income tax legislation in Labuan is the Labuan Business Activity Tax Act 1990 (“LBATA”), which has been updated in recent years to comply with the Organisation for Economic Co-operation and Development’s (“OECD”) Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”). In this regard, economic substance requirements (“ESR”) were introduced as a pre-requisite for the preferential tax rates under the LBATA to be applied. The Labuan Investment Committee (“LIC”) was set up to conduct consultations with stakeholders on Labuan tax matters and to resolve implementation issues.

Apart from being strategically located, business-friendly and compliant with international standards, Labuan IBFC offers investors an attractive tax regime. Entities established in Labuan IBFC may avail the benefits of the many bilateral tax agreements entered into by Malaysia. Labuan IBFC has also adopted a simple tax structure by allowing investors to enjoy preferential tax rates. Non-trading activities (such as investment holding) are not subject to any tax, whilst other activities are subject to tax of 3% of net audited profits. These preferential tax rates only apply if the relevant ESR are met. Various exemptions are available to Labuan entities in relation to indirect taxes, stamp duty and withholding tax.

Tax Structure

Income from Labuan trading activities (as defined) taxed at 3% of net audited profits

Non-trading income (e.g., from investment holding activities) attracts no tax

Clear and prescribed substance requirements based on business activities via a gazette regulation issued by the government of Malaysia

Fiscal Regime is perpetual not time bound

May irrevocably elect to be taxed at the domestic tax rate under the Malaysia Income Tax Act 1967. Generally, the corporate tax rate is 24%

Digital Islamic finance – 5 years tax exemption with effect from year of assessment 2024 [refer to the Labuan Business Activity Tax (Exemption) Order 2024 for details]

Other Benefits

Exemption from withholding tax on dividends, interest, royalties, service fees and lease payments to non-resident

Exemption from stamp duty

Access to most of Malaysia’s 70+ double taxation agreements*

100% foreign ownership

100% tax exemption on director fee received by foreign director until year of assessment 2025

Access to live in Malaysia

*Labuan entities enjoy the benefits of most of Malaysia’s tax treaties, but certain treaties have specifically excluded Labuan entities from treaty benefits

Useful Links for Labuan IBFC

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Stay ahead of the game

Access a wealth of information from Labuan IBFC from reports on forward-thinking research to insightful articles.

Get in touch

Interested to setup your business in Labuan? Speak to our dedicated advisors to find out more.

Schedule an appointment

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