Do you know the Tax rate of Labuan Trading company is no longer 3%?
Labuan company used to enjoy very low tax, a company can enjoy tax as low as 3% or a maximum of RM20,000. However, the Labuan tax regime has been revised, the trading companies can no longer enjoy 3% of low corporate income tax since the implementation of Labuan Business Activity Tax Regulation 2018, instead, the tax rate will be on par with normal Malaysia domestic company, which is 24%.
Type of trading company including the company that doing import or export, and also company that provide consultation or technology services. These are very common nature of business and it is affecting a lot of business owner.
Fortunately, there are still 21 types of business activities are still entitled to 3% of corporate income tax with economic substance requirements, such as a minimum number of full-time employees in Labuan and a minimum amount of annual operating expenditure in Labuan. Any entity that failed to meet the economic substance requirements, hence be subject to tax at 24%, but it does not change the fact that the entity is still a Labuan Company incorporated under Labuan Companies Act, 1990. Substance requirements and incorporation jurisdiction are two distinct and separate legal concepts and are not interchangeable.
Full Time Employee
Previously, some Labuan companies will hire someone from peninsular Malaysia as their full-time employee to fulfil the economic substance requirement. This method is work until recently, the Tax Authority has come out with the definition of Full Time Employee, which shall include:
a. At least an officer of a managerial capacity; and
b. Other employees dedicated to serve the Labuan entities may be employed either on a permanent or contract basis by the Labuan entities which include non-managerial and clerical staff.
Besides, the tax authority expects that an employee designated as a Labuan Operation Office FTE will have their personal tax file in IRB’s Labuan office. In the other words, the tax authority is expecting the FTE is located in the Labuan entity designated office in Labuan.
What’s Next?
Any business nature that is out of the business activity under Labuan Business Activity Tax Regulation 2018 is going to tax at 24%. Hence, if your business nature is none of them, the best solution is to change your company to other offshore jurisdictions such as Hong Kong, Seychelles, Malta, Singapore and etc.
If you are too confused about which jurisdiction is the best suited for you, please feel free to contact our office, our staff is pleased to help! We are providing FREE consultation at a limited time! Ring us up!