Set up Labuan company and obtaining work permit
In recent years, the demand for tax planning using offshore financial centres has increased dramatically as international trade has become more active due to the borderless nature of the economy.
This trend will no doubt accelerate in the future.
At the same time, however, it is essential to have professionals who are familiar with international taxation and can provide appropriate advice in the right environment in order to ensure that tax planning is carried out correctly in the context of the global trend towards stricter taxation.
Bona Trust Corporation 博纳信托有限公司, as a trust company in Malaysia’s Labuan Special Economic Zone, provides various support services for high net worth individuals (HNWI) and international business operators, including the establishment, management and operation of Labuan companies and the apply and renewal of working permit.
Different implemented tax rates depending on the country of tax residence.
When you are considering the use of offshore financial centres in Asia, Hong Kong and Singapore are probably the first countries and regions that come to mind as comparators.
Here, a comparison of the 3 Asian regions of Hong Kong, Singapore and Labuan shows the respective effective tax rates as follows: –
| Comparison of corporate taxation systems (maximum %) | |||
| Hong Kong | Singapore | Labuan (Malaysia) | |
| Corporate tax rate | 16.5% | 17% | 3% (tax-exempt for investment purposes) |
| Audit | Necessary | Necessary | Necessary (not required for investment purposes) |
| Tax System | Territory base | Territory base | Territory base |
| Example: for corporate profits of USD 1M per year | |||
| corporate profits | USD 1M | USD 1M | USD 1M |
| corporate tax amount | USD 165,000 | USD 170,000 | USD 30,000 |
| Post-tax benefits | USD 835,000 | USD 830,000 | USD 970,000 |
In addition, when comparing Hong Kong, Singapore and Labuan, the respective personal income tax rates are as follows: –
| Comparison of personal taxation systems (maximum %) | |||
| Hong Kong | Singapore | Labuan (Malaysia) | |
| Personal tax rate | 17% | 22% | 21% approx [※1] |
| Final income tax return | Necessary | Necessary | Necessary |
| Tax System | Territory base | Territory base | Territory base |
| Example: for personal profits of USD 1M per year | |||
| Personal Income | USD 1M | USD 1M | USD 1M [※1] |
| Income tax amount | USD 170,000 | USD 220,000 | USD 5,000 |
| Post-tax benefits | USD 830,000 | USD 780,000 | 99,880,000 |
※1 In cases where the company pays the statutory personal income tax and receives more than its salary in the form of shareholder dividends, etc.
※ For Labuan companies engaged in Trading Activity, the effective tax rate is 3% of the audited net profit (the lowest tax rate in Asia). Non-Trading Activity is exempt from the statutory audit obligation by an auditor.
As can be seen, all companies established in the Labuan Special Economic Zone (tax haven) are subject to preferential tax treatment, making it an extremely advantageous offshore financial centre in terms of taxation compared to Hong Kong and Singapore in the same Asian region.
While Hong Kong and Singapore, with their glittering images, attract a lot of attention, Labuan may be very low-profile and inconspicuous.
However, it is an offshore financial centre that offers great value to wealthy individuals and international traders who pursue true economic rationality.
| [Important] The Organisation for Economic Co-operation and Development (OECD) requirements for economic substance. | |||
| The OECD (Organisation for Economic Co-operation and Development) has initiated activities to eliminate the harmfulness of tax havens and tax incentives as harmful tax competition that adversely affects the economies and tax systems of countries.
As a result, all tax-exempt and low-tax areas (so-called tax havens) have to incorporate Economic Substance Requirements to meet minimum standards to ensure that they do not conflict with harmfulness. This requirement must also be met in Labuan, and the requirements are as follows.
* If the above requirements cannot be met, the mainland Malaysia corporate tax rate (24%) will apply. * If a Labuan company is utilised to carry out business activities, the minimum annual maintenance cost is [annual contribution cost (RM50,000 or more) + 3% running tax rate]. * This requirement is effective from 1 January 2019. |
The Labuan work permit is an option for wealthy individuals and expatriates of companies operating in ASEAN to migrate
When considering emigrating abroad, the most ideal destination is considered to be a country or region that meets the following 4 criteria: –
| Ideal migration destinations | ① No or low income and inhabitant tax rates. |
| ② Exemption from gift and inheritance tax. | |
| ③ Low cost of living and low cost of living. | |
| ④ Security and political situation is stable and easy to live in. |
Unfortunately, there is no country in which all of the above conditions can be met.
In general, the cost of living tends to be higher in cities with better infrastructure, while if you move to a less developed country to reduce the cost of living, you will not be able to clear up issues such as security and political situation, making it difficult to find a well-balanced place to settle.
| Merit | Demerit | |
| Migration to cities in developed countries | Comfortable living conditions | Very high tax and living costs |
| Migration to cities in developing countries | Tax and living costs are low | Security situation is poor
Political situation unstable |
| Migration to tax havens | Tax costs can be almost zero | High cost of living
Unsuitable living environment |
However, the national systems, tax systems and tax treaties of different countries are not necessarily mutually consistent, and overlapping them reveals areas where the systems are distorted.
These areas can be called “tax blank zones” (double tax exemption), especially for those who are considering tax-saving measures.
Many of the world’s wealthy people have successfully combined these different systems to keep their assets separate from the state and pass them on to the next generation with as little diminution as possible.
The Labuan Work Permit is an option for overseas migration that should be considered here.
Malaysia has a very flexible policy towards foreigners who conduct commercial transactions using Labuan entities, issuing work permit for directors and expatriates and allowing them to stay in West Malaysia (*renewable every 2 years).
The Labuan work permit grants dependent pass not only to directors and expatriates, but also to their spouses and children under 21 years of age, and allows them to stay not only in Labuan but also in mainland Malaysia (e.g. Kuala Lumpur and Johor Bahru), which is an exceptional preferential system for an offshore company.
For entrepreneurs and investors, “tax benefits” are often a key consideration when considering incorporation in offshore areas such as Cayman, Bermuda, Mauritius and the Seychelles, but in addition to “tax benefits”, the most attractive feature of a Labuan company is that “by obtaining an offshore visa (Labuan work permit), you can obtain permission to stay not only on the island of Labuan but also on the Malaysian mainland”. The most attractive feature of a Labuan company is that, by obtaining an offshore visa (Labuan work permit), it is possible to obtain permission to stay not only on the island of Labuan but also on the Malaysian mainland.
Although Labuan is part of the Federation of Malaysia, it is governed by the Compnay Act (Act 1990), which is different from the Corporations Act (Act 1965) of mainland Malaysia and adopts a 1 country, 2 systems.
The most famous example is similar to the relationship between mainland China, and Hong Kong or Macau. Hong Kong or Macau work visa will not allow you to reside in Beijing or Shanghai in mainland China, but the Labuan company scheme will allow you to reside in Kuala Lumpur or Johor Bahru in mainland Malaysia.
If you try to establish a similar scheme in other offshore regions, you can only reside in the Cayman Islands for a Cayman company and in the Bermuda Islands for a Bermuda company, but with a Labuan work permit, you can enjoy the benefits of the 1 country, 2 systems, with (1) “well-developed living infrastructure”, (2) “relatively safe” and (3) “relatively inexpensive compared to developed countries”. This is a distinctive feature not found in work visas for other offshore regions.
Support for opening a corporate bank account
Finally, when opening a corporate bank account, which bank to choose is an item to consider, but before that, the question of whether to use onshore or offshore and how to use the two differently is also an important issue.
We can provide advice at the incorporation stage, as the needs of each are different, such as business settlements, investment settlements, etc. The differences between onshore and offshore banks are as follows: –
| Onshore bank | Offshore bank | |
| Target customers | Target local customers
(Malaysian residents) |
Target global customers
(non-residents of Malaysia) |
| Transactions covered | Domestic and international transactions | International transactions only |
| Branch counter | Yes | No |
| Currency type | Malaysian ringgit and foreign currencies | Foreign currencies |
| Payment method | Face-to-face or by telephone, fax, email, cheque, internet banking, etc. | By telephone, fax, email, cheque, internet banking, etc. |
| Transfer fee | Domestic remittance → Domestic remittance fee International remittances → International remittance fees |
International remittance fees |
| Minimum deposit amount | Tend to be low overall | Tend to be higher overall |
| Tax incentives | Not applicable | Applicable |
| Exchange control regulations | Applicable (treated as resident) | Not applicable (treated as non-resident) |
We can assist you in opening a corporate account as follows: –
| Banking information comparison | ||||
| Onshore bank (Malaysia) | ||||
| S Bank | O Bank | U Bank | A Bank | |
| Initial deposit | 10,000 USD | 10,000 USD | 10,000 USD | 10,000 USD |
| Interviews with bankers | YES | YES | YES | YES |
| Minimum deposit amount | 10,000 USD | 10,000 USD | 設定無 | 設定無 |
| Other features | Corporate Debit Cards | Corporate ATM Cards | N/A | Corporate Credit Cards |
| Internet Banking | YES | YES | YES | YES |
| Necessary documents | Personal Resume | Personal Resume | Personal Resume | Personal Resume |
| Offshore bank (Labuan, Malaysia) | ||||
| K Bank | A Bank | F Bank | M Bank | |
| Initial deposit | 10,000 USD | 10,000 USD | 10,000 USD | 25,000 USD |
| Interviews with bankers | NO | NO | YES | YES |
| Minimum deposit amount | 10,000 USD | 10,000 USD | 10,000 USD | 25,000 USD |
| Other features | N/A | N/A | N/A | N/A |
| Internet Banking | YES | NO | YES | NO |
| Necessary documents | 1) Bank Reference 2) Business Plan 3) Personal Resume |
1) Bank Reference 2) Business Plan 3) Personal Resume |
1) Bank Reference 2) Business Plan 3) Personal Resume |
1) Bank Reference 2) Business Plan 3) Personal Resume |
| Singapore Bank | ||||
| O Bank | R Bank | |||
| Initial deposit | 30,000 USD | 80,000 USD | ||
| Interviews with bankers | YES | YES | ||
| Minimum deposit amount | 30,000 USD | 80,000 USD | ||
| Other features | Corporate Debit Cards | N/A | ||
| Internet Banking | 有 | 有 | ||
| Necessary documents | 1) Various documents to prove business transactions, such as contracts and invoices 2) Personal Resume 3) Questionaire |
1) Personal Resume 2) Questionaire |
||
The use of Labuan cormpany differs according to client needs, and likewise, the types of accounts that should be utilised vary.
When we receive enquiries from customers, we listen to what they want to achieve by using Labuan and, based on our practical experience as a trust business operator, we will also “understand the problems you are currently facing, present solutions and concrete ways to use the Labuan“.
With the rapid spread of IT infrastructure in recent years, many of the external environments surrounding companies have been freed from physical constraints, and we have entered a new era in which people, goods, money and information move across borders and globally.
As a result, companies have transcended their traditional frameworks and found themselves in an environment of a different dimension that cannot be compared to that of a century ago.
In line with these rapid changes in the external environment, even if the company’s internal environment remains unchanged, the external environment surrounding the company continues to change at a rapid pace on day by day.
However, the very essence of the need for companies to generate profits and continue to grow up and develop remains unchanged.
In times of major changes in the external environment, it is of the utmost importance for companies to be able to grasp the flow of change appropriately, respond flexibly and continue to grow up and develop.
The time has come for not only large companies, but also small and medium-sized enterprises (SMEs) and sole traders to actively aim for overseas markets.
However, given the reality that even large, well-funded companies struggle with the first steps of going abroad, SMEs and sole traders even more so, as they cannot afford to spend large amounts of money on high-risk initiatives.
That is why the first step must be made at low cost, and in the event of failure, the environment must allow for a quick exit without widening the wound.
We are committed to providing our clients with offshore financial services opportunities that significantly reduce operational and administrative costs.
We hope that our services can be part of the solution for high net worth individuals and international traders.
Contact us
For contact us, kindly write to the following email address with your name, subject and text.
admin (at) bona-trust.com
Please change (at) to @.
We will contact you shortly afterwards.
Thank you.