Population

Labuan island covers an area of approximately 92 square kilometres and has an estimated population of 75,000. The largest town and financial centre of Labuan Town, and the main language is Bahasam Melayu but English, Tamil and various Chinese dialects are widely spoken.

Political structure

Labuan was ceded to the state of Sabah in 1963, its administration was handed over to the federal government of Malaysia in 1984. Malaysia consists of 13 states and two federal territories of Kuala Lumpur and Labuan. Malaysia has a complex political system with power retained in the hands of nine hereditary sultans, who choose a head of state every five years among themselves. Legislative power is held by a bicameral parliament consisting of a House of Representatives (Dewan Rakyat) and a Senate (Dewan Negara), the executive power is held by the Prime Minister, who governs with the assistance of a ministerial cabinet. Appointments are for a five year period.

Infrastructure & Economy

The Nation is economically strong and politically stable. Under the guidance of LOFSA (the Labuan Offshore Financial Services Authority) the Malaysian government has invested heavily in improving the physical infrastructure of Labuan, which is completely modernised and offers a state of the art telecommunications system, including an Internet gateway that provides an e-trading platform. More than 50 of the world's top banks have branches in Labuan.

Language

The official language is Bahasa Malay. However, English is widely spoken and many documents and publications are available in English (including Labuan offshore legislation).

Currency

The Malaysian currency is Ringgit. Apart from certain exceptions, offshore companies in Labuan are needed to operate in a foreign currency.

Exchange Control

None.

Type of Law

The Malaysian legal system is based on the English model. Special laws applicable to the offshore industry in Labuan have been enacted. Arbitration is permitted. Disputes are heard in camera. Final appeal lies with the Supreme Court.

Principal business law

On Nov 6, 1989, the Government of Malaysia declared the Federal Territory of Labuan as an International Offshore Financial Center. The following regulations apply:

• The Offshore Companies Act 1990.
• The Labuan Trust Companies Act 1990.
• The Offshore Banking Act 1990.
• The Offshore Insurance Act 1990.
• The Labuan Offshore Business Activity Tax Act 1990
• The Labuan Offshore Trusts Act 1997.
• The Labuan Offshore Limited Partnerships Act 1997.
• The Labuan Offshore Securities Industry Act 1998.

In addition, the Labuan Offshore Financial Services Authority (LOFSA) has been established as the sole regulatory body for those statutes.

Procedures to Incorporate

Submission to the Registry of:

• Memorandum and Articles of Association,
• Consent form to act as director,
• The statutory declaration of compliance with the Companies Act
• Certificate of Identity
• Statutory declaration by persons before appointments as directors
• The required fee.

Restrictions on Trade

Permitted trading by an offshore company:

An offshore company may only carry out business in, from or through Labuan. An offshore company may not conduct business with residents of Malaysia except as permitted by the Offshore Banking Act 1990, carries out the business of banking or insurance or related activities unless it's licenced so to do under the Offshore Banking Act 1990 or the Offshore Insurance Act 1990, operate in the Malaysian currency except to contest its administrative, legal, economic activities of shipping or petroleum operations in Malaysia or practice as a management company.

Exceptions to carrying out business with residents of Malaysia:

An offshore company isn't treated as carrying on business with residents of Malaysia if it makes or maintains deposits with a person who carries on business in Malaysia, it comes in contact with professional advisers carrying on business in Malaysia, it prepares and maintains books & records in Malaysia, it acquires or holds any lease or property for operational purposes or accommodation for its workers, it holds directors' or members' meetings in Malaysia, it holds shares, debt obligations or other securities of a company incorporated under the Offshore Companies Act 1990 or a domestic company, or hold shares, debt obligations or other securities for a transaction in the ordinary course of a money-lending business.

Powers of Company

A company incorporated in Labuan has the same authority as an individual.

Language of Legislation & Corporate Documents

English.

Registered Office Required

Yes & Licenced Agent.

Shelf companies available

No.

Time to Incorporate

8 days.

Name Restrictions

Names that resemble the name of a company registered under the Companies Act 1965 can not be accepted. Names that in the opinion of the Registrar suggest Royal or government patronage. Names, as the Registrar considers undesirable, will be rejected.

Language of Names

Offshore companies may have the name of a foreign language, provided they use the Latin alphabet.

Names Requiring Consent or a License

Bank, building society, insurance, assurance, reinsurance, fund management, investment fund, trust, trustees, Chamber of Commerce, university, municipal or their foreign language equivalents.

Suffixes to Denote Limited Liability

Limited, Corp., BV, Pty, Ltd. If the Malaysian word Berhad is used it must be preceded by "(L)" to denote that the company is incorporated in Labuan.

Disclosure of Beneficial Ownership to Authorities

No.

Authorised & Issued Share Capital

The standard authorised capital is U.S. $10,000 divided into ten thousand shares of U.S. $1. The minimum issued capital is one share, which may be wholly or partially paid.

Classes of Shares Allowed

Registered shares of par value, preference shares, redeemable shares and shares with no voting rights.

Taxation

Offshore Companies trading pay 3% on net audited profits or the sum of RM 20,000.

The factor that determines the locality of profits from trade in goods & commodities is generally the place where the contracts for the purchase and sale is made. "Effected" means not only that the contracts are legally exported. It also covers the negotiation, conclusion & implementation of the terms of the contracts.

If a company earns commission by securing buyers for products or by securing suppliers of products by customers, the activity giving rise to the commission generates revenue, the establishment of the company are traded between clients. Source of income is the place where the activities of the commission carried out. If such activities are implemented through an office in Hong Kong, the income has a source in Hong Kong.


Double Taxation Agreements

Labuan, which is a region in Malaysia, is party to more than 63 agreements on double taxation. The countries are: Albania, Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Canada, Chile, China, Croatia, Czech Republic, Denmark, Egypt, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Iran, Ireland, Italy, Japan, Jordan, Kuwait, Kyrgyzstan, Lebanon, Luxembourg, Malta, Mauritius, Mongolia, Morocco, Myanmar, Namibia, Netherlands, New Zealand, Norway, Pakistan, Papua New Guinea, Philippines, Poland, Romania, Russia, Saudi Arabia, Seychelles, Singapore, South Africa, South Korea, Sri Lanka, Sudan, Sweden, Switzerland, Taiwan, Thailand, Turkey, UAE, UK, USA, Vietnam, Yugoslavia and Zimbabwe.

Licence Fees

RM 2,600 per annum

Financial Statement Required

A set of accounting records must be kept in Labuan.

Trading companies who choose to pay tax of RM 20,000 per year are not required to file accounts. Such companies are exempt from appointing an auditor if they're not a licenced offshore bank or insurance company, did not invite the public to subscribe for the shares or bonds or to deposit money with or lend money to the company and the members of the company have decided that no auditor need be appointed.

A trading company, which pays 3% of audited net profits, is required to appoint an auditor and file audited financial statements.

There is a registration fee of RM 50 for the "Adoption of Financial Statements" and if the records of a Labuan company have been audited, then there is a registration fee of RM 50 for the "review of the audited accounts."

Note that Labuan Company accounts need not be monitored unless the company wants to pay 3% of net profits (as per the audited accounts).

Directors

The minimum number of directors is one. Corporate directors are allowed. Directors can be of any nationality and need not be a resident in Labuan or Malaysia.

Company Secretary

A Labuan company must have a resident company secretary, who must be either an officer or a subsidiary of a licenced Labuan trust company. Additional company secretaries, who need not be a Malaysian citizen, may be appointed.

Shareholders

The minimum number of shareholders is one.

How can I get more information on company formation in Labuan?

Please contact us if you wish to open a company in Labuan and we will be pleased to discuss your Labuan company formation matters in greater detail.

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