Malaysia: Types of Company
The 'Malaysian Satay' Holding Company Structure
The 'Malaysian Satay' is the name given to a corporate structure which involves the ownership of a foreign subsidiary by a resident Malaysian holding company which is in turn 100% wholly owned by an offshore Labuan parent corporation. (Malaysia has sovereign control over Labuan, an island lying 10 kilometers off the coast of the Eastern Malaysian province of Sabah and which in 1989 the central government designated as an offshore financial haven). Malaysian tax rules greatly favor such a structure with the consequence that that the "Malaysian Satay" is now becoming a major vehicle in international tax planning.
It should be noted that direct ownership of a foreign subsidiary by a resident Malaysian company with no offshore Labuan connection or alternatively the direct ownership of a foreign subsidiary by an offshore Labuan company with no resident Malaysian connection does not confer the level of fiscal benefits which apply to the deployment of the "Malaysian Satay" corporate structure.
For a country to be an attractive location in which to establish a holding company 4 criteria must be satisfied:
- Incoming dividends remitted by the subsidiary to the holding company must either be exempted from or subject to low withholding tax rates in the subsidiary jurisdiction;
- Dividend income received by the holding company from the subsidiary must either be exempted from or subject to low corporate income tax rates in the holding company jurisdiction;
- Profits realized by the holding company on the sale of shares in the subsidiary must either be exempted from or subject to a low rate of capital gains tax in the holding company jurisdiction;
- Outgoing dividends paid by the holding company to the ultimate parent corporation must either be exempt from or subject to low withholding tax rates in the holding company jurisdiction.
By these criteria the "Malaysia Satay" is a fiscally attractive vehicle.