Labuan: Domestic Corporate Taxation
Income Tax Rates
The healdine rate of corporate tax in Malaysia is 25% (2013). Corporate tax was cut from 28% to 27% in 2007, to 26% in 2008 and to 25% in 2009.
A non-resident company also pays 25% (2013) on chargeable income from Malaysian sources other than:
- Interest: 15%
- Royalties 10%
- Technical fees 10%
- Payments for use of movable property 10%
- Payments to Nonresident Contractors 10%
- Branch Remittance Tax nil
Additionally, in May 2007, it emerged that the Malaysian Finance Ministry was working with the financial authorities of Labuan to establish a new tax structure aimed at attracting more companies to the Labuan International Offshore Financial Centre (IOFC).
Speaking at the release of the Labuan Offshore Financial Services Authority (Lofsa) annual report for 2006, Tan Sri Dr Zeti Ahktar Aziz, Bank Negara Governor and Lofsa chairman, said that new tax initiatives would be included in the 2008 budget, due to be announced in September 2007, along with new company forms to better cater for the requirements of offshore investors.
"With the new incentives, LOFSA will be able to compete with other offshore centres in the Asia-Pacific region and the world," Zeti told reporters.
“We want to be competitive and relative to other offshores as the environment is changing very significantly," she added.
In September 2007, the measures were unveiled by the Prime Minister.
Abdullah stated in his 2008 budget speech that in future, companies registering in the Labuan offshore sector would have the option of having their offshore business income taxed under the Income Tax Act 1967, in addition to under the Labuan Offshore Business Activity Tax Act 1990.
"In the light of greater global competition, we need to ensure that Labuan remains competitive as an international offshore financial centre. Given that investors in Labuan undertake a wide range of financial services, a flexible tax regime is necessary," the Prime Minister explained.
The Labuan Offshore Business Activity Tax Act 1990 (as amended 2004) provides for the reduction or complete exemption of income tax in respect of certain business activities carried on by offshore companies in Labuan. Chargeable profits derived by an offshore company from an offshore trading activity are subject to tax at a rate of 3%, or the company can elect to pay a fix sum of RM20,000 (approx. USD6,500). An offshore company which carries on an offshore non-trading activity is exempt from income tax altogether.
Companies registered in the Labuan offshore sector also have the option of having their offshore business income taxed under the Income Tax Act 1967, in addition to under the Labuan Offshore Business Activity Tax Act 1990. The addition to the tax regime, announced in the 2008 Budget, is designed to ensure that Labuan's tax regime remains as flexible as possible, given that investors in Labuan undertake a wide range of financial activities.
The Income Tax Act 1967 applies to any activity other than offshore business activity carried on by an offshore company, meaning that they pay normal taxes.