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Labuan: Personal Taxation

Individual Offshore Taxation Privileges

The following income is exempt from tax in the hands of a Malaysian or foreign recipient, at the time of writing:

  • a dividend received by, or received from an offshore company;
  • distributions received from an offshore trust by the beneficiaries;
  • royalties received by a non-resident;
  • interest received from an offshore company under certain circumstances and amounts received from an offshore company for providing services.
  • 65% of income from offshore entities from the rendering of legal, accounting, financial or secretarial services, including that of a trust company as defined in the Labuan Trust Companies Act, 1990 is exempted from tax.
  • Income earned from renting a "qualifying asset" to an offshore company in Labuan is exempt from tax for an amount of up to 50% of the income received for a period of 5 years. Thus a developer can expect to only pay tax on 50% of the income received from a building rented out to offshore companies.
  • 50% of the housing and regional allowances given to residents working in the public sector and offshore companies in Labuan will be exempted from tax.
  • Second tier dividends declared out of dividends received from an offshore company by a domestic company are exempted from tax.
  • Distributions made by an offshore trust are not subject to income tax in the hands of the beneficiary.
  • Royalties paid by an offshore company to a non-resident person company are not subject to income tax and hence are not subject to withholding tax.
  • Interest paid by an offshore company to a nonresident person is not subject to income tax.
  • Interest paid by an offshore company to a resident person, other than a person carrying on a banking, finance company or insurance business in Malaysia, is not subject to income tax.
  • Technical or management fees paid by an offshore company to a nonresident are not subject to income tax.
  • A non-Malaysian citizen employed in Labuan in a managerial capacity would have been exempt from payment of tax on up to 50% of his employment income until 2004; this concession was extended a number of times, so it is worth checking the current tax status of overseas employees before the decision on whether to live and work in Labuan is made.

 

 

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