The natural bonding of the Internet and Offshore stems from the fact that both, of their nature, manage for the most part to avoid tax. Businesses which can operate on the Internet without, so to speak, touching ground in a high-tax jurisdiction will naturally migrate to offshore jurisdictions; while businesses that already have offshore existence will find it highly convenient to be able to use the Internet to trade with their high-tax customers without having to make a landing in their countries.
As a growing offshore jurisdiction with some thousands of offshore enterprises already installed, including many trading companies, it is only a matter of time before Labuan becomes a centre of e-commerce activity. The island's geographical location between continents, its good telecommunications links, sophisticated business infrastructure and the low-cost, English-speaking, highly-educated work-force are all factors which will attract the sales, marketing and administrative departments of retail operations, particularly those trading into Asian countries.
By locating websites in Labuan to carry out functions previously based in high-tax jurisdictions such as sales and marketing, treasury management, supply of financial services, and most of all, the supply of digital goods such as music, video, training, software etc, businesses can take advantage of low rates of taxation for increasingly substantial parts of their operation.
In many countries, the distribution of goods from a warehousing facility does not constitute the carrying on of a trade or business in that jurisdiction, so that even for physical goods, in many case it will be possible to avoid a permanent establishment (taxable presence) altogether in many high-tax jurisdictions where trading activities currently take place.
A number of companies have already chosen to establish e-commerce platforms in Labuan.
A company operating an e-commerce facility in Malaysia will very probably choose Offshore Company status (see Offshore Legal and Tax Regimes) and will therefore have minimal local taxes to pay.
For information about the impact of e-commerce on a number of the main offshore activities, click on a link below to go to our specialist E-commerce site Offshore-e-com.comclick here.