Labuan: Types of Company
The Offshore Companies Act 1990 (OCA) provides for the establishment of offshore companies and the registration of foreign offshore companies in Labuan. In addition, a foreign company incorporated under the laws of another country may also apply to be registered as being continued in Labuan. Every offshore company may be a company limited by shares or by guarantee. The abovementioned companies may participate in the offshore activities and enjoy the attractive tax treatment provided under the Labuan Offshore Business Activity Tax Act 1990.
Amendments to modernize the OCA started to be considered in 2006.
It is a requirement under the OCA that an offshore company must employ the services of a trust company, which is a company incorporated under the Companies Act 1965 and registered under the Labuan Trust Companies Act 1990, to provide trust company services to the offshore companies. The trust company provides the registered office, Resident Secretary and performs the secretarial duties of the offshore company, such as lodgment of any documents required under the OCA, and also makes available any of its Trust Officer for appointment as Resident Director.
Residents and non-residents of Malaysia are permitted to establish offshore companies in Labuan. The offshore company may carry out any business that is lawful in Malaysia in, from or through Labuan, but banking, insurance and insurance-related businesses, fund management, leasing, factoring and company management would require the offshore company to be licensed. Shipping operations in Malaysia are prohibited.
An offshore company must have at least one director and Resident Secretary who must be a Trust Officer of a trust company. There is no minimum capital requirement and the company may issue shares of different classes and of different rights but no bearer shares are allowed. Offshore companies are required at all times to have a registered office in Labuan. No person in an offshore company could divulge to others any information concerning share holding, management and any business, financial or other transactions of the company.
An Offshore Company (or an Offshore Foreign Company) is only permitted to carry on business in, from or through Labuan. An Offshore Company traditionally may not:
- carry on business with a resident of Malaysia except as permitted by the Offshore Banking Act 1990;
- carry on the business of Banking or Insurance or such similar business unless it is licensed so to do under the Offshore Banking Act 1990 or the Offshore Insurance Act 1990;
- carry on business in the Malaysian currency except for defraying its administrative and statutory expenses;
- carry on business of shipping or petroleum operations in Malaysia or carry on business as a trust company.
The Offshore Companies Act was amended recently to allow Malaysians to own offshore companies, as well as to permit foreign-owned offshore companies to invest in Malaysia subject to certain conditions.
Manufacturing activities are normally carried out by companies incorporated under the Malaysian Companies Act. An activity which is neither offshore trading nor offshore non-trading will be subject to tax under the regular tax regime.
Offshore insurance and banking businesses are permitted to maintain a marketing office in Kuala Lumpur until the Government decides that the management office should be relocated in Labuan.
An Offshore Company is not treated as carrying on business with residents of Malaysia if:
- it makes or maintains deposits with a person carrying on business in Malaysia;
- it makes contact with professional advisers carrying on business in Malaysia;
- it prepares and maintains books and records in Malaysia; it acquires or holds any lease or property for operational purposes or accommodation of its employees;
- it holds directors’ or members’ meetings within Malaysia;
- it holds shares, debt obligations, or other securities in a company incorporated under the Offshore Companies Act 1990 or in a domestic company, or holds shares, debts obligations or other securities for the purposes of a transaction entered into in the ordinary course of a money-lending business.
Offshore Companies are allowed to have names in a foreign language, provided they use the Latin alphabet. The words: Bank, building society, insurance, assurance, reinsurance, fund management, investment fund, trust, trustees, Chamber of Commerce, university, municipal or their foreign language equivalents require approval.
To denote limited liability, any of the following are permitted: Corporation, Incorporated, Limited, Sociètè Anonyme or Sociedad Anonima or the relevant abbreviations. If the Malaysian word Berhad is used then it must be preceded by "(L)" to denote that the company is incorporated in Labuan.
The following are some of the features of an Offshore Company:
- Beneficial ownership does not have to be disclosed;
- The minimum issued capital is one share, which may be fully or partly paid;
- Registered shares of par value, preference shares, redeemable shares and shares with no voting rights are all permitted;
- Bearer shares are not permitted
- There must be a registered office and agent in Labuan;
- There is a minimum of 1 director and 1 secretary which can be corporate;
- There is a minimum of 1 shareholder;
- An annual return must be filed;
- A set of accounting records must be kept in Labuan.
Offshore Companies that are trading can elect to pay 3% on net audited profits or the sum of RM20,000. Offshore Companies that do not trade do not pay tax. Non-trading (i.e. investment and holding companies) and trading companies which elect to pay tax of RM20,000 p.a. are not required to file financial statements, and do not have to employ an auditor unless they are offshore banks or insurance companies.
A trading company which pays 3% of audited net profits is required to appoint an auditor and file audited financial statements.
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.
The incorporation fee payable by an Offshore Company is RM1,000 to RM5,000 depending on its authorised capital; There is also a registration fee of RM6,000.