Labuan Accounting and Tax Considerations

Labuan accounting and tax services

Many international clients engage Tetra Consultants for Labuan accounting and tax services. Tetra Consultants will timely complete your firm’s financial statements, corporate tax returns and manage auditors on your behalf and without the need to travel. It is important to meet the deadlines stipulated by the Labuan Financial Services Authority (LFSA) Failure to comply will result in late penalties and fines.

By outsourcing accounting and tax obligations to Tetra Consultants, you can reduce overhead costs while being ensured of timely reporting and filings. Our accounting team will provide you with an explanation of all the required deadlines and expectations before the start of the engagement.

Thereafter, our team will prepare the required fillings in advance to ensure we meet all stipulated deadlines. Tetra Consultants will send you a weekly or bi-weekly update, ensuring that you are aware of upcoming deadlines.

Annual reporting requirements

• In accordance with Labuan Financial Services Authority (Labuan FSA), it is mandatory for corporate entities partaking in businesses within the jurisdiction to file annual tax returns electronically by the last business day of March following the fiscal year ending on 31^st However, businesses can request for an extension until the end of May, subjected to approval.
• Corporations who failed to meet the stipulated deadline will be subjected to a late filing penalty on the tax due. Taxpayers who were unable to resolve outstanding tax payments in due time will be subjected to penalties as well depending on the degree of non-compliance.

Corporate Tax Rates

• In the past, companies carrying out “Labuan trading activities” can either pay a flat tax of RM20,000 or 3% of its audited net profits. Following the amendment, the option of paying a flat tax rate has been abolished. Instead, these Labuan corporate entities are now required to have their accounts audited for the purpose of tax filing. Resident companies in Labuan are subjected to a Corporate Income Tax rate of 3% on annual audited taxable net income under Labuan’s Tax Regulations.
• On the other hand, if your business is conducting “Labuan non-trading activities”, our international clients will continue to enjoy legally tax-exempt status and be subject to 0% corporate income tax. These companies are also not required to have their accounts audited.
• Failure to comply with the new Economic Substance Requirements will result in the company not being able to enjoy preferential tax treatment until Labuan Business Activity Tax Act 1990. Instead, the company will be subject to prevailing income tax rate under the Malaysian Income Tax Act 1967, which is 24%.
• Companies are able to settle the income tax liability in twelve provisional tax instalments in advance (estimated tax).

Sales and Service Tax

• Selected sales and service tax good and services tax (SST) are 6% and 10% respectively. Tax is imposed on prescribed taxable services including among other things digital services, domestic air passenger transport, telecommunication service and provision of accommodation, food and beverages, service in health and wellness centres and golf clubs and certain professional services.
• It is mandatory for a corporate entity with sales above MYR 500,000 per annum to register for a SST number. Furthermore, you are required to file monthly returns before the end of the following month.

Withholding Tax

• According to Labuan Tax regulations, Labuan registered business entities are obligated to withhold a percentage of certain payments made to non-residents. The withholding tax compliance falls under the responsibility of the Labuan business entity.
• Generally, dividends paid by a Labuan corporation to a non-resident shareholder are not subjected to withholding tax obligations.
• Royalties paid by a Labuan corporation to a non-resident are subjected to a 10% withholding tax rate.
• Interest paid by a resident Labuan company to a non-resident are subjected to a withholding tax rate of 15%.
• Fees paid by a resident Labuan company to a non-resident for onshore services and/or use of moveable property is generally subjected to a withholding tax rate of 10%.

Other Labuan tax and accounting obligations

• If a non-resident is deemed to have a permanent establishment (PE) in Malaysia, the entity will have to register and complete it’s filling of income tax return.
• Foreign tax paid may be credited against Malaysian tax on the same profits (limited) to 50% of foreign tax in the absence of a tax treaty).
• Capital gains are exempted from tax in Malaysia, unless the gains are derived from the disposal of real property or on the sale of shares in a real property company. Typically a 30% of tax is charged for such disposal of property.
• Transfer pricing rules are as per those set out in the legislation that aligns with the 2017 OECD transfer pricing guidelines. The main intention of the policy is that tax payer is able to demonstrate that its transfer pricing positions satisfy the arm’s length principle.
• Taxpayers are allowed to request for an advance pricing agreement. A country by country reporting has been introduced. A reporting entity with total consolidated group revenue of MYR 3 billion or more in the financial year preceding the reporting financial year must file a country by country report.

Contact us to find out more about Labuan accounting and tax considerations the full process to register company in Labuan. Our team of experts will revert within the next 24 hours.