How to Start a Labuan Offshore Company as a Foreign Investor

Labuan stands out as a premier offshore financial center in Asia. Its strategic location and tax incentives make it an appealing choice to start an offshore company in the region. Offshore companies play a crucial role in global business strategies, enabling you to optimize tax liabilities and enhance asset protection.

In this article, we will give you all the information you need to start a Labuan offshore company from legal requirements to the step-by-step registration process. 

Benefits of Establishing an Offshore Company in Labuan

Labuan has emerged as a prominent offshore financial center in Asia, characterized by its favorable tax regime and minimal regulatory burdens. According to Nik Din – Director of Labuan Financial Service Authority, the region is among the top 3 international financial centers in Asia, and here’s why:

• Tax advantages – you can enjoy exemptions from various indirect taxes, including Goods and Services Tax (GST) and sales tax. Companies can also benefit from low corporate taxes of only 3% or even zero for specific activities. Furthermore, Labuan is also part of Malaysia’s extensive network of Double Taxation Avoidance Treaties (DTAs), your company can avoid double taxation on international earned income. 
• Ownership and control – Another advantage of starting a Labuan offshore company is the ability to maintain 100% foreign ownership without the need for local partners. Establishing a company in Labuan provides flexibility in company structure, enabling investors to choose from various types of entities tailored to your specific business needs. 
• Visas for you and your family – you can obtain a business visa including a Dependent visa for your family. The Malaysian government also offers a Malaysia My Second Home (MM2H) program, which allows foreign investors to reside in Malaysia long-term. You can live and operate your offshore company in the country without visa renewals, access to local banking services, healthcare, and education facilities for your family. 
• Favorable regulatory environment – your company can enjoy high levels of confidentiality with minimal disclosures and obligations, protecting sensitive business information. Starting an offshore company in Labuan has fewer bureaucratic hurdles compared to other jurisdictions. 

How to Setup a Labuan Offshore Company

Regulatory Framework for Setting Up a Labuan Offshore Company

Establishing an offshore office in Labuan involves navigating a well-defined regulatory framework set by the Labuan Financial Services Authority (LOFSA). It is designed to facilitate international business while ensuring compliance with local business laws. 

According to the Labuan Companies Act 1990, foreigners can establish various types of businesses in the region, including:

• Labuan International Business Company (IBC) – the most common structure for offshore businesses, allowing for 100% foreign ownership.
• Limited by Shares – a structure where liability is limited to the amount unpaid on shares held by shareholders.
• Limited by Guarantee – a structure where members’ liability is limited to the amount they agree to contribute to the company’s assets if it is wound up.

Emerhub can provide you with local insights into Labuan’s regulatory framework. Our experts can guide you through the process of setting up an offshore company with tailored advice, taking into account the nature of your business, investment budget, and other prerequisites.  

Requirements for Setting Up an Offshore Company in Labuan

When starting an offshore company in Labuan, compliance with regulatory authorities is crucial to ensure smooth operations and avoid potential setbacks. Non-compliance with these regulations can result in significant penalties, including administrative fines under the Labuan Offshore Financial Services Authority Act and other enforcement actions. 

To ensure compliance with local regulations, Your Labuan offshore company must adhere to several requirements:

1. Registration with Regulatory Authorities – all companies in Labuan must be registered with the following authorities in Malaysia:
   • Labuan Company Formation Authority (LOFSA) – oversees the incorporation process and ensures adherence to relevant laws.
   • Inland Revenue Authority of Malaysia (IRBM) –  must comply with tax regulations, including filing annual tax returns as per LOBATA.
   • Central Bank of Malaysia (Bank Negara Malaysia) – companies engaged in financial services must comply with regulations set by the Central Bank, particularly concerning anti-money laundering (AML) and counter-terrorism financing (CTF) laws.
2. Annual Reporting and Compliance – you are required to submit annual returns and audited financial statements to LOFSA. This compliance with economic substance requirements may necessitate maintaining a certain level of operational presence in Labuan, including having local employees and annual operating expenditures.
3. Licensing for Specific Activities – Certain business activities, such as banking or insurance services, require specific licenses from LOFSA before commencement.
4. Minimum directors and shareholders – requires at least one director and one shareholder above 18 years old, who must be a resident of Labuan. This director can be a natural person or a corporate entity.  It is mandatory to appoint a company secretary who is an approved officer of a Labuan trust company.
5. Documentation needed – to register an offshore company in Labuan, the following documents are required:
   • Memorandum and Articles of Association
   • Consent Forms from Directors
   • Identity Certificates of all directors and shareholders
   • Statutory Declarations
6. Minimum share capital – there is no minimum share capital requirement for a Labuan offshore incorporation; however, at least one share must be issued. The share capital can be denominated in any currency except Malaysian Ringgit.
7. Accounting Obligations – you are required to maintain proper accounting records for at least seven years with annual returns filed with LFSA, together with audited financial statements. Companies engaging in “Labuan Business Activities” must comply with economic substance requirements to benefit from favorable tax rates, which include having physical premises and local employees in Labuan.

Registration Process for Offshore Companies in Labuan

Setting up an offshore company in Labuan can be a complex process without knowledge of the local market and local legislation. By partnering with Emerhub’s comprehensive company registration service, our local team will ensure compliance with local regulations and facilitate a smooth company setup throughout the process:. 

1. Initial due diligence – we will help conduct initial due diligence by evaluating your business objectives and selecting the most suitable entity type, whether it’s a company limited by shares or by guarantee. This ensures that your chosen structure complies with the Labuan Companies Act and meets your specific needs.
2. Name reservation process – once a business structure is determined, we will help you reserve a company name. The name can include words or abbreviations in any language but an accurate English translation must be provided. Emerhub can help conduct business name cross-checking for availability.
3. Filing and approval stages – after securing a name, Emerhub can prepare and submit the required documents to the LFSA. Once submitted, the application undergoes a thorough review process. Approval generally takes between 2 to 7 days, after which investors receive a Certificate of Incorporation.
4. Post registration requirements – following registration, companies must fulfill additional obligations to legally operate in Labuan:
   1. Opening a Corporate Bank Account – Emerhub can help open a corporate bank account in Labuan which is essential for conducting business operations and managing finances effectively.
   2. Application Process for Work Visas – For foreign investors and employees planning to work in Malaysia, Emerhub can guide you through the application process for work visas.

By leveraging Emerhub’s expertise throughout the registration process, foreign investors can confidently navigate the complexities of setting up an offshore company in Labuan. Beyond the initial registration, Emerhub provides ongoing compliance support, including assistance with mandatory accounting and tax obligations. 

We can help your business maintain adherence to local regulations to help manage your financial records and tax filing. With Emerhub, you can focus on growing your business while having peace of mind that your offshore operations are in full compliance with the LFSA. 

Ready to start your own company in Labuan? Fill in the form below and one of our local experts in the country will get in touch!