Country code – MY
Legal Basis – Mixed (Common and Sharia)
Legal framework – Foundations Act, 2010
Regulatory board - Labuan Offshore Financial Services Authority (LOFSA)
Entity – Labuan Foundation
Liability - The properties and resources of a Foundation constitute an independent patrimony from that of the Founders, the Foundation Council members, Supervisors, and Beneficiaries.
Purpose and object - The purpose or object of a Labuan foundation may include any purpose or object which is not unlawful, immoral or contrary to any public policy in Malaysia and such purpose or object may be charitable or noncharitable.
The purpose or object of a Labuan foundation shall be clearly stipulated in its charter.
A Labuan foundation may, in the course of the management of its property, do such things and exercise such powers as are necessary for the proper administration of its property, including but not limited to buying and selling of such property and engaging in any other acts or activities that are not prohibited under any law for the time being in force in Malaysia, but such acts and activities shall be ancillary or incidental to the purpose or object of the Labuan foundation.
Endowment of assets – Any property endowed to a Labuan foundation shall be the property of that Labuan foundation with full legal and beneficial title and shall cease to be the property of the founder and shall not become the property of a beneficiary unless the property is distributed in accordance with the provisions of the constituent document and the provisions of the Foundations Act.
The property of the Labuan foundation shall not include any Malaysian property unless the prior approval of the Authority is obtained or the Labuan foundation is a foundation for charitable purposes.
Founder – The founder is who establish the Foundation, it may be a juristic or a natural person. A founder may be also the beneficiary of a foundation.
The founder of a Labuan foundation may be a resident or a non-resident.
Foundation Council – The charter of a Labuan foundation may provide for the appointment of a council which shall consist of one or more members who may be a natural person or corporation.
The council shall take such action as it deems necessary to ensure compliance by the Labuan foundation and its officers with the terms of the constituent document and the provisions of the Foundation Act; and be responsible for the general supervision of the management of the Labuan foundation by its officers.
The council shall represent the Labuan foundation and for the purpose of ensuring compliance with the terms of the constituent document and the provisions of the Foundation Act, the officers of the Labuan foundation shall act in accordance with the instructions of the council.
Supervisor – Appointment of a Supervisor is optional, and may be an individual or a corporate body. A Supervisor must ensure compliance by the foundation and the councilors with the provisions of the charter, bylaws and the Foundation Act, and must supervise the management and conduct of the foundation by the councilors.
Officers - The founder shall, before the registration of a proposed Labuan foundation, appoint at least one person to be an officer of the Labuan foundation subject to such terms and conditions as the founder deems fit.
The officer may be a natural person or a corporation. A founder or beneficiary who is not a council member may be appointed as an officer of the Labuan foundation. The appointment of an officer of a Labuan foundation shall not be effective unless he has delivered to the founder his consent in writing to such appointment
Beneficiaries – A Foundation can be set up for the benefit of persons, class of persons to carry out a purpose which may be charitable, non-charitable or both.
Beneficiaries' Right to Information - A beneficiary who has a vested interest in the property of a Labuan foundation shall have the right to request from the council members, supervisory person or officers of the Labuan foundation information and documents pertaining to his interest and shall, in particular, be entitled:
(a) to receive, on request, information from the Labuan foundation in respect to the fulfillment of the purposes and objects of the Labuan foundation;
(b) on request, to inspect and to be supplied with a copy of: (i) the charter of the Labuan foundation and any amendment made to the charter; (ii) the articles of the Labuan foundation and any amendment made to the articles; (iii) any audit report, including special audit reports, books of account, reports on the financial position of the Labuan foundation and its annual accounts.
Secretary - The founder shall, before the registration of a Labuan foundation, appoint a person, who shall be a company registered as a Labuan trust company under Part V of the Labuan Financial Services and Securities Act 2010 [Act 704], to be the secretary of the proposed Labuan foundation.
The secretary may be a council member at the same time provided that the secretary shall not be the sole council member.
Registered Office – A Labuan foundation shall have a registered office in Labuan which shall be the address of the secretary to that Labuan foundation, to which all communications, correspondences, and notices may be addressed.
Foundation Charter – Every Labuan foundation shall have a charter, which shall be duly signed by each founder.
The Charter must be submitted to the Registrar at the time of registration. The Charter shall specify the name of the Foundation, its registered office address, particulars of the Founder, its purposes and objects, endowment of initial property, the name of beneficiaries or the manner in which such appointment will be made and the procedure for appointment of the Council and the protectors.
Articles of Labuan Foundation – The articles of a Labuan Foundation may state the distribution of property to beneficiaries; identification of any initial beneficiaries or any beneficiaries to be designated at a later date; the minimum value of the property of the Labuan foundation in the absence of which no distribution to any beneficiary may be made; identification of the remaining beneficiary upon the dissolution of the Labuan foundation.
Unenforceability of foreign claim or judgment - Where a Labuan foundation is validly established in accordance with its constituent document or as provided by the Labuan Foundations Act, the Court shall not vary it or set it aside or recognise the validity of any claim against the property of the Labuan foundation pursuant to the law of another jurisdiction or the order of a Court of another jurisdiction in respect of the following:
(a) the personal and proprietary consequences of marriage or the termination of marriage;
(b) succession rights, whether testate or intestate, including the fixed shares of spouses or relatives; (c) any claims or orders of a Court with regard to those matters referred to in paragraph (a) or (b) in reference to the personal laws of the founder or the beneficiaries; and
(d) the claims of creditors in an insolvency subject to the provisions of this section.
Confidentiality – Any person who has acquired information in his capacity as an officer, a supervisor or a member of a Council shall treat the information as confidential.
No person who has by any means access to any record, book, register, correspondence, document, material or information, relating to the business and affairs of the Labuan foundation, shall give, divulge, reveal, publish or otherwise disclose to any person such record, book, register, correspondence, document, material or information.
Details of the founder, council members and beneficiaries are not disclosed in a public registry.
Meetings - Subject to any limitations in the constituent document, the council members and officers of a Labuan foundation may convene meetings in such manner and at such times and places within or outside Labuan as may be necessary
Subject to any limitations in the constituent document, a council meeting and a meeting of officers of a Labuan foundation may be held at more than one venue using any technology that allows all council members and officers a reasonable opportunity to be heard.
Re-domiciliation – Redomiciliation of foundations from other jurisdictions to Labuan is allowed, as well as, migration of Labuan foundations to other countries.
Mergers - There is no ability for a Labuan foundation to merge with any other entity.
Charitable/Philanthropic Purposes - Permitted.
Electronic Signature – Allowed.
Compliance – Every Labuan foundation shall cause to be kept at its registered office accurate copies of its constituent document and all documents and instruments filed or lodged with the Authority and the books containing the minutes of council meetings and meetings of officers.
A Labuan foundation shall cause to be kept proper accounting and other records as will sufficiently explain the transaction and financial position of the Labuan foundation.
Every Labuan foundation and the officers of the Labuan foundation shall cause appropriate entries to be made in the accounting and other records of the Labuan 36 foundation within sixty days of the completion of the transactions to which they relate.
The accounting and other records of a Labuan foundation shall be kept at the registered office of the Labuan foundation or at such other place in Labuan as the officers think fit and shall at all times be open to inspection by the council members, supervisory person, officers, and the approved auditor, if one is appointed.
Documents required to be kept by a Labuan foundation shall, during business hours, be open for inspection by the founder, council member, supervisory person or officer, as the case may be, of that Labuan foundation without any charge.
- Corporate founder permitted
- Corporate council members permitted
- Protector/Guardian required
- Local regulated person required
- Founder not disclosed in a public registry
- Council members not disclosed in a public registry
- Protector/Guardian not disclosed in a public registry
- Beneficiaries not disclosed in a public registry
- Beneficiaries have right to information
- Merge permitted
- Redomiciliation permitted
- Charitable purposes permitted
- Registered agent required
- Mixed (Common and Sharia) Legal basis
- - Initial endowment of assets
- 1 Minimum council members
- 2018 AEOI
If the foundation does not engage in trade in its own right (but through subsidiaries) its non-trading profits such as those arising from the holding of investments in securities, stocks, shares, loans, deposits or other properties are not subject to taxation.
Trading profits arising outside of Malaysia are subject to 3% tax.
Profits derived from properties in Malaysia are subject to Malaysian corporate income tax standard rate, 24%.
Companies may elect to be taxed as Malaysian resident entities to benefit from Malaysian tax treaties that specifically excluded Labuan from treaty benefits.
Capital gains are not subject to taxation.
Dividends, interests, and royalties received are tax-exempt.
- Offshore Income Tax Exemption
- Offshore capital gains tax exemption
- Offshore dividends tax exemption
- CFC Rules
- Thin Capitalisation Rules
- Patent Box
- Tax Incentives & Credits
- Property Tax
- Wealth tax
- Estate inheritance tax
- Transfer tax
- Capital duties
- 0% Offshore Income Tax Rate
- 24% Corporate Tax Rate
- 0% Capital Gains Tax Rate
- 0% Dividends Received
- 0% Dividends Withholding Tax Rate
- 15% Interests Withholding Tax Rate
- 10% Royalties Withholding Tax Rate
- 0 Losses carryback (years)
- Indefinitely Losses carryforward (years)
- FIFO Inventory methods permitted
- 28% Personal Income Tax Rate
- 6% VAT Rate
- 73 Tax Treaties
The Federal Territory of Labuan is a federal territory of Malaysia, which comprises the Labuan Island and six smaller islands. It is located off the coast of the state of Sabah in East Malaysia.
It is populated by about 96,800 inhabitants and its capital is Victoria.
Malaysia’s official currency is the Ringgit (MYR) and official languages is Malay, although English is widely spoken.
The island is administered by the federal government through the Ministry of Federal Territories. Labuan Corporation is the municipal government for the island and is headed by a chairman who is in charge of the development and administration of the island.
Labuan has one representative in each of the Lower and Upper Houses of Federal Parliament. Usually, the chairman of the Labuan corporation is the Labuan’s parliament current member.
Labuan is an offshore support hub for deepwater oil and gas activities in the region, as well as a tourist destination and an international financial center.
Labuan is a free trade zone with an export-oriented economy, mainly exporting crude oil, methanol, HBI, gas, flour, animal feed, sea products, and ceramic tiles, which are exported to mainland Malaysia or overseas.
Raw materials, parts, and equipment for industrial uses well as consumer products are imported.
Labuan is also a reputable financial center (Labuan International Business and Financial Centre, LIBFC), currently with more than 300 licensed financial institutions including major leading banks.
Labuan LIBFC is mainly comprised of holding companies, captive insurance, Shariah-compliant Islamic Finance structures, public and private funds, and wealth management.
Tax treaties Map
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