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An offshore company must be
incorporated or registered under the Offshore Companies Act
1990 to carry on offshore business activities in or from
Labuan and to enjoy the preferential tax treatment under
LOBATA. The LOBATA provides for the imposition, assessment
and collection of tax on offshore business activities
carried on by an offshore company in or from Labuan,
effective from the year of assessment 1991. An offshore
company includes an offshore trust created in Labuan.
(a) Offshore Companies
An offshore company carrying on an
offshore trading activity (which includes banking,
insurance, trading, petroleum operations, management
activities, chartering and leasing of ships) for the basis
period for a year of assessment will be taxed at a rate of
3% of its net profits or at a fixed rate of RM20,000 upon
election by the company for that year of assessment
payable to the Inland Revenue Department. An offshore
company carrying on an offshore non-trading activity
(which refers to an activity relating to the holding of
investments in securities, stocks, shares, loans, deposits
and immovable properties by an offshore company on its own
behalf) for the basis period for a year of assessment is
not subject to tax for that year of assessment.
(b) Companies other than Offshore
Companies / Residents and Non-Resident Individuals
Companies operating in Labuan,
incorporated or registered under the Companies Act 1965,
are not recognised as offshore companies and do not enjoy
the preferential tax treatment under the LOBATA. Such
companies continue to be taxed under the Income Tax Act
1967. Tax incentives under the LOBATA are also not
applicable to companies carrying on industrial and / or
manufacturing activities but instead they may apply for
incentives under the Promotion of Investments Act 1986.
Non-resident and resident individuals in Labuan will
continue to be taxed under the Income Tax Act 1967.
(c) Preferential Tax Treatment
Accorded Under Income Tax 1967 and Stamp Act 1949
The preferential tax treatments are:
(i) Treatment on Dividends
Dividends received by an offshore
company from a Malaysian resident company are not subject
to income tax and no refund or set-off is given in respect
of tax deducted from such dividends. Dividends paid by an
offshore company out of income derived from an offshore
business activity or out of exempt income is not subject
to income tax in the hands of the recipient. Such
dividends will be paid gross without any tax deduction at
source.
(ii) Treatment on Distribution By Offshore Trust
Distribution made by an offshore trust is not
subject t income tax in the hands of the beneficiary.
(iii) Treatment on Royalty
Royalty paid by an offshore company to a
non-resident person or another offshore company is not subject to
income tax and hence is not subject to withholding tax.
(iv) Treatment on Interest
Interest paid by an offshore company to a
non-resident person or another offshore company is not subject to
income tax. However, where the interest accrues to a banking, finance
company or insurance business carried on by a non-resident person in
Malaysia, that interest will be subject to income tax as part of
business income. Interest by an offshore company to a resident person,
other than a person carrying on a banking, finance company or
insurance business in Malaysia, is not subject to income tax.
(v) treatment on Technical Or Management Fees
Technical or management fees paid by an offshore
company to a non-resident or another offshore company is not subject
to income tax.
(vi) Exemption from Stamp Duty
All instruments made in connection with an
offshore business activity by an offshore company are not subject to
stamp duty under the Stamp Act 1949.
(vii) Abatement of Tax for Professional Services
Income derived from qualifying professional
services rendered to an offshore company in Labuan is exempted from
tax up to an amount equivalent to 65% of the statutory income from
that source. This incentive is applicable from the year of assessment
1997 to the year of assessment 2000.
(viii) Abatement of Tax for Business Relating to
or Letting of a Qualifying Asset
Income derived from the carrying on of a business
that relates to a qualifying asset or the letting of a qualifying
asset in Labuan is exempted from tax up to an amount equivalent to 50%
of the adjusted income from that source. This incentive is available
if the construction project of a qualifying asset commenced before 1
October 1996.
(ix) Abatement of Tax for Employment
Income derived by a non-citizen individual from
an employment exercisable in a managerial capacity of an offshore
company in Labuan is exempted from tax up to an amount equivalent to
50% of the gross income from that employment. This exemption applies
from year of assessment 1997 to year of assessment 2000.
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General Section
