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Labuan · Incorporation

Labuan Company Formation
Tax, substance and setup in 2026

A Labuan company is incorporated under the Labuan Companies Act 1990 through a licensed Labuan trust company. Labuan trading profits are taxed at three percent of audited profit, and profits from holding investments carry no Labuan tax, both only with staff and spending in Labuan. Without that substance, 24 percent applies.

Key facts 2026
Labuan company formation for international holding structures
Labuan tax, trading3 %, without substance 24 %
Holding (LBATA)0 % with substance
Labuan FSA annual feeUSD 1,000 (2026)
Incorporationonly via a Labuan trust company

Last updated: 11/2026

Overview

What a Labuan offshore company is today, and who it suits

Labuan is a federal territory off the coast of Borneo with its own company and tax law for international business (Labuan IBFC), supervised by Labuan FSA. A Labuan company suits holding, investment, financial and service companies that actually have staff and spending in Labuan. For ordinary business in the Malaysian market, a Malaysia Sdn Bhd is the intended vehicle.

Strasia Group coordinates the incorporation with a licensed Labuan trust company, from the name check to the registered office, and then supports accounting, the tax return and substance planning. Before you incorporate, we check whether your activity qualifies for the Labuan rates at all.

As of November 2026

Labuan company 2026: key facts

Legal basisLabuan Companies Act 1990; tax under the Labuan Business Activity Tax Act 1990 (LBATA)
Incorporationonly through a licensed Labuan trust company; Labuan FSA approves the name and the incorporation within 24 hours each, once documents are complete and checked
Shareholder and officersfrom 1 shareholder (individual, company or trust company as nominee), no bearer shares; at least 1 director; secretary resident in Labuan
Capitalno minimum capital, one share is enough; any currency except ringgit
Tax, trading3 % on the profit in the audited accounts, only with substance; otherwise 24 %
Tax, non-tradingnot taxable under LBATA, only with substance; otherwise 24 %. Real estate counts only if it is in Labuan
Royalty and IP incomeoutside the Labuan regime since 1 January 2019, taxed under the Income Tax Act 1967
Tax returnto HASIL within 7 months after the financial year end, electronically; current year basis since year of assessment 2025
Labuan FSA fees 2026name USD 30; incorporation USD 300 / 600 / 1,500 by paid-up capital (up to RM 50,000 / under RM 1 million / from RM 1 million); annual fee USD 1,000 (until 2025: USD 800)
SSTLabuan is a "designated area": sales tax only on petroleum, no service tax within Labuan; goods moved to the mainland are subject to sales tax, services to mainland customers to service tax (mostly 8 %)

Labuan substance requirements: the minimums

Whether three percent or the LBATA exemption applies depends on regulation P.U.(A) 423/2021. It sets, per activity, a minimum number of full-time employees in Labuan and a minimum annual spend in Labuan. Extract:

ActivityFull-time staffAnnual spend
Investment holding (other than pure equity holding)1RM 20,000
Pure equity holding, plus control in LabuannoneRM 20,000
Administrative, accounting, legal, back office, payroll, agency, management services (item 20)2RM 50,000
Fund manager, securities licensee, money broker, factoring, Labuan company management2RM 100,000
Labuan trust company3RM 120,000
Labuan bank, insurer3RM 200,000

Control in Labuan for a pure equity holding means: a board meeting in Labuan at least once a year, the registered office in Labuan, a secretary resident in Labuan, books and minutes kept in Labuan. Since 2025 the full-time employees must also be suitably qualified, employed by the entity and physically work in Labuan. If not, 24 percent applies.

The regulation has no separate line for general goods trading, e-commerce, software or freelance consulting. Whether such profits qualify for three percent we clarify with the trust company before incorporation. For these business models we always also compare a Hong Kong company or a Singapore company.

Trading or non-trading: where the difference lies

Non-trading means holding securities, shares, loans, deposits or real estate in Labuan. Such profits are not taxable under the LBATA if substance is met. Trading covers banking, insurance, trading, management and other active business and is taxed at three percent of audited profit. A company doing both counts as a trading company. Real estate outside Labuan and royalty income fall under the Income Tax Act 1967.

Instead of Labuan tax, the company can elect to be taxed under the Income Tax Act 1967, but irrevocably. The tax return goes to HASIL electronically within seven months after the financial year end.

Living in Germany or another high-tax country: what three percent does not change

Place of management

Under German law (section 10 AO) the place of management is the centre of top-level management. If you take the key decisions in Germany, the Labuan company is fully liable to German corporate tax (section 1 KStG). The three percent in Labuan then does not help.

Controlled foreign company rules

German CFC rules attribute passive income of a foreign company to the German shareholder if it bears less than 15 percent income tax (section 8(5) AStG). Labuan at three percent is below that. Whether your income is passive is for your adviser in Germany to assess.

Who Labuan suits then

Founders who live in Asia or are moving there, with real substance in Labuan. If you are planning the move, check exit tax and timing first.

Exit tax, visa and relocation

Labuan works with substance, not without it

3 % on audited profit from trading activity, if substance is met
Profits from holding investments not taxable under the LBATA, if substance is met
No sales tax except on petroleum, no service tax within Labuan
No minimum capital, one share is enough, any currency except ringgit
One shareholder is enough: individual, company or trust company as nominee
No exchange controls when dealing with non-residents

Incorporation Process

Labuan FSA approves the name and the incorporation within 24 hours each, once documents, fees and checks are complete. The trust company's due diligence and the account opening take longer; we tell you the current state in the call.

Structure review

We check whether your activity qualifies for the Labuan rates, what substance it needs and whether a Malaysia Sdn Bhd, Hong Kong or Singapore fits better.

Name check and KYC

Name reservation with Labuan FSA and due diligence by the Labuan trust company. Licensed activities need approval before incorporation.

Incorporation and registered office

The trust company files the constitution and declarations; its principal office becomes your registered office and it provides the secretary.

Substance and account

Staff, office and spending in Labuan under the regulation; assistance with bank account opening, the bank decides on onboarding.

Annual obligations

Books in Labuan, audited accounts as the basis for three percent, tax return to HASIL within seven months, annual fee to Labuan FSA. We handle accounting and tax.

When a Labuan company fits

For holding and investment companies, family holdings, treasury and services on the substance list, if you are prepared to carry staff and spending in Labuan. For royalty and IP income Labuan no longer fits since 2019, because that income falls under the Income Tax Act.

For business in the Malaysian market and hiring on the mainland, a Malaysia Sdn Bhd is the intended vehicle; for trading and e-commerce with customers worldwide we also review Hong Kong and Singapore.

Labuan company: frequently asked questions

Is a Labuan company still tax-free?
Only for non-trading profits and only with substance in Labuan: profits from holding securities, shares, loans, deposits or real estate in Labuan are not subject to tax under the Labuan Business Activity Tax Act (LBATA) if the minimum staff and spending in Labuan are met. Trading profits are taxed at three percent of audited profit. Without substance, 24 percent applies. The former flat RM 20,000 option was abolished on 1 January 2019. Your tax at home is not affected by any of this.
Is a Labuan company an offshore company?
In everyday language, yes: Labuan is an international business and financial centre (Labuan IBFC) with its own company and tax law, separate from the rest of Malaysia. The era of the pure letterbox company is over, though. Since 2019 the Labuan tax rate depends on staff and spending in Labuan, and since 2025 those staff must physically work there. An offshore company without substance pays 24 percent in Labuan.
What tax rate applies in Labuan?
For Labuan trading activity, three percent on the profit in the audited accounts; for non-trading activity, no tax under the LBATA. Both apply only if the substance requirements are met for the year. Otherwise 24 percent applies. Royalties and other intellectual property income have been outside the Labuan regime since 2019 and fall under the Income Tax Act 1967. If the company is managed from Germany, Austria or Switzerland, it may also be taxable there.
What substance does a Labuan company need?
Regulation P.U.(A) 423/2021 sets it per activity. Examples: investment holding needs 1 full-time employee and RM 20,000 annual operating expenditure in Labuan; a pure equity holding needs no employee but RM 20,000 and control in Labuan (a board meeting in Labuan at least once a year, a secretary resident in Labuan, books and minutes kept in Labuan); administrative, accounting, legal, agency and management services need 2 full-time employees and RM 50,000. Since 2025 the employees must be suitably qualified, employed by the entity and physically work in Labuan.
What are the disadvantages of a Labuan company?
There are five points to know. First, substance in Labuan costs money every year: staff and minimum spending depending on the activity. Second, royalty and IP income is outside the three percent. Third, the substance regulation has no separate line for general goods trading, e-commerce or software; whether such profits qualify for three percent must be clarified before incorporation. Fourth, services to customers in mainland Malaysia are subject to service tax. Fifth, home countries with controlled foreign company rules, such as Germany with its 15 percent threshold, may attribute low-taxed income to the shareholder.
Can I run my Labuan company from Germany?
Legally yes, but it then does little for you in tax terms. Under German law (section 10 AO) the place of management is the centre of top-level management. If it is in Germany, the company is fully liable to German corporate tax (section 1 KStG) and usually has a permanent establishment there. German CFC rules also attribute passive income taxed below 15 percent (section 8(5) AStG). A Labuan company therefore suits founders who live in Asia or are moving there.
Does SST apply in Labuan?
Partly. Labuan is a "designated area": sales tax applies there only to petroleum, and service tax does not apply to services within Labuan. Goods moved from Labuan to mainland Malaysia count as imports and are subject to sales tax. Services by a Labuan company to customers in mainland Malaysia are subject to service tax, usually at 8 percent.
Labuan company or Malaysia Sdn Bhd?
It depends on your business. Labuan suits holding, financial and service activities on the substance list, with staff in Labuan. A Sdn Bhd suits business in the Malaysian market, hiring in mainland Malaysia and visas such as DE Rantau or the Employment Pass. For years of assessment 2023 and 2024, a Sdn Bhd with smaller capital and turnover pays 15 percent on the first RM 150,000, 17 percent up to RM 600,000 and 24 percent above; otherwise 24 percent.
Can a foreigner own a Labuan company?
Yes. One shareholder is enough; it can be an individual, a company or a trust company holding as nominee. Bearer shares are not allowed. You also need at least one director and a secretary resident in Labuan.
Is there a minimum capital requirement?
No. One share is enough. Shares can be issued in any currency except ringgit. The Labuan FSA incorporation fee does depend on paid-up capital: USD 300 up to RM 50,000, USD 600 up to under RM 1 million, USD 1,500 from RM 1 million (as of 2026).
Do I need a Labuan trust company?
Yes. Incorporation runs only through a licensed Labuan trust company, which carries out its own due diligence. Its principal office is the registered office of the company. We coordinate this step for you.
Can I elect the Income Tax Act instead of Labuan tax?
Yes, under section 3A LBATA, but irrevocably for that year and all following years. Some companies choose this to rely on tax treaties. How far a Malaysian treaty reaches for a Labuan entity we check case by case.
Can a Labuan company open a bank account?
Yes, with banks in or outside Labuan; the account is in the company's name. The bank decides on onboarding after its own review. There are no exchange controls when dealing with non-residents.
What does Labuan company formation cost?
Official Labuan FSA fees from 1 January 2026: name reservation USD 30, incorporation USD 300, 600 or 1,500 depending on paid-up capital, annual fee USD 1,000. On top come the trust company, substance in Labuan and the audit. We quote our own fees in a written offer before any engagement.

Next step: the first call

Free initial consultation: 60 minutes, no obligation. We first check whether your activity qualifies for the Labuan rates.

Written offer before any engagement; government fees shown separately.

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Labuan tax quick reference

Trading, with substance3 %
Non-trading (LBATA), with substance0 %
Without substance24 %
Royalty and IP incomeIncome Tax Act
Service tax, mainland customersmostly 8 %

As of November 2026. Your personal tax follows your residence.

Labuan vs Malaysia Sdn Bhd

Tax3 % / 0 % with substance15–24 %
Indirect taxesnone within Labuan, except petroleumService tax 8 %
MarketInternationalMalaysia
SubstanceFixed minimums per activityGeneral rules

Sdn Bhd: tiers for 2023 and 2024.

Related Pages

Malaysia Sdn Bhd IncorporationHong Kong IncorporationSingapore IncorporationWealth ProtectionTrading & InvestmentCompare incorporation countries
Comparison

Labuan vs Malaysia Sdn Bhd vs Hong Kong vs Singapore

Compare the key structures for international incorporation at a glance.

Corporate Tax3% / 0% with substance, otherwise 24%
Capital Gains Taxdepends on tax status
VAT / SST / GSTnone within Labuan, except petroleum
Typical useHolding, treasury, financial and services
Foreign shareholdersYes
Minimum Capital1 share
Local substance expectationFixed minimums per activity
Suited to holding structuresYes, with substance
Suited to operating businessonly activities on the substance list
Suited to relocationLimited
1 / 4

As of November 2026, without guarantee. Labuan: three percent on audited trading profit, non-trading not taxable under the LBATA, both only with substance in Labuan, otherwise 24%. Malaysia Sdn Bhd: 15/17/24% tiers per HASIL for years of assessment 2023 to 2024. Hong Kong taxes only profits sourced in Hong Kong. Capital gains tax 0% (Hong Kong, Singapore) applies only to gains of a capital, not a trading, nature. In Malaysia, capital gains tax on unlisted shares applies since 2024, also to Labuan entities taxed under the Income Tax Act 1967 (LHDN). Your personal tax follows your residence.

Sources (checked 3 Nov 2026): Labuan FSA: Incorporation and Registration Procedures · Labuan FSA: Notice on 2026 Annual and Licence Fees (06.11.2025) · Labuan Business Activity Tax Act 1990 (as at 1 January 2026) · P.U.(A) 423/2021, Labuan Business Activity Tax Regulations 2021 · HASIL: Guidelines Labuan Trading and Non-Trading Activity (10.12.2025) · HASIL: Fit and Proper Full-Time Employees of Labuan Entities (2025) · Royal Malaysian Customs, MySST: Sales Tax FAQ · Royal Malaysian Customs, MySST: Service Tax FAQ · HASIL: Company Tax Rate · § 10 AO · § 1 KStG · § 8 AStG
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We check whether your activity qualifies for the Labuan rates and whether Labuan, a Malaysia Sdn Bhd, Hong Kong or Singapore fits your plan better, before you incorporate.

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Strasia Group · Labuan, Malaysia

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Unit B, Lot 49, 1st Floor
Block F, Lazenda Warehouse 3
Jalan Ranca-Ranca
87000 Federal Territory of Labuan
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