Labuan (Malaysia) offshore company formation

As of 2025, the Labuan company tax rate remains one of the most competitive in Asia. Here’s what you need to know:

• Trading companies: Under the LBATA, qualifying trading activities (e.g., import/export, consulting, management services) are taxed at 3% on audited net profits. Note: licensing of intellectual property (royalties) is taxed under Malaysia’s Income Tax Act 1967, not LBATA.
• Non-trading companies: Entities engaged in passive income activities such as holding investments, receiving dividends, or owning property can enjoy 0% corporate tax.
• Substance requirements: To access these rates, Labuan companies must meet OECD-aligned conditions:
  • Maintain a physical office in Labuan.
  • Employ a minimum number of full-time employees in Labuan (nationality not prescribed) and incur prescribed annual operating expenditure in Labuan.
  • Incur adequate annual operating expenditure in Labuan.
  • Other trading services generally require at least 2 full-time employees in Labuan and RM50,000 annual OPEX; Pure Equity Holding requires no FTE, RM20,000 annual OPEX, and clear control & management in Labuan (e.g., board meeting in Labuan, resident secretary, records kept in Labuan).
• Alternative taxation option: A Labuan company may irrevocably elect to be taxed under Malaysia’s Income Tax Act 1967 (e.g., for market or treaty reasons).
• Additional tax advantages:
  • Withholding tax: Not applicable on interest, royalties and section 4A service fees paid by a Labuan company to non-residents, and dividends from a Labuan company are exempt in the recipient’s hands, under the Income Tax (Exemption) Order 2025 (effective from YA 2023, currently through YA 2027).
  • Capital gains: No CGT applies to income taxed under LBATA; however, Malaysia’s CGT on disposals of unlisted shares (from 1 Jan 2024) may apply if the entity is taxed under the ITA or the disposal falls within the ITA scope.
  • Access to Malaysia’s double taxation agreements (DTAs) in certain cases.

Why work with Offshore Company Services?

To get your taxes right in Labuan, you need to follow the rules and show you're really doing business there. Offshore Company Services can help you with everything, from signing up your company to keeping up with taxes and accounting. We make sure your business follows all the rules and gets the most out of the 3% or 0% tax breaks.

Malaysia’s dynamic economy and strategic location in Southeast Asia make it an exciting market for entrepreneurs and investors. While “profitability” depends on factors such as capital, expertise, and market timing, certain industries consistently deliver strong returns thanks to Malaysia’s demographics, trade links, and government support.

These are the fast-growing and profitable business sectors in Malaysia today:

• E-commerce & Digital Services: Internet penetration is more than 90% and the middle class is growing rapidly, so sectors like online retail, digital marketing, and fintech have become the fastest-growing companies to raise their turnover recently.
• Halal Industry: Malaysia has been the leading country in producing halal food, cosmetics, and pharmaceuticals, turning this industry into a profitable one for local and foreign players alike.
• Tourism & Hospitality: Though the global market is highly volatile, Malaysia has still been locating among the best centers for the likes of eco-tourism, cultural travels, and medical tourism. The businesses of hotels, resorts, and wellness centers still thrive in this sector.
• Renewable Energy & Green Tech: Though the lifetime of solar, biomass, and other clean energy projects in the long term is highly dependent on government incentives and rising global demand for sustainable solutions, these are tending to become more and more profitable.
• Manufacturing & Export: One of the major contributors to Malaysia’s GDP is the production of electronics, automotive parts, and palm oil derivatives, which in turn provides the opportunity for niche manufacturing and export-oriented businesses.

For entrepreneurs, the “most profitable business” in Malaysia is not just about chasing trends, but aligning with local consumer needs and long-term growth sectors. Foreign investors should also consider Malaysia’s incentives, such as tax breaks for high-tech industries and ease of access to ASEAN’s 600+ million consumers.

At Offshore Company Services, we provide tailored guidance for business setup in Malaysia, from incorporation to compliance, helping you position your venture in the country’s most profitable sectors.

Malaysia stands out as a strategic location for entrepreneurs and investors looking to tap into Southeast Asia’s vibrant economy. A stable political setup, multi-lingual workforce, good infrastructure and incentives in several sectors have made Malaysia a great place to start a business in 2025. Below are some of the best businesses to start in Malaysia to consider:

1. E-commerce and Online Retail

E-commerce is thriving in Malaysia, supported by high internet penetration, a digitally-savvy population, and growing trust in online transactions. The Malaysia Digital Economy Blueprint (MyDIGITAL), backed by the government, also rides on digital entrepreneurs.

• Niche e-commerce (eco-friendly, halal, or handmade products)
• Dropshipping and private label brands
• Grocery or meal delivery services

2. Tourism and Hospitality

The tourism sector has shown strong recovery post-pandemic, with the government rolling out incentives and visa facilitation programs to attract more tourists.

• Boutique hotels and guesthouses
• Eco-tourism experiences
• Travel agencies and visa assistance services

3. Halal Food & Beverage (F&B)

Given Malaysia’s role as a global leader in halal certification, halal F&B businesses hold significant potential, both domestically and for export.

• Halal-certified restaurants and catering
• Packaged halal food production
• Halal e-commerce platforms

4. Education and Training

A youthful population and supportive government initiatives make education plays, particularly those incubated on online platforms are fertile markets in Malaysia.

• Online tutoring and virtual learning tools
• Digital and IT skills training (e.g., coding boot camps)
• English and test preparation centers (IELTS, TOEFL)

5. Health and Wellness

Malaysia is a regional hub for medical tourism, with visitors drawn to its affordable and high-quality healthcare. Health-conscious consumer behavior also supports wellness businesses.

• Medical tourism facilitation services
• Health-tech startups (telehealth, fitness apps)
• Spas, wellness centers, and organic product retail

Starting a business in Malaysia can be highly rewarding, but it requires careful planning, compliance with local regulations, and a solid market entry strategy. Professional service providers like Offshore Company Services can assist entrepreneurs with company registration, licensing, and ongoing compliance, making it easier to establish and grow a successful venture in Malaysia’s thriving economy.

A business license in Malaysia is an official approval or permit issued by government authorities, allowing individuals or companies to legally operate within the country. It provides proof that the company operates within local jurisdictions guidelines, safety laws per regulations and zoning resolutions.

Depending on the nature of the business, industry, and location, different types of licenses may be required. They essentially refer to one of these categories in three ways:

1. General Licenses (applicable to all businesses):
   • Company Registration with the Companies Commission of Malaysia (SSM) is a mandatory prerequisite for most businesses before obtaining other licenses.
   • Income Tax Registration with the Inland Revenue Board (LHDN).
   • Employees Provident Fund (EPF) and SOCSO registration if hiring employees.
   • Business Premises License and Signboard License, usually issued by local municipal councils.
2. Sector-Specific Licenses:
   • Sector-specific licenses are required for industries such as finance (regulated by Bank Negara Malaysia), healthcare and F&B (regulated by the Ministry of Health), and telecommunications (regulated by MCMC).
   • For online businesses or e-commerce platforms, registration with the Malaysia Communications and Multimedia Commission (MCMC) and compliance with the Consumer Protection regulations may be required.
3. Special Permits or Approvals:
   • For businesses involved in import/export, manufacturing, or foreign labor employment.
   • May require clearances from agencies like MITI, Customs Department, or Immigration Department.

=> More Information: Company Formation in Labuan, Malaysia

What is a business license in Malaysia? In Malaysia, a business license is a legal permit from the government that authorizes a person or company to carry out business within this particular country. This is a law for both local and foreign businesses in order to guarantee that local operation complies with Malaysia's laws, Safety Norms and Regulations.

A business license in Malaysia may refer to one or more permits depending on the business nature and location, including:

• A premise license
• Signboard license
• Sector-specific approvals

Securing a business licence is very important not only for legal grounds but also because it would build the credibility of the customers, suppliers and financial institutions. Operating without the appropriate licenses can result in fines, legal action, or forced business closure. 

=> More Information: Company Formation in Labuan, Malaysia

Companies incorporate in Labuan for its strategic location, tax efficiency, and flexible business environment. As a midshore financial center under Labuan IBFC, it offers key advantages for trading, holding, and financial services.

• Low tax rates: 3% on trading profits or 0% for non-trading/holding companies
• Full foreign ownership and free repatriation of profits
• Access to select double tax treaties via Malaysia, but applicability depends on the partner country and nature of the income.
• Fast incorporation (5–7 days) with low capital requirements
• Confidentiality: Beneficial owner information is filed with the Labuan FSA but is not available to the public, ensuring confidentiality while maintaining regulatory oversight.
• Ideal for: International trade, investment holding, fintech, fund management

Labuan companies may access certain Malaysian double tax treaties, but applicability depends on the partner country and nature of the income. Investors should check whether Labuan entities are covered under relevant DTAs.

This makes Labuan especially attractive for international trading companies, holding structures, investment funds, wealth management, and fintech ventures looking to operate across Asia with tax efficiency and legal clarity.

With over a decade of experience as an offshore service provider, we are well-versed in the opportunities and regulatory requirements for foreigners seeking to establish a company in Malaysia. The country’s investment-friendly environment, strategic location, and robust infrastructure make it an attractive destination for entrepreneurs across a wide range of sectors.

Options for Foreign Business Entry

Foreign investors can establish businesses in trading, manufacturing, or services, provided they comply with the Companies Act 2016 and secure the necessary approvals. One common approach is to register a private limited company (Sdn Bhd) through the Companies Commission of Malaysia (SSM). Key points include:

• Minimum paid-up capital, typically MYR 1

• Requirement of at least one local director, often facilitated via a nominee director service

Sectors such as food & beverage, e-commerce, and tourism are particularly appealing due to Malaysia’s growing consumer market and integration with regional supply chains.

Labuan International Business and Financial Centre

For larger investments or offshore operations, Labuan IBFC offers a tax-efficient platform for trading, fintech, or wealth management businesses, allowing 100% foreign ownership.

Specialized Services and Work Permits

Malaysia also presents opportunities in IT consultancy, education, and healthcare, where specialized expertise is in demand. Work permits such as the Employment Pass are required, which we assist clients in obtaining seamlessly.

Franchises and Retail

Retail and franchise businesses are also viable but must adhere to the Franchise Act 1998. Compliance with domestic regulations, intellectual property protection, and proper partnership structures is critical for success.

For those seeking reliable support in establishing a business in Malaysia, Offshore Company Services offers comprehensive services to help foreign investors navigate legal, regulatory, and operational requirements efficiently, unlocking the full potential of Malaysia’s dynamic economy.

Establishing a franchise business in Malaysia requires compliance with the Franchise Act 1998, regulated by the Ministry of Domestic Trade and Cost of Living (KPDN). With extensive experience in cross-border business expansion, we assist clients in creating scalable and legally compliant franchise structures in Malaysia.

Franchise Registration Requirements

Both foreign and local franchisors must register their franchise with KPDN’s Franchise Development Division before offering or operating in the Malaysian market. The registration process requires:

• Franchise disclosure document

• Franchise agreement

• Operations manual

• Training plan

• Proof of trademark registration

Foreign franchisors must also appoint a local representative or master franchisee to facilitate local operations.

Franchisee Registration

Franchisees must also register with KPDN before commencing business. The franchise agreement must comply with Malaysian law, covering:

• Duration and renewal terms

• Conditions of termination

• Obligations of both franchisor and franchisee

Market Potential and Legal Considerations

Malaysia offers a growing franchise market, particularly in sectors such as food & beverage, education, and retail. While opportunities are promising, domestic laws require careful attention to:

• Language use in agreements

• Dispute resolution clauses

• Intellectual property protection

Leveraging extensive experience in offshore and cross-border franchising, we provide end-to-end support for businesses, from registration to operational setup. Our services include compliance guidance, trademark protection, partner acquisition, and local representation, offering a smooth and compliant market entry for both franchisees and franchisors.

For businesses seeking professional assistance in setting up a franchise in Malaysia, Offshore Company Services provides comprehensive support, including franchise registration, local representation, and compliance management, ensuring your expansion is efficient, legal, and strategically positioned in the Malaysian market.

Learn more: Low-Cost Franchise in Malaysia for New Entrepreneur