What is the Labuan company tax rate?

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.