Incorporation and Registration Procedures - Labuan Companies

Incorporation and Registration Procedures - Labuan Companies | Puro

Labuan Company Incorporation Guide

A Labuan company, incorporated under the Labuan Companies Act 1990, offers a flexible structure for international business and investment within the Labuan International Business and Financial Centre (IBFC) in Malaysia. The incorporation and registration procedures involve several key steps and requirements.   

Here is a detailed overview of the incorporation and registration procedures for Labuan companies:

1. Appointment of a Labuan Trust Company (LTC) or Agent:

• The first crucial step is to appoint a licensed Labuan Trust Company or agent. Only LTCs are authorized to facilitate the incorporation of Labuan companies.   

• The LTC will act as your intermediary with the Labuan Financial Services Authority (Labuan FSA) and guide you through the entire process.

• They will also conduct their own due diligence on the prospective client.

2. Company Name Reservation:

• You need to propose at least three company names to the LTC.

• The LTC will conduct a name search with the Registrar of Companies in Labuan IBFC to check for availability.   

• The proposed names should not be undesirable or unsuitable in the opinion of the Labuan FSA.   

• The application fee for name reservation is RM 50 (approximately USD 15).   

• Name approval typically takes about 24 hours, and the name can be reserved for three months.   

3. Submission of Required Documents:

The following documents are generally required for the incorporation application:

• Memorandum and Articles of Association (MAA): This document outlines the company's objectives, structure, and rules. The LTC will usually assist in preparing this.   

• Statutory Declaration of Compliance: A declaration by the LTC confirming that all the requirements of the Labuan Companies Act 1990 have been complied with.   

• Consent to Act as Director(s): Forms signed by the individuals or corporate entities willing to be directors of the company.   

• Individual Forms of Directors: Detailed forms to be filled out by each director, providing personal information.   

• Shareholder Consent Form: Details of the shareholders and their shareholding.   

• Payment of Relevant Fees: This includes the incorporation fee, which varies based on the authorized share capital, and the name reservation fee.

4. Due Diligence by Labuan FSA:

• The Labuan FSA conducts its own due diligence on the application to ensure compliance with regulations and assess the suitability of the proposed company and its beneficial owners.   

• While the appointed LTC also conducts its due diligence, the Labuan FSA's scrutiny is an independent process.

5. Company Incorporation:

• Once the Labuan FSA is satisfied with the documentation and the due diligence process, the company will be incorporated.

• This process can often be completed within 24 hours after the submission of complete documentation and fee payment.   

• A Certificate of Incorporation will be issued as proof of the company's legal existence.

6. Post-Incorporation Procedures:

• Appointment of Company Secretary: Within 30 days of incorporation, a Labuan resident company secretary must be appointed. This is usually a trust officer from the appointed LTC.

• Registered Office Address: The company must have a registered office in Labuan, which is typically the office address of the company secretary (the LTC).   

• Opening a Corporate Bank Account: You will need to open a corporate bank account for the Labuan company, which can be in Labuan or elsewhere. This process can take around 4 weeks.

• Tax File Registration: The company needs to be registered for tax filing purposes with the Inland Revenue Board of Malaysia (IRBM).

• Annual Compliance: Labuan companies have annual compliance requirements, including filing annual returns and audited financial statements. Audited financial statements must be submitted to the Labuan FSA within 9 months from the financial year end, and annual tax returns must be filed with the IRBM by March 31st of the following year, or as per any extended period allowed.   

Key Requirements and Considerations:

• Minimum Number of Shareholders and Directors: A Labuan company requires at least one shareholder and one director, who can be of any nationality and do not need to be residents of Malaysia. A shareholder can also be the sole director.   

• Share Capital: There is no minimum authorized share capital requirement, and shares can be issued in any currency except Malaysian Ringgit. A standard minimum paid-up capital is often USD 1.00. Bearer shares are not permitted.   

• Economic Substance Requirements: To benefit from the preferential tax rates under the Labuan Business Activity Tax Act 1990, Labuan companies carrying out "Labuan business activity" must meet certain economic substance requirements. These may include having a physical office in Labuan, employing an adequate number of full-time employees in Labuan, and incurring an adequate amount of annual operating expenditure in Labuan. The specific requirements vary depending on the type of business activity. Failure to meet these requirements may result in a standard corporate tax rate of 24%.   

• Taxation: Labuan companies engaged in "Labuan trading activity" are subject to a low corporate tax rate of 3% on chargeable profits. Companies involved in "Labuan non-trading activity" (e.g., holding investments) are generally not subject to tax, provided they meet the substance requirements.   

• Confidentiality: Information concerning the shareholding, management, and business transactions of a Labuan company is generally not publicly disclosed.   

• Annual Fees: Labuan companies are required to pay annual fees. For a Labuan company, the annual fee is typically around USD 800, and for a foreign Labuan company, it is around USD 1,500.   

Labuan Business Activity Tax Act 1990 (LBATA):

This Act governs the imposition, assessment, and collection of tax on Labuan business activity carried out by a Labuan entity in or from Labuan. It defines "Labuan trading activity" and "Labuan non-trading activity" and sets out the tax rates and conditions, including the economic substance requirements.

In summary, incorporating and registering a Labuan company involves engaging a licensed Labuan Trust Company, reserving a company name, submitting the necessary documents, undergoing due diligence by the Labuan FSA, and fulfilling post-incorporation requirements such as appointing a company secretary and maintaining a registered office. Compliance with the Labuan Business Activity Tax Act 1990, particularly the economic substance requirements, is crucial for enjoying the favorable tax regime in Labuan.   

Fees

The fees associated with the incorporation and registration procedures for Labuan companies include:

1. Name Reservation Fee:

• The application fee for reserving a company name is RM 50 (approximately USD 15).   

2. Incorporation Fee:

The incorporation fee varies based on the authorized share capital of the Labuan company:   

• Paid-up capital of RM 50,000 and below: USD 300 (approximately RM 1,000)   

• Paid-up capital exceeding RM 50,000 but less than RM 1 million: USD 600 (approximately RM 2,000)   

• Paid-up capital of RM 1 million and above: USD 1,500 (approximately RM 5,000)   

• Registration of a foreign Labuan company: USD 2,000 (approximately RM 6,000)   

Important Notes:

• These fees are payable to the Labuan Financial Services Authority (Labuan FSA).   

• The fees mentioned above are the official registration fees. You will also need to factor in the professional fees charged by the Labuan Trust Company (LTC) or agent for their services in facilitating the incorporation process. These professional fees can vary.

• Exchange rates may fluctuate, so the Ringgit Malaysia (RM) equivalents are approximate.

• Some service providers may offer package deals that include these government fees and their professional charges.

• There might be additional costs for optional services like opening a bank account or applying for work permits.

How Puro can Help

A Labuan Trust Company (LTC) or agent plays a crucial and often mandatory role in the incorporation and ongoing administration of Labuan companies. Here's a breakdown of how they can help:   

During Incorporation:

• Facilitation of the Entire Process: LTCs are licensed by the Labuan Financial Services Authority (Labuan FSA) and are the only entities authorized to lodge incorporation documents. They act as the primary intermediary between the applicant and the Labuan FSA, streamlining the entire incorporation process.

• Name Reservation: They assist in conducting name searches and submitting the name reservation application to the Registrar of Companies.   

• Document Preparation: Puro helps in drafting and preparing essential incorporation documents, including the Memorandum and Articles of Association (MAA) and the Statutory Declaration of Compliance. This ensures that the documents meet the legal requirements of the Labuan Companies Act 1990.   

• Lodging Agent: They act as the lodging agent for all documents required to be filed with the Labuan FSA during the incorporation process.

• Due Diligence Assistance: While the Labuan FSA conducts its own due diligence, Puro will also perform its own checks on the prospective client, ensuring a smoother overall process.   

• Fee Handling: They often manage the payment of the necessary incorporation and name reservation fees to the Labuan FSA on behalf of the client.

• Registered Office: By law, a Labuan company must have a registered office in Labuan, which is typically the principal office of Puro. They provide this essential registered address.   

Post-Incorporation and Ongoing Compliance:

• Company Secretary: The Labuan Companies Act requires every Labuan company to appoint a resident company secretary within 30 days of incorporation. This role is invariably fulfilled by Puro. The company secretary is responsible for ensuring the company complies with its statutory obligations.   

• Statutory Compliance: Puro handles ongoing statutory compliance matters, such as the filing of annual returns and other necessary documents with the Labuan FSA.

• Resident Director Services: Puro can provide their trust officers to act as resident directors if required, helping companies meet local regulatory requirements.   

• Management and Accounting Services: Puro offers management and accounting services to Labuan companies, assisting with bookkeeping, financial reporting, and tax compliance.   

• Bank Account Assistance: Puro can assist in the process of opening a corporate bank account in Labuan by providing certified incorporation documents and liaising with the banks. However, the final decision to open an account rests with the bank.   

• Communication Channel: Puro serves as the primary point of contact between the Labuan company and the Labuan FSA for all regulatory and administrative matters.

• Ensuring Economic Substance: Puro can advise clients on the economic substance requirements under the Labuan Business Activity Tax Act 1990 and assist them in meeting these requirements, which may include facilitating the establishment of a physical office and the hiring of local employees if needed.   

In essence, Puro is not just a facilitator but a fundamental requirement for establishing and maintaining a Labuan company. They provide the necessary expertise, administrative support, and regulatory link to ensure compliance and smooth operations within the Labuan IBFC.

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