Difference between Labuan International Company and Malaysian Sdn Bhd
Being new to Malaysia business environment and culture, it is a norm for foreigners get confused trying to figure out the right company entity to set-up to meet their business objectives. It is good to understand the difference between Labuan International Company and Malaysian Sdn Bhd for 100% foreign ownership. These are the most common business entities can be owned by foreigners who like to start a business in Malaysia.
|Company||Labuan Company||Malaysian Sdn Bhd|
|Capital Paid Up for 100% Foreign Ownership||Min. USD 1||Min. RM 1 million|
|No.of Shareholders||Limited to 50||Limited to 50|
|Capital Monies To Show in the Bank||Yes||Yes|
|Trade License for Import, Export, Trading, On-line and Consultancy Business||Not Required||Yes|
|Capital Paid Up for Work Permit Application||Min. USD 1||RM 1 million|
|Office Rental and Tel Line for work permit application||Yes||Yes|
|Net Profit Tax for Trading Activities||Tax: 3% permissible to deal with Malaysians||International
and Local Sales: 24%
|Directors’ Fee for Foreigners||Zero Tax||Taxable 0-28%|
|Expatriate Income Tax||50% rebate on taxable income||0-28% with no rebate|
|DTA Tax Treaty||Yes except exclude 14 countries||Yes|
6 other major differences between Labuan International Company and Malaysia Sdn Bhd as follows:
Depends on the nature of a business, not all types of businesses under Malaysian Sdn Bhd allow foreign-controlled ownership (more than 50% shareholding). This is simply to avoid duplicate businesses to protect Malaysians rights and livelihood to be a safeguard. Business nature such as import, export, trading, consultancy, and restaurant businesses required permission for foreign ownership by Ministry of Consumerism Trade and Cooperatives. Approvals are usually stringent with a requirement of full set-up office, local town council licensing, an inspection of the premise, etc before the approval can be granted.
All types of businesses operate under Labuan International Company can be owned 100% by foreigners. Labuan Jurisdiction is a “midshore”, hence all Labuan companies are allowed to deal with Malaysians with 3% corporate tax. The most common business such as import, export, trading, consultancy does not require any trade licenses. A very simple structure to set-up with the requirement only minimum one director and one shareholder, both positions can be the same person.
The ownership and directorship of the company are crucial to the company structure to ensure smooth operations which required the consent of the directors’ attention for operation resolutions, audit reporting, bank account opening, and tax issues. This can disrupt the operations of the company if one of the Director does not co-operate fully. This applies the same for both Malaysian Sdn Bhd as well as Labuan International companies.
Labuan International Company is just so simple, all within your full control! Without much hassle, you can just operate all by yourself!
The flexibility of Corporate Tax and Audit
Labuan International Company offers great tax flexibility with an option available to declare the activity of the business either one of the following 3 options:
1. Dormant – no tax, no audit
2. Investment Holding- no tax, no audit on the financial report
3. Trading Business- 3% on net profit with an audited financial report
The Malaysian Sdn Bhd tax regime is fixed on these two (2) structures with a must for audit report yearly disregards the nature of business:
A. Local controlled company (with more than 50% shares owned by Malaysian):
The tax rate on net profit first RM500,000 – 17%
Every RM 1 above – 24%
B. Foreign-controlled company (with more than 50% shares owned by Foreigners)
A flat rate of 24% on net profit
Lower Initial Cost Set- Up for 100% Ownership:
The cost of registration of Malaysian Sdn Bhd company may be lower than Labuan International Company. However, Labuan International Company does not require these:
- Paid- up capital as low as USD 1
- No Trade License for most businesses with CRS kick in 2018
- Labuan Company enjoy a low tax rate of 3%
As compare to Malaysian Sdn Bhd‘s foreign-owned structure:
- Minimum paid-up capital: RM1 million
- Required set-up fully functional office with a telephone line
- Permission from the Ministry of Trade Consumerism is required for Foreign Ownership
Yearly maintenance for Malaysian Sdn Bhd is a must to appoint a company secretary, audit and tax agent, whereas Labuan International Company only requires the appointment of secretary and the auditor is applicable depends on your business nature, and tax agent is not required.
Work Permit for Expatriates
It is not straightforward to apply two (2) years’ renewable work permit DP 10 under Malaysian Sdn Bhd company without full office set-up, a fixed phone line and minimum paid up capital of RM 350,000 to RM 1 million – depends of shareholding structure, business nature and current transaction activities to justify the visa application lodge to immigration for hiring an expatriate. A brand new company applying for a work permit will be much harder to get the approval as further justifications of a good company profile, unique products and services offered, governmental support letters will be required. The whole process for approval may take up to 3-4 months or more if the relevant departments would like to inspect your office prior to approval is granted.
Under the Labuan International Company, the privilege to have the 2 years’ renewable Labuan permit work for investor and his/her family is readily available to smoothen and facilitate easy entry into Malaysia for the business meetings, operations, and banking. The application is straightforward with office set up in Labuan after the company is registered. The paid-up capital required is lower min. USD1. The approval for Labuan work permits often within 60 days. [Read: Various Types of Work Permit]
Personal Income Tax for 2 years’ Work Permit holders
All application for (two) 2 years’ renewable work permit issued to expatriates by any entity in Malaysia required employment proof minimum salary of RM5,000, a total of RM60,000 per year. Income earned by all expatriates under Malaysian entities will subject to 0-28% tax bracket if they stay in Malaysia for more than 182 days. For less than 182 days, the tax rate will be flat at 28%. There is no personal tax for director’s fee for foreign directors under Labuan International Company and for expatriates with a work visa required a minimum RM10,000 monthly income, the personal tax rate will enjoy 50% tax rebate, this incentive has been gazetted by Malaysia Inland Revenue Board to all Labuan entities up to the Year 2020. [Read: Personal Tax Guide for Expatriates]
Easy Management and Invoicing
All invoices issued by Labuan International Company must be in the foreign currency of their choice. There are two options of banking facilities available for Labuan International Company to chose, namely onshore banking and offshore banking. For onshore banking, we will set-up both RM and foreign currency account to facilitate your transaction. If you require offshore banking, the bankers can be in Labuan or other nearby countries such as Singapore. Do let us know your banking needs, we will advise you according to your profile and eligibility to match the banker’s compliance.
[What is Off Shore and On-Shore Banking, which one is right for you?]
Labuan International Company will not subject to the following on international sales:
♦ Sales and Service TaxView complete info on the difference between Sdn Bhd Company and Labuan Company
Malaysia Government has implemented the SST system, applicable to all Malaysian Sdn Bhd companies that have turnover more than RM500,000 per year. Labuan International Company will not be subjected to the SST system if your sales revenues are derived internationally. For local Malaysia sales revenue of above RM500,000 in a year, Labuan Company would also be subjected to SST registration requirement.
With 6 advantages outlined above, it is no wonder most foreigners prefer Labuan International Company their first choice! It is clearly endorsed these factors:
⇒Ownership is secured!
⇒Tax and compliance are flexible!
⇒Lower initial cost set-up without need office!
⇒Faster way to obtain a residency visa!
Malaysian Sdn Bhd company typically targeting 100% local market, hence the set-up is ideal for the following businesses:
»Tender of Malaysian Government projects
»Various project development in Malaysia
»Real estate management and development
»Special businesses that deal with government bodies
Some of these nature of business may require some form of local trade licenses of a different kind from various governing bodies and for some, it may be a requirement to have local Malaysian as a partnership before can operate. For 100% foreign-owned entity, Malaysia Sdn Bhd needs permission from Ministry of Trade Consumerism, and the approval will only be given to “unique” businesses set-up where Malaysian cannot do. Often, import, export, general trading, consultancy and retail of franchise will likely not grant the permission WRT license as these nature easily can be done by local Malaysians. Labuan Company does not require licenses, check out for more！
Speak to us before you start up your Malaysian investment to ensure the right entity and structure! Feel free to drop us your inquiry by clicking below button today! We “Simplify Your Business Investment” in Malaysia.