Labuan Offshore Company with Bank Account

Since 1990, the Labuan Federal Territory in Malaysia has offered one of the best offshore investment companies in the world. However, an experienced offshore investor will also want a high quality offshore bank account in Labuan. Trust me, you can accomplish both objectives in two easy steps. After the Labuan Offshore Company is duly registered the bank account will follow.

Once you get the company set up, the bank account application is pretty standard. Therefore, it is certainly possible to get at least one high quality bank account at a local bank in Labuan such as Malayan Banking Berhad (Maybank).

Indeed, Labuan offshore banks do not suffer from reputational issues which have become problematic in some of the more popular offshore jurisdictions.

Furthermore, in Labuan, local banks offer high interest rates on multi-currency term deposits. Plus, dependable global access for incoming and outgoing fund transfers. The Malaysian banking system is quite solid with high capital ratios and a stable economy. This is even more evident in Labuan.    

Table of Contents

• High Standards for Labuan Companies
• Labuan Federal Territory Intro
• First Step to Move Offshore
• Trading vs Non-Trading
• Pure Equity vs Non-Pure Equity
• Annual Filing Requirements
• Economic Substance Requirements
• Special Purpose Trust

High Standards for Labuan Offshore Companies

To be clear, Labuan is not for everyone. Labuan laws are stringent and the Labuan Offshore Company is not the cheapest nor most lightly regulated option. Therefore, if you have something to hide, Labuan may not be suitable.

Labuan has indeed worked diligently to protect their offshore banking industry. As a result, qualified companies with transparent backgrounds will benefit with high returns on capital plus dependable security and privacy protection for their beneficial owners.  

So if you have a verifiable source of investment funds and you want a safe haven for your offshore investments with global access and accountability, Labuan is the right choice. The Labuan Offshore Financial center will serve your company well for many years to come.

In addition, there are residency visa options for Labuan company directors and employees. Plus, the MM2H program is readily accessible. So in case you need to relocate to Malaysia, there are reliable, affordable options which allow you to enjoy tropical paradise, in a remote, peaceful low tax jurisdiction. Take advantage today and implement the full utility of the Labuan Offshore Company. 

Introduction to Labuan Federal Territory

Labuan is a small island only 92 square kilometers in size, located just 25 km off the coast of Northern Borneo. The location of Labuan is also ideally situated in equal distance between Brunei and Sabah, Malaysia.

Preceding 1846 Labuan remained as part of Brunei until the British Empire discovered that Labuan’s close proximity to Borneo is only one of its many benefits. As a result, in 1846 the British acquired Labuan to serve as their a colonial port alternative between Hong Kong and Singapore.

From 1846 to 1963 Labuan remained under British control serving as a colonial outpost in one form or another. Labuan acquired their spirit of independence during this time period.

In 1963, British Territory in Northern Borneo was renamed “Sabah” and incorporated into Malaya (Malaysia). At that time, Labuan also became part of Sabah and therefore part of Malaysia.

In further benefit, Labuan was ceded to the federal government of Malaysia in 1982 and obtained the unique status of being one of Malaysia’s three federal territories along with Kualu Lumpur and Putrajaya.

The Malaysian government has maintained strong support for Labuan as an independent offshore financial center. As a result, Labuan has a unique independent status which permits it to have tax laws that are exclusive from the rest of Malaysia.

Labuan even has its own flag and is in many ways a de facto independent country. Indeed, Labuan locals seem to think Labuan is independent from Malaysia and in many ways it is.

Nonetheless, Labuan retains many benefits by retaining its close affiliation with Malaysia. It is the best of both worlds which makes Labuan an ideal offshore financial center.

Acquiring Second Citizenship is the First Step

As always, at iGlobal I want to be clear that we advocate 100% legal offshore tax alternatives. This allows you to legally withdraw financial support from your neocon government’s perverse political agenda.

Second citizenship works best in combination with a Labuan offshore company. This one-two punch is the best solution for your Plan B because it gives you the option to choose your government, instead of your government choosing you.

Therefore, if you no longer want to pay income tax to your current government, for whatever reason, the most ethical solution starts with second citizenship. As a result, you now have legal and moral justification to receive the full benefits from your new government’s tax regime.

Why not significantly lower or even completely eliminate your income tax altogether? This one-two punch is a 100% legal and fully transparent offshore solution.

Once you have acquired second citizenship, your options to lower your tax bill will proliferate. An offshore investment company in a jurisdiction such as Labuan, will then be a versatile solution for your offshore investment needs.

Labuan Trading Company vs Non-Trading Company

The different between a “trading company” and a “non-trading” company is an important distinction. In local parlance, a trading company is a merchant exchanging goods and services for payment e.g. you acquire goods or services wholesale while selling them at a profit to other businesses or directly to consumers. This is distinct from investment companies or “stock” trading.

In Labuan, offshore trading companies are primarily in the insurance and finance industries. However, all types of trading companies can benefit from a low income tax rate of 3% on international income sources.

Our primary focus is on alternative offshore investment vehicles for managing personal investments offshore. This investment activity would certainly include trading equities and reaping dividends. Although, the proper reference for this in Labuan is “non-trading” company.  

For equity investment purposes, Labuan non-trading company is better suited. Specifically, you may want to consider a Labuan Investment Holding Company. If so, there is no capital gains tax or dividend tax. This allows you to keep your profits safely offshore, tax free while earning high interest rates from term deposits in the local Labuan banks.

In addition, Labuan does not require the beneficial owner’s identity to be published in a public registrar e.g. Singapore. However, for the Labuan Offshore Company to be a viable solution, you need to make some additional considerations.

For example, your tax free status will depend on whether your company is “pure equity” or a “non-pure equity” classification. It is an important distinction for Labuan investment holding companies. But here again, if you go the extra mile, Labuan is probably the most reliable offshore financial center available.

Pure Equity or Non-Pure Equity

For international investors, the Labuan Investment Holding Company with “pure equity” status is a diamond in the rough. Essentially, the company is ideally suited to open offshore stock brokerage accounts. As a result, the company can invest tax free in publicly traded companies or hold shares in privately held companies as long as it maintains the pure equity classification.

A “pure equity” Labuan investment holding company is indeed tax free on all capital gains and dividends which can then be received into your Labuan offshore bank account.

On the other hand, the “non-pure equity” classification allows your Labuan company to hold equities in addition to other securities such as bonds, deposits or local real estate. Properties held by the non-equity company can include Labuan real estate but also alternative assets such as precious metals.

The main caveat that arises with the non equity classification is the requirement to maintain a full time company employee in Labuan in order to retain tax free status. This can be a director who resides in Labuan or a local employee that is acquired fill the requirement.

Filing Requirements for Labuan “Pure Equity” Companies

Labuan Financial Services Authority (LFSA) sets the regulations for all Labuan companies. As previously mentioned, they do set more stringent guidelines relative to some more popular offshore jurisdictions.

Although these less regulated jurisdictions may have easier filing requirements than Labuan, or no filing requirements at all for that matter, it can be a double edged sword since their local banking system is often subject to additional scrutiny. Indeed, in some jurisdictions such as Hong Kong or the EU your wire transfers can be rejected if it is coming from or going to a blacklisted country.

Labuan’s extra expenses and regulatory guidelines are completely manageable. In return for meeting the LFSA requirements you have a clean, reliable local banking system for your company to depend on.   

Additional hurdles for Labuan offshore companies include:

1. Annual Returns – Annual returns are required to be filed with the LFSA.
2.  Financial Records – Company accounts must be maintained by the relevant company officer or beneficial owner. The records can be kept outside of Labuan, but at least one copy must be kept in Labuan at the registered office or at another location in Labuan which is accessible by any company director for audit upon demand.
3. Annual Board Meeting – Management and control of the company must be exercised in Labuan. As a result, the company director must initiate and be physically present in Labuan for at least one annual board meeting. There are alternatives, which may allow the director to attend via video link e.g. appoint local director to initiate the annual meeting on your behalf.
   

Economic Substance Requirements (ESR)

In simple terms, the company must meet the economic substance requirements. This requires the company to serve an economic purpose, not only the reduction in tax liability.

To maintain the tax benefits, the Labuan Investment Holding Company (Pure Equity) must exercise management and control of the company in Labuan and also have OPEX of at least 20,000 MYR annually in Labuan.

Or if the company is classified as “non-pure equity” it must maintain at least one full time employee in Labuan and also maintain a minimum of 20,000 MYR OPEX expenditure.

The OPEX requirement threshold of 20,000 MYR can be satisfied with:

1. Travel expenses to and from Labuan to carry on company business.
2. Annual Fees paid to the LFSA e.g. annual processing and filing fees.
3. Office rental, equipment costs, office supplies, employee wages incurred in Labuan.
4. Fees paid to service providers in Labuan e.g. accountant, auditor, trust company.   

Labuan Offshore Company and Special Purpose Trust

Labuan offers trust services in addition to offshore company formation. This includes traditional “purpose” trusts that would normally require the settlor to divest their entire ownership interest of the trust assets. This may be a stumbling since not everyone if willing to give up total control of their assets.

On the other hand the Labuan “Special” Trust allows the settlor to maintain substantial control of the trust assets while still enjoying the security and privacy of the offshore trust. The Labuan “special purpose” trust is similar to the British Virgin Islands (BVI) “VISTA” trust or the Cayman Islands “Star” trust.

However, the Labuan financial jurisdiction does not share such close proximity to the US or UK as with the BVI or Cayman Islands. In addition, Labuan does not share their notoriety which can result in the banking complications referenced above.  

Key Benefits of the Labuan Special Trust include:

1. The Labuan Special Trust allows the owners of a Labuan company to specifically establish a trust for the special purpose of holding the shares in the Labuan company.
2. A trust settlor or share holder will be able to divest their ownership interest in the shares to the Labuan Special Trust while still retaining control of the Labuan company.
3. The trustee’s role and involvement in the trust affairs may be specified in the trust documents.
4. Trust ownership of the shares falls under the ambit of the Labuan Companies Act of 1990 and the governing laws of Malaysia.
5. Labuan Special Trust can also be established under the Islamic Shariah principle pursuant to the Labuan Islamic Financial Services and Securities Act of 2010. This is a special feature in Labuan which is not offered in other jurisdictions.