Labuan Business Activity Tax Act (LBATA) governs the tax structure in Labuan. It provides for inter alia, the imposition of tax on the international business activities carried on by an offshore company in or from Labuan in a currency other than the Malaysia currency with non-residents or with another international company.
International business activities covers by the Act are:-
Where Labuan Company carries on both trading and non trading activities it is deemed to be carrying on trading activities.
An Labuan company carrying on offshore trading activity is taxed under LOBATA at the rate of 3% of its net profits as reflected in its audited accounts. For individual income tax, expatriates employed by Labuan companies in a managerial capacity are eligible for a tax rebate of 50%.
Malaysia has signed double tax agreement (DTA) with more than 60 treaty partners. As Labuan is part of Malaysia, Labuan offshore companies may enjoy the benefits accorded under the DTA Agreements for the avoidance of Double Taxation prevent incidences of Double Taxation prevent incidences of double taxation on income such as business profits, dividends, interest and royalties that are derived in one country and remitted to another country.
Election by Labuan Companies to be taxed under Income Tax Act (ITA)
This election of tax by Labuan Companies falls to those LC who carries business dealing with Malaysian residents whereby its income derives from payment made by Malaysians residents towards the LC.
The LBATA has been amended setting out the relevant definitions, election procedure, compliance requirements, scope of taxation, residence status, etc for LCs that are considering making such an election.
International business activities covers by the Act are:-
- Trading activity which includes banking, insurance, management license and any other activity which is not an offshore non trading activity. Shipping operations are outside the meaning of the term.
- Non trading activity which refers to the holding of the investment in securities, stocks, shares, loan deposits, and immoveable properties by an offshore company on its own behalf.
Where Labuan Company carries on both trading and non trading activities it is deemed to be carrying on trading activities.
An Labuan company carrying on offshore trading activity is taxed under LOBATA at the rate of 3% of its net profits as reflected in its audited accounts. For individual income tax, expatriates employed by Labuan companies in a managerial capacity are eligible for a tax rebate of 50%.
Malaysia has signed double tax agreement (DTA) with more than 60 treaty partners. As Labuan is part of Malaysia, Labuan offshore companies may enjoy the benefits accorded under the DTA Agreements for the avoidance of Double Taxation prevent incidences of Double Taxation prevent incidences of double taxation on income such as business profits, dividends, interest and royalties that are derived in one country and remitted to another country.
Election by Labuan Companies to be taxed under Income Tax Act (ITA)
This election of tax by Labuan Companies falls to those LC who carries business dealing with Malaysian residents whereby its income derives from payment made by Malaysians residents towards the LC.
The LBATA has been amended setting out the relevant definitions, election procedure, compliance requirements, scope of taxation, residence status, etc for LCs that are considering making such an election.