Keep your Labuan tax position clean.

A Labuan entity carrying on a Labuan trading activity is taxed at 3 percent of audited net profits under the Labuan Business Activity Tax Act 1990, provided the substance requirements are met. A Labuan entity carrying on only a Labuan non-trading activity, such as the holding of investments, is taxed at zero percent. The 3 percent rate is conditional: an entity that fails to meet substance for a year of assessment is taxed at the standard Malaysian rate of 24 percent under LBATA.

The Labuan return of profits is filed with the Inland Revenue Board of Malaysia under the self-assessment system. From the 2025 year of assessment it is due within seven months of the end of the financial year, on the consolidated Form LE1, supported by audited financial statements for a trading entity. We confirm the current form and prepare the supporting figures before the deadline.

A Labuan trading activity covers banking, insurance, trading, management, licensing, shipping and any activity that is not a non-trading activity. A Labuan non-trading activity means the holding of investments in securities, stocks, shares, loans, deposits or other property by the entity on its own behalf. The classification sets the tax rate, the substance test and whether audited accounts are required, so we confirm it before the year-end pack is built.

To access the 3 percent rate, a Labuan trading entity must meet substantial activity requirements: an adequate number of full-time employees in Labuan and an adequate amount of annual operating expenditure in Labuan. The exact thresholds depend on the type of activity and are set by regulation. An entity that does not meet the requirements for a year of assessment is taxed at 24 percent under LBATA. We reconcile the tax position to the substance position before filing.

Labuan entities can access many of Malaysia's double tax agreements, subject to the terms of each treaty and the entity's tax residency position. Several treaty partners specifically exclude Labuan entities, and some treaties contain limitation-on-benefits provisions. We review the applicable treaty position as part of the advisory scope where it is relevant to the structure, and coordinate external tax counsel where a formal opinion is needed.

Yes. For groups with structures that span Labuan and mainland Malaysia, we coordinate both Labuan and Malaysian tax compliance. This is relevant where a group runs both a Labuan entity and Malaysian resident operations, or where staff are employed in Malaysia and personal tax considerations arise. We coordinate Malaysian mainland advisers where a position falls outside the Labuan regime.