Tax regulations

Labuan Tax Regulations 2021 Fully Implemented by Malaysian Government

Just recently, the Malaysian government issued the Labuan Business Activity Tax Requirements Regulations 2021 to replace the previous gazette of the Labuan Business Activity Tax Regulations 2018. Other Business Entity (OTE) has been reinstated as Code 23 and enjoys tax benefits under the Labuan Business Activity Tax. law (LBATA). These can benefit from a preferential tax rate of 3% under the LBATA (if they meet the ESR conditions).

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The new regulations indicated that the decision begins the data with major recent highlights and changes, including the addition of OTE under Article 20 of the First Schedule in the Gazette and the introduction of control conditions and management for Labuan entities engaged in pure stock holding activities.

The establishment of economic substance requirements under the Labuan Tax Rule in 2019 came with many uncertainties and ambiguities which subsequent guidance and legislation sought to clarify.

This warns of Labuan tax developments, such as taxation of Labuan entities that engage in other business activities, updated substance requirements for holding companies, stamp duty implications for related instruments to a Labuan entity and the most recent changes in legislation through Labuan business activity (Requirements for Labuan business activity) Tax Regulations 2021 and Income Tax Ordinance 2021 ( exemption) (No. 11).

The new 2021 regulations further amend the guidelines regarding economic substance requirements for Labuan entities. Therefore, effectively revoke and replace the Labuan Business Tax Regulations 2018.

As of today, there will be reduced economic substance requirements for Labuan entities commencing pure shareholding activities. Previously, the 2018 regulations required all holding companies in Labuan, including all PEH entities in Labuan, to have at least two full-time workers in Labuan and annual operating expenses of RM50,000 in Labuan.

Under the new 2021 regulations, each Labuan PEH entity is exempt from this requirement to have full-time workers in the area. Additionally, the minimum OPEX needed in Labuan is reduced from RM50,000 to RM20,000.

There will also be new management and control requirements for PEH entities that came into effect on January 1, 2021. Even though Labuan PEH entities are no longer required to have full-time workers in the area, the Labuan Financial Services Authority has issued a directive requiring all such entities to ensure that management and control is practiced.

Therefore, the new regulation of 2021 has defined the particular criteria to facilitate management and control in Labuan.

Given the constant changes in policies and legislation relating to the Labuan tax regime, it is essential that Labuan entities continuously assess their activities against the corresponding requirements from time to time. In addition, a detailed and thorough assessment of their current holding transactions and structures is encouraged to ensure that the structure remains compliant with applicable laws and avoid any adverse Malaysian tax consequences.

MCS Corporate Services Inc. is well placed to help foreign business owners navigate Labuan’s complex tax landscape. For more details and to discuss what these developments could mean, please contact Dr Steven by calling him on +6018 777 7938 or visiting their website.

Contact information:
Name: Dr Steven
Email: Send Email
Address: Block A, Lot 7, 1st Floor, Pertama Industrial Zone, Labuan, Federal Territory of Labuan 87000, Malaysia
Phone: +60-18-777-7938

Build ID: 89075478

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