The Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2018 ("the Principal Regulations") set out the requirements relating to the minimum amount of annual operating expenditure in Labuan and the minimum number of full time employees in Labuan that have to be fulfilled by a Labuan entity in order to be subject to a tax rate of 3% for a Labuan trading activity1 or 0% for a Labuan non-trading activity2 under the Labuan Business Activity Tax Act 1990 ("the Act").
If a Labuan entity does not fulfil the minimum operating expenditure or employment requirements specified in the Principal Regulations for a basis period for a year of assessment, it will be subject to tax at the rate of 24% of its chargeable profits for that year of assessment under the Act.3
The Labuan Business Activity Tax (Requirements for Labuan Business Activity) 2018 (Amendment) Regulations 2020 ("the Amendment Regulations") were gazetted on 24 December 2020 and are deemed to have come into operation on 1 January 2019.
The Amendment Regulations amend the Principal Regulations in the following respects:
Regulation 2(1)
Regulation 2(1) (which has been renumbered as Regulation 2) makes it clear that the minimum number of full time employees in Labuan and the minimum amount of annual expenditure in Labuan stipulated in the Schedule to the Principal Regulations apply in respect of the basis period for each year of assessment of a Labuan Entity.
Related Companies and Group Companies
New sub-paragraphs (a) and (b) have been introduced into the Schedule to the Principal Regulations to provide that:
- a company is deemed to be related to another company if any of the criteria set out in Section 4 of the Labuan Companies Act 19904 is satisfied; and
- companies are deemed to be in the same group where:
- two or more companies are related in the manner set out in paragraph (a) above;
- a company is so related to another company which is itself so related to a third company;
- the same person holds more than 50% of the shares in each of two or more companies; or
- each of two or more companies is so related to at least one of two or more companies to which subparagraph (iii) above applies.
Amendment of requirements for certain Labuan business
activities
The minimum employment and/or annual operating expenditure
requirements for certain Labuan business activities set out in the
Schedule to the Principal Regulations have been amended as
follows:
| (1) | (2) | (3) | (4) |
| No. | Labuan entity carrying on in a Labuan business activity | Minimum number of full time employees in Labuan |
Minimum amount of annual operating expenditure in Labuan (RM) |
| 1. | Labuan insurer, Labuan reinsurer, Labuan takaful operator or Labuan retakaful operator | 3 (previously 4) |
200,000 (previously 150,000) |
| 4. | Labuan insurance broker or Labuan takaful broker | 2 (previously 4) |
100,000 (no change) |
| 5. | Labuan captive insurer or Labuan captive takaful – (a) Labuan first party captive insurer or Labuan
first party captive takaful; or |
2 3 (previously 4) |
100,000 100,000 (no change) |
| 6. | (The business activity of Labuan International Commodity Trading Company has been deleted) | ||
| 7. | Labuan bank, Labuan investment bank, Labuan Islamic bank or Labuan Islamic investment bank | 3 (no change) |
200,000 (previously RM180,000) |
| 9. |
Labuan leasing company or Labuan Islamic leasing company which
has– (c) 21 to 30 related Labuan leasing companies or
Labuan Islamic leasing companies; or |
2 for each group company 3 for each group company 4 for each group company 1 additional employee for each group of companies for each increase of 10 related Labuan leasing companies or Labuan Islamic leasing companies |
100,000 for each Labuan leasing company or Labuan Islamic leasing company same requirement as stated above same requirement as stated above same requirement as stated above |
| 21. | Labuan entity that undertakes investment holding activities
other than pure equity holding activities (Previously the activity in this item was Holding Company and was subject to a minimum of 2 employees in Labuan and a minimum annual operating expenditure in Labuan of RM50,000) |
1 | 20,000 |
| 22. | Labuan entity that undertakes pure equity holding
activities (This item was introduced under the Amendment Regulations) |
Exempted5 | 20,000 |
Footnotes
1 Sections 4(1) of the Act. Section 2(1) of the Act states that a "Labuan trading activity" includes banking, insurance, trading, management, licensing, shipping operations or any other activity which is not a Labuan non-trading activity.
2 Section 9(1) of the Act. Section 2(1) of the Act states that a "Labuan non-trading activity" means an activity relating to the holding of investments in securities, stocks, shares, loans, deposits or any other properties situated in Labuan by a Labuan entity on its own behalf.
3 Section 2B(1A) of the Act.
4 Section 4 of the Labuan Companies Act 1990 provides that a corporation is related to another corporation where the first-mentioned corporation is (a) the holding company of the other corporation; or (b) the subsidiary of the other corporation; or (c) is a subsidiary of the holding company of the other corporation.
5 See Labuan Business Activity Tax (Exemption) Order 2020.
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