The Labuan Offshore Financial
Services Authority (LOFSA) is the regulatory body set up to spearhead and coordinate
efforts to promote and develop Labuan as an International Offshore Financial
LOFSA is expected to streamline
the government machinery in supervising the offshore financial services industry
and undertake research and development works as well as to draw up plans for
further growth and efficiency of the Labuan IOFC.
LOFSA administers major
offshore operations in the area of banking, insurance, securities, trust and
fund management, and incorporation/registration of companies.
To date more than 1600 offshore companies had set up operations in Labuan. These
include trust companies, offshore banks and insurance and insurance related companies.
Incentives offered under
this legislation include the following:-
An offshore company carrying
on an offshore trading activity can choose to pay a tax at the rate of 3% of
its net audited profits or a fixed sum of RM20,000 a year;
of Tax for Professional Services
An offshore company carrying
on an offshore non-trading activity for the basis period for a year of assessment
is not subject to tax for that year of assessment. An offshore company which
has no basis period for a year of assessment is taxed a fixed rate of RM20,000
for that year of assessment.
Income derived by a person
or his employee or a company from qualifying professional services rendered
to an offshore company in Labuan is exempt from tax up to an amount equivalent
to 65% of the statutory income from that source. This exemption is applicable
from the Year of Assessment 1992 to the Year of Assessment 2000. Qualifying
professional service means legal, accounting, financial or secretarial service
and includes the services provided by a trust company as defined in the Labuan
Trust Companies Act 1990.
of Tax for Business Relating to or Letting of a Qualified Asset
Income of a person derived
from the carrying on of a business which relates to a qualifying asset or the
letting of a qualifying asset in Labuan, is exempt from tax up to an amount
equivalent to 50% of the adjusted income from that source. This exemption applies
where the person has undertaken the construction project of the qualifying asset
himself or has purchased that qualifying asset from the person who undertook
the construction project of that asset.
of Tax for Employment
This exemption is applicable
for a period of five consecutive years of assessment, commencing from the
year of assessment in which the adjusted income first arises from that source,
that is, the total exemption given to both the person who constructed and
the person who purchased the qualifying asset will not exceed five years of
The incentive is available
if the construction project of a qualifying asset has commenced before 1 October
1996 or Pioneer Status/Pioneer Certificate or Investment Tax Allowance has
been granted under the Promotion of Investments Act 1986 in respect of the
business which relates to or the letting of the qualifying asset.
Income derived by a non-citizen
individual from an employment exercised in a managerial capacity in an offshore
company in Labuan is exempt from tax up to an amount equivalent to 50% of the
gross income from that employment. This exemption applies from the Year of Assessment
1992 to the Year of Assessment 2000.
The following exemptions
are available under the Income Tax Act 1967 effective from the Year of Assessment
(a) Dividend received
by an offshore company from a Malaysian resident company is not subject to
income tax and no refund or set-off is given in respect of tax deducted from
(b) Dividend paid by an
offshore company out of income derived from an offshore business activity
or out of exempt income is not subject to income tax in the hands of the recipient.
Such dividend will be paid gross without any tax deducted at source.
(c) Distribution made
by an offshore trust is not subject to income tax in the hands of the beneficiary.
(d) Royalty paid by an
offshore company to a non-resident person or another offshore company is not
subject to income tax and hence is not subject to withholding tax.
(e) Interest paid by an
offshore company to a nonresident person or another offshore company is not
subject to income tax. However, where the interest accrues to a banking, finance
company or insurance business carried on by the nonresident person in Malaysia,
that interest will be subject to income tax as part of business income.
(f) Interest paid by an
offshore company to a resident person, other than a person carrying on a banking,
finance company or insurance business in Malaysia, is not subject to income
(g) Technical or management
fee paid by an offshore company to a nonresident or another offshore company
is not subject to income tax.