Starting a business in Malaysia (Labuan)
- Rank of 25
- =03
- Index score of 100
- 86
The case for Malaysia (Labuan)
A Labuan company is registered in Labuan, a small island federal territory of Malaysia off the coast of Borneo, under the Labuan Companies Act 1990 and regulated by the Labuan Financial Services Authority (Labuan FSA). Most owners and senior staff of Labuan businesses live in or near Kuala Lumpur, so the living figures on this page are for Kuala Lumpur. A Labuan company suits a regional trading, holding or financial services business that wants a low tax rate inside a large Asian economy. Trading profits are taxed at 3% under the Labuan Business Activity Tax Act 1990, and qualifying holding activity at 0%. Incorporation goes through a licensed Labuan trust company, costs USD 300 to USD 1,500 in government fees depending on paid-up capital, and takes about 24 hours once due diligence is cleared. The annual fee to Labuan FSA is USD 1,000 from 2026.
Labuan suits less well a business with no real operations, because the low rate depends on substance. Each year the company must have a minimum number of fit and proper full-time employees working physically in Labuan and a minimum annual operating spend there, which rises with the type of activity. A company that misses these tests pays 24% for that year. The main drawback is that the staff the rules require must work in Labuan itself, a flight away from Kuala Lumpur, which adds cost for an owner who runs the business from the capital.
How a company is taxed
Labuan trading activity is taxed at 3% of chargeable profits, and qualifying non-trading (holding) activity at 0%. Failing the substance tests means 24% for that year. Labuan entities located in Labuan are outside sales and service tax. Residents pay progressive rates up to 30% on taxable income above RM2 million, and non-residents pay a flat 30%. Dividends above RM100,000 a year are taxed at 2% from 2025.
Setting up and running a company
About 24 hours
Labuan FSA approves incorporation within 24 hours of complete documents, fee payment and due diligence clearance. The fee is USD 300 to USD 1,500 by paid-up capital, and the annual fee is USD 1,000 from 2026.
Staff and spending in Labuan
A licensed Labuan trust company must incorporate the company, and it needs a resident secretary and a registered office in Labuan. To keep the 3% rate it needs fit and proper full-time staff working in Labuan and minimum annual spending there.
Not public
Beneficial ownership information is not on a public register. It is held through the Labuan trust company and is available to Labuan FSA and other authorities.
Employment pass or MM2H
A Labuan company can sponsor an employment pass for a director or employee paid at least RM10,000 a month, and all pass holders can bring dependants. MM2H is the alternative, from a USD 150,000 deposit and a home worth RM600,000.
Fees shown are government registry fees only. Agent, licence, office, audit and professional costs are additional and usually make up most of the cost of setting up.
Life in Kuala Lumpur
- Where people live
- The company is registered in Labuan, an island federal territory off Borneo, but most owners and staff of Labuan businesses live in or near Kuala Lumpur. The figures below are for Kuala Lumpur.
- Flights
- Kuala Lumpur International Airport serves 143 destinations with 71 airlines, according to Malaysia Airports in 2026. Labuan has its own airport with domestic flights to Kuala Lumpur.
- Schools
- Kuala Lumpur and the surrounding Klang Valley offer a wide choice of international schools with British, American and IB curricula. Since 1 July 2025 service tax applies to education fees for non-Malaysians.
- Healthcare
- Most expatriates in Kuala Lumpur use private hospitals and hold health insurance. Since 1 July 2025 service tax applies to private healthcare for non-Malaysians.
- Banking
- Labuan companies can open accounts with Labuan banks or Malaysian banks, subject to due diligence. Account opening usually takes longer than incorporation.
Wealth, inheritance and a family home
- Inheritance and gift tax
- Malaysia has no inheritance, estate or gift tax.
- Wealth tax
- There is no net wealth tax in Malaysia.
- Capital gains
- Individuals are not taxed on gains from shares, but real property gains tax applies to Malaysian property, at up to 30% for sales within three years and 10% for foreigners selling after five years.
- Personal income tax
- Residents pay up to 30% on income above RM2 million, dividends above RM100,000 a year are taxed at 2%, and foreign income brought into Malaysia by resident individuals may be exempt until the end of 2036, subject to conditions.
- Tax information exchange
- Malaysia exchanges financial account information with other countries under the OECD Common Reporting Standard, and this covers Labuan financial institutions.
- Buying a home
- Foreigners can buy homes above a minimum price set by each state with state consent, and MM2H participants must buy a home worth at least RM600,000, RM1 million or RM2 million depending on their tier and keep it for 10 years.
The Malaysia (Labuan) dossier
About 30 pages on business and life there, with official sources.
Questions people ask about Malaysia (Labuan)
Labuan trading activity is taxed at 3% of chargeable profits under the Labuan Business Activity Tax Act 1990. Qualifying non-trading activity, such as holding shares on its own account, is taxed at 0%. A company that fails the substance requirements pays 24% for that year.
Under the Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2021, as amended in September 2025, a Labuan entity needs a minimum number of fit and proper full-time employees working physically in Labuan and a minimum annual operating spend in Labuan. The figures depend on the activity, from two to four employees and from RM50,000 to RM3 million a year.
The company is registered in Labuan, an island federal territory off Borneo, with its registered office and resident secretary there. Most owners and many managers live in or near Kuala Lumpur, but the employees counted for substance must work in Labuan.
Only a licensed Labuan trust company can act as incorporation agent, and it must carry out its own due diligence. The trust company usually provides the resident secretary and the registered office in Labuan.
The incorporation fee is USD 300 for paid-up capital of RM50,000 or less, USD 600 up to RM1 million and USD 1,500 above that, plus USD 30 for name reservation. Approval comes within 24 hours of complete documents and due diligence clearance. The annual fee is USD 1,000 from 2026.
No. There is no minimum or authorised capital requirement for a standard Labuan company, so it can start with one share, commonly USD 1. Licensed activities such as banking or insurance carry their own capital rules.
No. Beneficial ownership information is held through the Labuan trust company and is available to Labuan FSA and other authorities, but it is not open to the public.
A Labuan company can apply to Labuan FSA for an employment pass for a director or employee paid at least RM10,000 a month, and holders can bring dependants. The pass is for work in Labuan. For living in Kuala Lumpur without a job, MM2H Silver needs a USD 150,000 fixed deposit and a home worth at least RM600,000, and does not allow work.
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