QUESTION 7.

1
PREPARED BY:
MOHAMAD AMIRUL 2014411
FARHANA 2014280
NURAMYLIA 2014243
NURUL LYANA 2014416
NURUL SYAHIRAH 2014872
NOR SAZWANI 2014896
 INTRODUCTION
The Labuan International Business and
Financial Centre was established on 1
Oct 1990 as Labuan International
Offshore Financial Centre.
Approved Labuan trading activities
include banking, insurance, trading,
management, licensing, shipping
operations or ther activity which are not
Labuan non-trading activities.
Labuan non-trading activities mean
activities relating to the holding of
investments in securities, stock, shares,
 INTRODUCTION
Labuan activities are required to be
carried out with persons not resident in
Malaysia, and in foreign currencies,
although there are some exceptions for
banks, insurance companies and Labuan
entities carrying on the business of
Labuan leasing or money-broking.
Transactions in Malaysian Ringgit are
permitted only for purposes of defraying
administrative and statutory expenses,
or for acquisition of shares or other
securities in a Malaysian company by a
a. The taxability of income derived from
offshore trading activities as well as non-
trading activities of Labuan offshore
companies.
Under the LBATA:
Labuan trading activity is chargeable to tax
at a rate of 3% on the net audited profits
or elect to be charged tax at a fixed rate of
RM20,000
ex: banking, insurance, trading, management or
licensing
A Labuan non-trading activity, there is no charge to
tax. (ex: all investment activities)
3rd option (tax under ITA) - make an irrevocable
election for their profits (at the usual rate of 25%
under the ITA.)
Under section 3B of ITA:
Income in respect of a Labuan Business activity
 b. The withholding tax implication on
payments made to a non-resident person
Any payments made to a non-resident person is not subject to
withholding tax for :
Royalties - Under Section 109 of the Income Tax Act 1967
Interest
I. Under Section 109 of the Income Tax Act 1967
II. Any interest paid by a Malaysian resident to offshore
banks in Labuan is not subject to withholding tax.
Special classes of income
I. Under Section 4A of the Income Tax Act 1967
Technical services, advice or assistance specified in
section 4A(i) and (ii) of the Income Tax Act
Other income - Payments for other gains and losses under
Section 4(f) of the Income Tax Act 1967 made by an offshore
company to a non-resident have also been exempted from
income tax and therefore not subject to withholding tax.
c. Director fees received by Sofar and
his Malaysian resident director
Exemption for
non-citizens in
Sofar respect of 100% of
(Chief Executive directors fees from
Officer) Labuan entities
received from Y/A
2011 until Y/A 2020.
Taxable as
normal
Malaysian employees
resident whereas non-
director residents
directors are
fully exempted
d. The employment income received
by his manager
Non-citizen individuals employed in a
managerial capacity with a Labuan
entity in Labuan, co-located granted
an exemption of 50% of their income
from such employment up to Y/A
2010, provided the employment is
exercised in Labuan.
Sofars manager does not get 50% tax
exemption on Labuan and housing
allowances paid since his manager is Arabic
citizen.
e. The payment of zakat on business and
donation made to Malaysian
government by the Labuan offshore
company
Payment of Zakat
Any zakat which is paid by a Labuan entity in the
basis period for a year assessment (Y/A) will be
granted a tax rebate
Subject to a maximum of the tax charged:
I. 3% of net profits or
II.RM20,000 upon election
.Any excess of tax rebate over the tax charged will:
I. not be refunded to the Labuan entity or
II.be made available as a credit to set-off against
the tax liability for that Y/A or any subsequent
Y/A.
e. Tax implication on donation made to Malaysian
government by Labuan offshore company.

Any donation made to the government is

entitled for deduction-S44(6).
Deduction is given in the basis period of a year
assessment(Y/A)
Donation made to the Government is not
subject to any restriction.
Full amount of donation can be taken for
deduction.
Donation can be in the form of:
I. Cash
II. Gift
 f. Other tax matters in Labuan
1) Indirect taxes
. There are no indirect taxes (such as sales taxes,
service taxes and custom duties) since Labuan enjoys
free port status.

2) Stamp duty
. The following instruments are exempted from stamp
duty:
a) all instruments which are executed by a Labuan
entity in connection with a Labuan business
activity;
b) all Memorandum and Articles of Association,
statute, charter, rules, by-laws, partnership
agreement or other instrument, under or by which
a Labuan entity is established and the scope of that
entitys function, business, powers and duties are
 f. Other tax matters in Labuan
3) Capital Gain
. For a Labuan entity carrying on a Labuan
trading activity, capital gains are reflected
as part of the net profits and hence subject
to 3% tax. However, if election is made,
the liability is restricted to RM20,000.
Capital gains arising from sale of shares in
a Labuan company by the shareholders are
not taxable assuming that the
shareholders do not have a business
presence in Malaysia and are not
investment dealers