Complete Guide to Labuan Company Setup: Structures, Tax & Substance Requirements & Employment Pass

The Complete Guide to Labuan Company Setup: Structures, Tax & Substance Requirements & Employment Pass

Labuan continues to position itself as one of Asia’s most attractive and strategic jurisdictions for business owners, high-net-worth individuals, global investors, and technology entrepreneurs who require an internationally credible yet tax-efficient home for their corporate structures. As Malaysia’s designated International Business and Financial Centre (IBFC), Labuan operates as a mid-shore jurisdiction—a hybrid model that combines the transparency and stability of an onshore regime with the flexibility, tax incentives, and ease of business usually associated with international financial centres.

This unique positioning appeals to entrepreneurs and multinational groups seeking a jurisdiction that balances tax efficiency with regulatory legitimacy. Unlike classic offshore jurisdictions that struggle with reputational challenges, Labuan sits firmly within a robust legal framework backed by Malaysian law.

Today, Labuan is widely used for international trading, holding companies, fund vehicles, leasing companies, captive insurance, digital businesses, and global professional service firms. It also hosts a growing ecosystem of foreign founders seeking relocation through the Labuan Employment Pass, which offers one of the most practical residency pathways in Southeast Asia.

This guide explains in detail why Labuan is chosen, the structures available, tax treatments, economic substance rules, and the highly appealing work permit advantages that make Labuan a compelling choice in 2025.

Why Labuan IBFC Is a Leading Choice for Global Entrepreneurs

Labuan offers a seamless combination of regulatory clarity, attractive tax advantages, corporate confidentiality, and straightforward compliance—features that modern global entrepreneurs and investors value highly.

1. Predictable and Attractive Tax Regime

Labuan companies may qualify for either 0% or 3% corporate tax depending on their activities and substance. Investment holding entities generally enjoy zero tax, while trading companies enjoy a fixed 3% tax on audited profits. This creates predictable taxation without aggressive planning or complicated frameworks.

2. Regulatory Credibility Under Malaysian Law

While Labuan provides tax benefits, it operates under a fully regulated Malaysian framework—making it acceptable to global banks, investors, and tax authorities. This hybrid positioning allows Labuan companies to access Malaysia’s banking system and maintain international legitimacy.

3. Business Activity Flexibility

Labuan recognises a broad list of activities as permissible Labuan business, including professional advisory, administrative services, accounting, legal, payroll, talent management, agency, consulting, IT services, digital platforms, insolvency, and management services. This wide scope gives businesses considerable flexibility in structuring operations.

4. Cost-Effective Substance Requirements

Compared to Singapore, Hong Kong, and the UAE, Labuan’s substance requirements are significantly more manageable, making it highly attractive for SMEs, digital businesses, and globally mobile entrepreneurs.

5. Corporate Confidentiality

Labuan offers confidentiality as directors’ and shareholders’ information is not publicly searchable—helping protect privacy while maintaining compliance.

6. Relocation Advantage via the Labuan Employment Pass

The availability of the Labuan Employment Pass makes Labuan not only a company jurisdiction but also a relocation pathway for founders who want to operate regionally while living in Malaysia.

These combined factors make Labuan one of Asia’s most versatile destinations for international business structuring.

Labuan Company Structures Explained

Labuan accommodates a spectrum of legal structures suitable for international trade, investment activities, asset ownership, professional services, fund management, and large-scale corporate groups. The following is a detailed explanation of the most commonly used structures in 2025.

1. Labuan Trading Company

A Labuan Trading Company engages in active profit-generating business activities. These can include consulting services, digital businesses, global trading, marketing agencies, outsourcing operations, IT development, HR and payroll services, professional services, management support, and various administrative or back-office roles.

Labuan offers one of the broadest definitions of trading activities, acknowledging the modern realities of digital and service-based business. This flexibility enables companies across multiple sectors to operate under a Labuan Trading Company model.

Trading companies benefit from a preferential tax treatment of 3% of audited net profits, provided substance requirements are met. These entities must prepare audited financial statements annually.

Common Uses for Trading Companies

• International consulting and advisory services

• Digital and IT service platforms

• Outsourcing and back-office management firms

• Global trading and e-commerce operations

• Marketing, branding, and agency businesses

• Professional services serving international markets

2. Labuan Non-Trading / Investment Holding Company

Labuan non-trading companies do not conduct active business transactions. Instead, they serve as investment vehicles that generate passive income, including dividends, interest, royalties, rental income, and capital gains.

There are two key categories:

Pure Equity Holding Company

This entity holds only equity (shares) and earns dividends or capital gains. It has minimal substance requirements, often limited to holding at least one board meeting in Labuan and maintaining modest annual expenditure. These companies generally enjoy a 0% tax rate when ESR is met.

Non-Pure Equity Holding Company

This structure holds a variety of assets beyond shares, such as properties, IP, receivables, cash instruments, and financial investments. It earns a wider mix of passive income. These entities must meet operational expenditure thresholds in Labuan and employ at least one Labuan-based staff member. They typically enjoy a 0% tax rate with proper ESR compliance.

Common Uses

• Family offices and wealth management structures

• Private equity and venture capital SPVs

• Regional holding companies for multinational corporations

• Asset protection and multi-jurisdictional investment vehicles

• Ownership of real estate, financial instruments, and intellectual property

3. Labuan Leasing Company

Labuan leasing companies allow international leasing of high-value assets—including aircraft, vessels, machinery, and industrial equipment. This structure is widely used by groups in aviation, energy, shipping, manufacturing, and infrastructure sectors to centralise asset ownership while enjoying tax advantages.

Depending on activities, leasing companies may be taxed under trading or non-trading rules.

4. Labuan Fund Vehicles

Labuan provides an efficient environment for setting up private and public funds. Private equity, VC funds, hedge funds, and investment syndicates choose Labuan because operational costs are lower and the regulatory process is more streamlined than in many classic fund jurisdictions such as Cayman or Singapore’s VCC.

Labuan funds are especially popular for family offices, investment clubs, and emerging fund managers seeking flexible cross-border vehicles.

5. Labuan Insurance & Captive Insurance Structures

Labuan is a widely recognised hub for insurance and captive insurance structures. Corporations establish captives to self-insure internal risks, manage premiums, and retain underwriting profits in a tax-efficient manner. Industries including logistics, aviation, construction, and energy commonly utilise Labuan captives.

Labuan Company Setup Requirements

A Labuan company requires at least one director (an individual aged 18 years and above) and at least one shareholder, which may be an individual or a corporation. The company must maintain a registered office in Labuan provided by a licensed trust company.

Documents typically required include identity verification documents, corporate documents for corporate shareholders, and due diligence/KYC forms. Setup timelines are fast, making Labuan a suitable jurisdiction for urgent structuring or international expansion.

Economic Substance Requirements (ESR)

To enjoy Labuan’s tax benefits, companies must meet appropriate economic substance requirements based on their entity type.

Overview of ESR

• Trading companies: Must hire full-time personnel in Labuan and maintain sufficient annual operating expenditure.

• Pure equity holding companies: Lighter ESR requirements, often limited to governance activities.

• Non-pure equity holding companies: Must employ at least one staff member and meet operating expenditure thresholds.

• Companies failing ESR: May be taxed at Malaysia’s standard corporate tax rate of 24%.

ESR ensures that Labuan remains both credible and internationally compliant.

Tax Treatment in Labuan

Labuan’s tax regime is among the most competitive in Asia. Companies engaged in Labuan business activities typically fall under the Labuan Business Activity Tax Act (LBATA).

Tax Rates

• Trading companies: 3% on audited net profit

• Non-trading companies: 0%

• Companies opting out or failing ESR: 24%

Additional notable advantages include no capital gains tax, no withholding tax on payments to non-residents, and no exchange control restrictions.

Labuan Employment Pass (Expanded & Enhanced Section)

The Labuan Employment Pass is a major draw for foreign founders and professionals. It allows non-Malaysian citizens to reside in Malaysia while operating a Labuan-based business.

It is particularly beneficial for entrepreneurs seeking a relocation option that is more affordable and accessible than Singapore, Hong Kong, or Dubai. Many founders use Labuan as a strategic base for Southeast Asian operations due to its close proximity to major markets and lower cost of living.

Who Can Apply?

Applicants typically hold positions such as:

• Director, CEO, COO, CFO

• Principal officer or senior executive

• Consultants, legal advisers, accountants, engineers

• IT specialists and sector-specific experts

Requirements

• A minimum monthly salary (typically RM10,000 or equivalent)

• A Labuan operational office

• A business plan outlining business activities, organisational structure, and financial projections

• Educational or professional qualification documents

• Full passport copies and identification documentation

Pass Benefits

• Legal residence in Malaysia

• Option to bring dependents (spouse and children)

• Continental-level travel convenience

• Lower living cost compared to major business hubs

• Ability to manage global operations from Malaysia

• Personal banking access in Malaysia

• Operational ease under a Labuan corporate structure

The Labuan Employment Pass elevates Labuan from a corporate hub to a lifestyle hub, supporting founders who want to manage their global business while living in Malaysia.

COMPARISON TABLE: Trading vs Pure Equity vs Non-Pure Equity

Category	Trading Company	Pure Equity Holding Company	Non-Pure Equity Holding Company
Activities	Active business, consulting, IT, trading, services	Holds shares only	Holds mixed assets (IP, property, receivables, financial instruments)
Income Type	Active income	Dividend & capital gains only	Multiple passive income types
Tax Rate	3%	0%	0%
Audit Requirements	Mandatory	Not usually required	Not usually required
Substance Requirements	2 staff in Labuan + expenditure	Minimal (board meeting + small expenditure)	1 staff in Labuan + expenditure
Common Uses	Digital services, consulting, trading	Family holding structures	Multi-asset investment SPVs
Risk of 24% Tax	If ESR fails	If ESR fails	If ESR fails

GENERAL SUMMARY TABLE

Feature	Details
Jurisdiction	Labuan IBFC (Malaysia)
Tax Rates	0% or 3% (24% if failing ESR)
Director Requirement	1 individual (18+ years old)
Shareholder Requirement	1 (individual or corporate)
Confidentiality	No public registry
Banking Options	Labuan or Kuala Lumpur banks
Substance Requirement	Depends on activity type
Employment Pass	Available for founders & professionals
Common Uses	Trading services, holding companies, funds, leasing, insurance captives

Conclusion

Amaze Advisory provides complete support for Labuan company incorporation, accounting, tax compliance, ESR planning, and Labuan Employment Pass applications.

🚀 With Amaze Advisory, you don’t just meet compliance, you safeguard your business interests and gain a trusted partner for long-term success in Malaysia.

✔️ Email: salesteam@amazeadvisory.com
✔️ Phone:  +6013-284 7678 / +6013-323 7678

Contact Amaze Advisory today and take the first step toward building your business in Malaysia.

Disclaimer: This article is provided for general informational purposes only and does not constitute professional advice; readers should seek advice from their own accountant or adviser, and Amaze Advisory Global Sdn. Bhd. accepts no responsibility or liability for any reliance placed on this information.