A Labuan company is permitted to engage in a wide range of business activities, primarily falling into trading and non-trading categories, as long as it operates principally with non-resident currencies and with non-Malaysian residents. The core permitted activities include investment holding, trading, shipping, and a comprehensive suite of financial, banking, and insurance services, all regulated under the Labuan Financial Services and Securities Act 2010.
Understanding the Two Main Categories of Business
The Labuan IBFC (International Business and Financial Centre) framework elegantly categorizes business activities to provide clarity and appropriate licensing paths. These are broadly defined as Labuan Trading Activity and Labuan Non-Trading Activity.
1. Labuan Trading Activities
These are activities where the company is actively involved in the business of trade or provides services for a profit. Common examples include:
- General Trading: Buying and selling of goods.
- Re-insurance: Acting as a reinsurer for insurance companies.
- Insurance: Including life and general insurance.
- Leasing: Equipment and asset leasing.
- Licensing & Franchising: Managing intellectual property rights.
- Logistics and Shipping: Operating ships or managing shipping logistics.
- Holding Company: Acting as an investment holding company for subsidiaries.
Companies conducting trading activities must obtain the relevant license from the Labuan Financial Services Authority (Labuan FSA). The specific license required depends on the nature of the business. You can view the full list and guidelines on the official regulator’s website: Labuan FSA – Licensing Requirements.
2. Labuan Non-Trading Activities
This category is for companies that engage in more passive forms of business. The most common example is a pure holding company that only holds investments (like shares, properties, or other assets) and does not engage in any active trading or business operations. Entities engaged solely in non-trading activities do not require a formal license but must still be registered with Labuan FSA.
The Backbone: Labuan Banking, Insurance, and Financial Services
A significant part of Labuan’s ecosystem is dedicated to regulated financial services. These are specialized trading activities that require stringent licensing and supervision. Permitted financial services include:
- Labuan Banks
- Labuan Investment Banks
- Labuan Insurance and Re-insurance companies
- Labuan Leasing companies
- Labuan Money Brokers
- Trust and Fund management companies
The framework for these is well-established and attracts international players due to its robust yet efficient regulatory environment. The official portal for Labuan IBBC provides a detailed breakdown of these sectors: Labuan IBFC – Our Business.
What Activities Are Prohibited?
While the scope is broad, there are clear prohibitions to maintain the integrity of the jurisdiction. A Labuan company is not allowed to:
- Carry on business in Ringgit Malaysia with a resident of Malaysia (with very few exceptions).
- Engage in illegal activities or businesses deemed contrary to public interest.
- Conduct business as a trust company without a specific license.
- Undertake activities that are typically reserved for onshore Malaysian companies serving the domestic market, such as retail operations for the local public.
Navigating the Framework with the Right Partner
Understanding the permitted activities is the first step; successfully navigating the incorporation and licensing process is the next. The regulations are designed to be flexible but require precise adherence to compliance and reporting standards. This is where engaging a professional corporate service provider becomes invaluable. A seasoned partner, like MCS Corporate Services, can provide clarity on the optimal structure for your business goals, ensuring your chosen activities are correctly licensed and your company remains in good standing with the Labuan FSA, allowing you to focus fully on your core business growth.
Frequently Asked Questions (FAQ)
- Can a Labuan company do business with Malaysian residents?
Generally, a Labuan company can only transact with Malaysian residents in foreign currency and for specific purposes, such as professional services (legal, accounting) or settling administrative expenses. Trading in Ringgit Malaysia with residents is highly restricted. - What is the difference between a Labuan trading and a non-trading company for tax purposes?
Labuan trading companies can elect to be taxed either at 3% of net audited profits or pay a flat rate of RM20,000. Non-trading companies, which are typically pure holding companies, are not subject to Labuan tax on their foreign-sourced income. - Does a Labuan company need a physical office in Labuan?
Yes, every Labuan company must maintain a registered office address in Labuan, which is usually provided by your licensed corporate service provider. - Can a Labuan company hold intellectual property (IP)?
Yes, holding and licensing intellectual property is a common and permitted activity for a Labuan trading company. - Is a Labuan company suitable for fintech or crypto-related activities?
Labuan has a progressive framework for digital financial services, including Digital Currency Exchange (DCE) activities. These are considered licensed activities and require specific approval from Labuan FSA. - Are the activities of a Labuan company publicly disclosed?
No, the details of a company’s business activities and its financial statements are not part of a public register, offering a high degree of confidentiality.
Sources:
- Labuan Financial Services Authority (Labuan FSA): https://www.labuanfsa.gov.my/
- Labuan IBFC Official Portal: https://www.labuanibfc.com/
- Labuan Business Activity Tax Act 1990: https://www.labuanfsa.gov.my/labuan-business-activity-tax-act-1990
Important Notice: The regulatory landscape for Labuan offshore companies evolves continuously. The content provided in this blog is intended for general information and should not be construed as legal or professional advice. We strongly recommend that you contact our team to discuss your specific circumstances and obtain accurate, up-to-date information.
