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Labuan

LABUAN

HISTORY AND POLITICAL STRUCTURE

Labuan is a federal territory in East Malaysia. It is an island off the coast of the state of Sabah. Labuan’s capital is Victoria and is best known as an offshore financial centre offering international financial and business services via Labuan IBFC since 1990 as well as being an offshore support hub for deepwater oil and gas activities in the region. It is also a tourist destination for nearby Bruneians and scuba divers. The name Labuan derives from the Malay word labuhan meaning anchorage.

In the 1840s the previously-uninhabited island was proposed as a base for British operations against piracy in the
South China Sea. In 1846, Brunei was attacked and captured by the British and Sultan Omar Ali Saifuddin II was forced
to sign a treaty and ceded Labuan to Britain in the same year. The island became a Crown Colony in 1848.
In 1890, Labuan came to be administered by the British North Borneo Chartered Company. It was reverted back to
British government rule in 1904, then on 30 October 1906 joined to the Straits Settlements and been administered from
Singapore.

During World War II, Labuan was occupied by Japan from December 1941 to June 1945 and governed as part of the Northern Borneo military unit by the Japanese 37th Army. Labuan was renamed Maida Island after Marquis Toshinari Maeda, the first commander of Japanese forces in northern Borneo.

In 1984, Labuan was ceded by Sabah to the federal government and made a federal territory. In 1990, it was declared an international offshore financial centre and free trade zone.

The jurisdiction has expanded to become a base for more than 6,500 offshore companies and more than 300 licensed financial institutions including world leading banks. Labuan IBFC is embarking on an aggressive growth strategy to become the premier international business and financial centre in the Asia Pacific region.

Labuan’s business focus is on five core areas: offshore holding companies, captive insurance, Shariah-compliant Islamic Finance structures, public and private funds and wealth management. Labuan IBFC’s position is further enhanced by the launch of the Malaysian International Islamic Finance Centre initiative in August 2006

This island is governed by Datuk Yussof Haji Mahal from Barisan Nasional, which was elected during 12th General Election of Malaysia. Datuk Yussof Mahal won by 10471 votes, beating Lau Seng Kiat, an Independent, and Matusin Abdul Rahman by 1106. He is the Member of Parliament of Labuan, thus by tradition, also been appointed as Chairman of Labuan Corporation. The island also has a Senator, Datuk Yunus Kurus that also serves as Chairman of Labuan Corporation Advisory Council.

ECONOMY

Recognizing Labuan’s strategic location and proximity to major shipping routes and offshore oil and gas fields, the Federal Government launched a long-term development program to jump-start Labuan’s stagnating economy and to encourage the influx of both domestic and foreign investments.

As Malaysia’s only deepwater anchorage, Labuan is a free port, a Federal Territory, and an International Offshore Financial Centre (IOFC). The currency is the Malaysian Ringgit (RM).

The mining sector, largely represented by oil and gas production and its related industries, is the biggest contributor to Labuan’s economy, followed by the manufacturing sector, wholesale, retail, hotel and restaurants sector.

Although still not a major economic contributor, the finance sector is gaining significantly with its GDP contribution increasing from 5.7% in 1991 to nearly 10% in 2000. In the future, the manufacturing and mining sectors are expected to play a less significant role.

Malaysia’s ambitions for Labuan to become a financial centre to challenge Singapore and Hong Kong remain unfulfilled, but the island has become a major conduit for FDI into the surrounding economies, especially Korea. It is thought that somewhere between one-third and one-half of the companies registered on the island are somehow linked to Korea. Many Korean companies themselves have invested back into Korea through Labuan.

WHY CHOOSE LABUAN WHEN STARTING A BUSINESS?

Thousands of entrepreneurs and organisations have already realised the benefits of investing in Labuan. However, successfully investing in Labuan requires patience, comprehensive knowledge of the local market and business environments, efficient tax planning in Labuan and professional advisers who can help you through every step of the process of starting a company in Labuan.

Advantages of the Jurisdiction of Labuan

•   If properly structured, Labuan company formation allows legitimate tax-exempt international trading. Furthermore,
      a Labuan company accesses double taxation treaties Malaysia has signed with 68 countries.

•   Labuan company formation permits 100% foreign ownership. Only one shareholder and one director are required,
      and corporate directors and shareholders are permitted. There is no public register of shareholders and directors
      following Labuan company formation. The director need not be Labuan-resident.

•   There are no minimum capital requirements to complete Labuan company formation.

•   Labuan, along with Malaysia, has been placed the OECD ‘white list’ and is therefore recognised as having substan-
      tially implementing the required internationally recognised tax-related standards.

•   According to the World Bank’s Doing Business 2010 Survey, Malaysia is ranked positively as the world’s 21st easi-
     
est jurisdiction to do business. The survey measures factors including business start up procedures, time, cost and
     
minimum capital required to start a business.

•   When planning to incorporate a company in Labuan, note that non-Labuann staff that resides in Labuan only re-
      quire Entry Permits and are exempt from applying for any other type of pass.

•   When planning to incorporate a company in Labuan, note that the Company must apply for Visit Passes should it
      wish to hire non-Malaysians for short-term projects.

•   Anonymity

•   Legal Tax exemption

•   No accounting requirements

•   No taxation on any kind of income

•   Limited liability without any paid up capital requirement

How to form a Labuan Company

To form an offshore Labuan company, you will need to submit all of the information about the shareholders and directors to the Registrar of Companies, and this information will generally be available on public file, meaning that you cannot have true offshore privacy when operating an offshore Labuan company.

The first step in forming a Labuan offshore company is to get approval from LOFSA of the required name by using the services of a trust company.

The application should indicate why the name is selected and the nature of business to be conducted by the applicant company. Names are not allowed where, in the opinion of the Registrar, it is undesirable or is a proper name, or includes a name of a kind that the Registrar is not willing to accept for registration.

A trust company or any other person may, by subscribing its or his name to a memorandum and complying with the requirements in the registration, form an offshore company.

 

Every offshore company must be a company limited by shares.

 

Application to incorporate can only be handled by a Labuan trust company who must then submit the Memorandum and Articles of associations with the following details:

 

1.   names of directors and shareholders;

2.   registered address, company secretary and trust company

3.   size and denomination of share capital;

4.   the nature of business of the company;

 

Companies pay registration fees based on the amount of authorized capital, and both filing and stamping fees apply for submission of the above documents.

Requirements for the Registration of a Labuan Company

•   Director: Directors may be of any nationality and may reside anywhere. Only one director is required, although
     
there may be several. Directors can be residents or non-resident. Corporate directors are allowed. Nominee direc-
     
tors are allowed. A Labuan company must have a resident company secretary, who must be a Trust Officer of a
      trust company.

•   Shareholder: Shareholders may be of any nationality and may reside anywhere. Only one shareholder is required.
      This can be the same person as the director. Shareholders can be residents or non-resident. Corporate sharehold-
     
ers are allowed.

•   Shares & Capital: There is no minimum authorized share capital requirement, however our standard companies
     
include an authorized share capital of US$10,000 ordinary share at a nominal value of US$1 per share which one
      share is required to be issued. Share capital can be held in any currency other than Malaysian Ringgit. Registered
     
shares of par value, preference shares, redeemable shares and shares with no voting rights are all permitted.
      Bearer shares are not permitted.

•   Name of the Company: The name of the company must end with Limited, Incorporated, Corporation, Sociθtθ
           
Anonyme, Sociedad Anonima or their relevant abbreviation. If the Malaysian word Berhad is used then it must be

            preceded by “(L)” to denote that the company is incorporated in Labuan.

Required Documents to register the company:

 

Submission to the Registry of:

 

•   Memorandum and Articles of Association,

•   Consent form to act as a director,

•   Statutory Declaration of Compliance with the

•   Companies Act

•   Certificate of Identity

•   Statutory declaration by persons before appointments as directors

•   And the requisite fee.

 

The Malaysian Government welcomes foreign investment in major sectors of the Labuan economy particularly in oil and gas, shipping, manufacturing, trading, tourism, property and education. There are plenty of incentives and other facilities accorded to these sectors.


 

GENERAL OVERVIEW

Location

Located at 05 degrees North and longitude 115 degrees East, about 10km off the west coast of the Sabah in east Malaysia.

Time zone

GMT +8

Population

About 90,000 (as at 2009)

Capital

Bandar Labuan

Airport(s)

Labuan Airport

Language

Mainly Malay, English

Currency

Ringgit Malaysia (RM)

Political system

Labuan is a federal territory of Malaysia based on parliamentary democracy.

International dialling code

6087

Legal system

The Malaysian legal system is based on English Common Laws.

Centre’s expertise

Banking, Islamic Finance, insurance and captive insurance, fund management, leasing, capital market, investment holding, private wealth management and trading.

TAX

Personal income tax

Directors fees received by foreign directors from a Labuan company are exempted from tax.

Corporate income tax

Labuan trading companies are taxed at 3% on the audited net profit or flat rate at RM 20,000. No tax for non-trading Labuan Companies.

Exchange restrictions

No exchange control on foreign currency transactions.

Tax treaties

Labuan companies can make an irrevocable election to be taxed under the Malaysian Income Tax Act 1967 at the rate of 25% p.a which allows access to 75 Malysias DTA

SHARE CAPITAL

Permitted currencies

In any foreign currencies except RM

Minimum authorised capital

One share of any denomination in foreign currency

Minimum share issue

One share of any denomination in foreign currency

TYPE OF ENTITY

Shelf companies

Available from early 2011

Timescale for new entities

One or two days for manual applications

Incorporation fees

RM 1200 to RM 5,200 depending on authorised capital.

Annual fees

Government: RM 1500 for Labuan companies, RM 5,300 for foreign Labuan companies.

DIRECTORS

Minimum number

One (either individual or corporate entity)

Residency requirements

Resident director is optional

Corporate directors

Allowed

Meetings/frequency

Directors meeting required annually.

SHAREHOLDERS

Disclosure

There are secrecy provisions in the legislation governing Labuan companies.

Bearer shares

Not allowed

Minimum number

One (either individual or corporate entity)

Public share registry

No, records of Labuan companies are not public records

Meetings / frequency

Yes, as the discretion of the companies

ACCOUNTS

Annual return

Filed annually not later than 30 days from the date of the incorporation of the Labuan company

Audit requirements

Optional, except for Labuan companies opting to pay 3% tax p.a. on audited net profits and licensed companies such as banks, insurance entities, and trust companies.

OTHER

Registered office

The principal office of a Labuan trust company is deemed as the registered office of a Labuan Company.

Domicile issues

Change in domicile is permitted.

Company naming restrictions

The name may contain any word or abbreviation thereof in the national language of any country that denotes a company limited by shares or guarantee. Approval is required from the Authority and may be reserved for a period of up to three months.

Together

Alone we can do so little. Together we can do so much