# Labuan Company vs Sdn Bhd: When Labuan Is the Wrong Answer

> What a Labuan company is as a legal entity, what LBATA substance actually requires, which onshore restrictions survive and which are repealed law, and the cases where a Sdn Bhd is simply the better structure.

- Category: business
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/business/labuan-company-vs-sdn-bhd

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Labuan gets two kinds of coverage and both are useless.

The first ignores it. Open any Malaysian "business structures compared" page and
the list runs enterprise, partnership, LLP, Sdn Bhd, Berhad — and stops, as if a
federal territory with its own companies statute and its own regulator does not
exist.

The second sells it. A headline tax rate, a promise of privacy, an offer to
incorporate within days, and no mention of the fact that the entity must be
administered by a licensed trust company, must satisfy employee and expenditure
tests inside Labuan, and is still bound by s.7(1) of the Labuan Companies Act 1990
to carry on business only in, from or through Labuan.

This page is about the entity decision. Whether the Labuan regime is a good deal on
tax is a separate question with its own page. The question here is narrower and
comes first: **is a Labuan company the right kind of legal person for what you are
building?**

For a large number of the businesses that get sold one, the answer is no.

## What a Labuan company actually is

A different statute, a different regulator, a different register.

A Sdn Bhd is incorporated under the Companies Act 2016 and registered with the
Companies Commission of Malaysia. A Labuan company is incorporated under the
**Labuan Companies Act 1990 (Act 441)** and registered with the **Labuan Financial
Services Authority**. The two systems barely touch. Almost nothing you know about
the Companies Act 2016 transfers.

Under s.14(3) a Labuan company may be limited by shares, limited by guarantee, or
unlimited. Section 46(1) gives its shares no par or nominal value. Section 87(1)
requires at least one director. Labuan FSA's published position is that the
minimum number of shareholders is one, a single share suffices, and beyond that
there is no minimum capital requirement.

So far it reads like a light-touch Sdn Bhd. Then you reach the administration.

### You cannot run one yourself

Two sections make a licensed intermediary structural rather than optional.

**Section 85(1)** — every Labuan company shall at all times have a registered
office in Labuan, "which office shall be the principal office of a Labuan trust
company."

**Section 93(1)–(2)** — every Labuan company shall appoint one or more secretaries,
at least one of whom shall be a **resident secretary**; and no person other than an
officer of an approved Labuan trust company, a Labuan company, or a domestic
company wholly owned by the trust company, made available for appointment by the
trust company, may act as resident secretary.

There is no self-administered Labuan company. Your registered office is the trust
company's office; your resident secretary is the trust company's officer. If the
relationship ends, s.93(2A) gives you thirty days from the effective date of
resignation to appoint a replacement, and s.93(2C) applies s.151 if you do not.

That single dependency is the most underweighted fact in the entire Labuan sales
pitch. Compare a Sdn Bhd, where you appoint and dismiss a company secretary
freely, and the registered office is wherever you say it is.

## The onshore question, answered against the amending Acts

Here is where most published guidance — including material still on official
websites — is simply out of date.

### What was repealed

Until recently, s.7 of the Labuan Companies Act 1990 contained three subsections
that defined the offshore ring-fence:

- **s.7(4)** — no Labuan company shall carry on business in ringgit, save for
  narrow exceptions;
- **s.7(5)** — where a Labuan company carries on business with a resident, it must
  notify Labuan FSA of the transactions **within ten working days**;
- **s.7(6)** — a list of dealings exempt from that notification.

**All three were deleted.** Section 4(b) of the Labuan Companies (Amendment) Act
2022 (Act A1653) provides that s.7 of the principal Act is amended "by deleting
subsections (4), (5) and (6)". Act A1653 received Royal Assent on 31 May 2022 and
was gazetted on 9 June 2022, and s.1(2) provides that **subsection 4(b) is deemed
to have come into operation on 1 January 2019**.

The repeal was deliberate: those subsections were the ring-fencing features that
international tax standards target — rules that shut a preferential regime off from
the domestic market.

Then in 2025, the Labuan Companies (Amendment) Act 2025 (Act A1756) amended
s.47(1)(a) by substituting for the words "shall be expressed in a currency other
than ringgit" the words "shall be expressed in any currency". The last ringgit
restriction on share capital is gone. Act A1756 received Royal Assent on 8 April
2025 and was published in the Gazette on 22 April 2025. It contains no commencement
provision, so under s.19(1) of the Interpretation Acts 1948 and 1967 it came into
operation on **23 April 2025** — the date immediately following publication.

### Why you still read the old rules everywhere

Because Labuan FSA's own published texts still carry them.

The consolidated Labuan Companies Act 1990 on Labuan FSA's legislation page, dated
**23 August 2022**, still prints s.7(4), (5) and (6) in full — three years after
the amending Act that deleted them, and more than three years after their deemed
commencement. Its FAQ page for Labuan companies still states that shares may not be
denominated in ringgit, which Act A1756 changed.

If you are relying on a consolidation, check it against the amending Acts. Every
guide that tells you to notify Labuan FSA within ten working days of dealing with a
Malaysian resident, or that a Labuan company cannot invoice in ringgit, is quoting
law that no longer exists.

### What actually survives

**Section 7(1)**, unamended:

> A Labuan company may be incorporated for any lawful purpose and, subject to any
> other written laws on financial services applicable to Labuan, shall carry out
> business only in, from or through Labuan.

Read that carefully, because the distinction is the whole point. It is a
requirement about **where the company operates**, not about **who its customers
are**. Section 7(2) expressly permits a Labuan company to carry on business with a
resident. What s.7(1) does not permit is running the business from an office in
Kuala Lumpur with a Labuan letterhead.

Section 7(3) also survives, restricting offers and invitations to residents in
relation to interest schemes under the Interest Schemes Act 2016.

## Substance: the requirement that decides most cases

Section 2B of the **Labuan Business Activity Tax Act 1990** conditions the Labuan
regime on real presence. A Labuan entity carrying on a Labuan business activity
must, for a Labuan trading activity, have an adequate number of **full-time
employees in Labuan** and an adequate amount of **annual operating expenditure in
Labuan**, as prescribed by the Minister by regulations. For a Labuan non-trading
activity, the same two tests apply plus compliance with conditions on **control and
management in Labuan**.

The current regulations are the Labuan Business Activity Tax (Requirements for
Labuan Business Activity) Regulations 2021, **P.U.(A) 423/2021**, gazetted 22
November 2021, effective from **1 January 2019**, and revoking the 2018
regulations.

### The control and management conditions

Labuan FSA's circular on P.U.(A) 423/2021 sets out four, deemed to have come into
operation on **1 January 2021**:

1. a meeting of the board of directors is convened in Labuan **at least once a
   year**;
2. the registered office of the Labuan entity shall be **situated in Labuan**;
3. the secretary appointed under the Labuan Companies Act 1990 shall be
   **resident in Labuan**; and
4. the accounting and business records, **including the minutes of board meetings**,
   shall be **kept in Labuan**.

### The employee and expenditure floors

These vary by category of entity. The First Schedule covers Labuan trading
activity and runs to twenty items; the Second Schedule covers non-trading activity.
Item 20 is the "Other Trading Entity" catch-all covering administrative, accounting,
legal, backroom processing, payroll, talent management, agency, insolvency-related
and general management services: **two full-time employees and RM50,000 of annual
operating expenditure**, both in Labuan.

Across the two schedules the floor runs from **one to four full-time employees** and
**RM20,000 to RM200,000 of annual operating expenditure**. The four-employee lines
are underwriting managers and insurance managers; the RM200,000 ceiling applies to
Labuan insurers, reinsurers and takaful operators (three employees). Most trading
lines sit at two or three employees with RM100,000 to RM120,000 of expenditure. On
the non-trading side, an investment-holding entity other than a pure-equity holding
company needs one full-time employee and RM20,000, while a **pure-equity holding
company is exempt** from the tax under the Labuan Business Activity Tax (Exemption)
Order 2020, P.U.(A) 177/2020, subject only to the control-and-management conditions.

The "up to RM3 million" figure that circulates in practitioner summaries is not in
P.U.(A) 423/2021 at all — it belongs to the separate Labuan International Commodity
Trading Company (GIFT) regime, amended by P.U.(A) 326/2025. Get the current
regulation for your category before modelling.

Since P.U.(A) 325/2025 (gazetted 2 September 2025), the schedule headings require a
minimum number of **"fit and proper full-time employees in Labuan"**. Five
conditions apply: the employee performs work aligned with the entity's activity, has
adequate and appropriate competency, has no personal interests or responsibilities
that interfere with the duties, is employed by the entity on a permanent or
contractual basis, and physically carries out the work in Labuan. LHDN issued
implementing guidelines dated 5 November 2025. The minimum counts and expenditure
figures themselves are unchanged; the "fit and proper" qualifier was added on top.

### The consequence of failing

Section 2B(1A) is blunt. A Labuan entity that fails to comply with the regulations
for a basis period is **charged to tax at twenty-four per cent** on its chargeable
profits for that year of assessment — the net profits reflected in the audited
accounts, under s.2B(1B)(a).

That is not a penalty on top. It is the loss of the entire reason the structure
existed. Two employees and RM50,000 of Labuan spending is not a formality you can
paper over from Mont Kiara.

The rate mechanics, the election under the Income Tax Act, and the deduction
restrictions that apply to Malaysian payers are the subject of the separate Labuan
tax page.

## The compliance calendar runs on different clocks

If you migrate mental models from a Sdn Bhd, you will miss deadlines. Three of
these run in unfamiliar directions.

| Duty | Labuan company | Sdn Bhd |
| --- | --- | --- |
| Annual return | Once each calendar year, **not later than 30 days prior to** the anniversary of incorporation (s.109(3)) | Within 30 days **after** the incorporation anniversary (CA 2016, s.68) |
| Accounting entries | Within **90 days** of completing the transaction (s.110(2)) | Within **60 days** (CA 2016, s.245(2)) |
| Accounts laid before members | Not more than **9 months** after the date to which they are made up (s.111(1)) | Circulate within 6 months of FYE (CA 2016, s.258(1)(a)) |
| Director's solvency certificate | Within **30 days** of the accounts being laid (s.111(1A)) | No equivalent |
| Audit | Only if required by financial services law in Labuan, by the articles, or on a public offer (s.113(1)); Labuan FSA may compel one (s.113(1A)) | Required unless the PD 10/2024 criteria are met |
| Records location | At the registered office or elsewhere **in Labuan** (s.110(3)) | Registered office or notified place in Malaysia |

The annual return is the one that catches people. A Sdn Bhd's clock starts on the
anniversary; a Labuan company's clock **ends** thirty days before it.

Note also s.111(1A): a director must certify annually that the accounts show the
company was solvent, that he is unaware of circumstances rendering them untrue, and
that nothing since would render the company insolvent. There is no Companies Act
2016 equivalent for a private company, and it is a personal statement.

## Beneficial ownership arrived in 2025

Act A1756 — in force from 23 April 2025 — inserted a new **Part Va** into the Labuan
Companies Act 1990, defining a
beneficial owner as a natural person who owns or controls the company, in whole or
in part, through direct or indirect ownership or control of shares, voting rights or
other ownership interest, or who exercises effective control and influence. Section
109b requires every Labuan company and foreign Labuan company to keep a register of
beneficial owners recording name, address, nationality, identification, usual place
of residence, and the dates of becoming and ceasing to be a beneficial owner.

Anyone still choosing Labuan for anonymity is working from a picture of the
jurisdiction that has not been accurate for some years. Malaysia's onshore
beneficial ownership regime under the Companies Act 2016 and Labuan's new Part Va
now point the same way.

## Side by side

| | Labuan company | Sdn Bhd |
| --- | --- | --- |
| Statute | Labuan Companies Act 1990 | Companies Act 2016 |
| Regulator | Labuan FSA | SSM |
| Shareholders | Minimum 1; no maximum published | Minimum 1, maximum 50 (s.42) |
| Directors | At least 1 (s.87(1)) | At least 1, ordinarily resident in Malaysia (s.196) |
| Secretary | Resident secretary from a Labuan trust company (s.93) | Company secretary, citizen or PR, qualified under s.235 |
| Registered office | Must be a Labuan trust company's principal office (s.85) | Anywhere in Malaysia |
| Share capital | No par value (s.46); any currency since Act A1756 | No par value; ringgit |
| Operating restriction | Only in, from or through Labuan (s.7(1)) | None |
| Substance test | Employees and opex in Labuan; control and management in Labuan (LBATA s.2B) | None |
| Self-administration | Not possible | Possible |
| Beneficial ownership register | Required (Part Va, from Act A1756) | Required (CA 2016, Part II Division 8A) |

## When Labuan is the wrong answer

This is the section the vendors skip.

**Your customers, staff and operations are on the peninsula.** Section 7(1) requires
business to be carried on in, from or through Labuan, and the substance rules count
employees and spending in Labuan. A company whose entire team sits in Kuala Lumpur
is not carrying on business in or from Labuan in any honest reading, whatever its
registered address says.

**You need a Malaysian operating licence.** Distributive trade, manufacturing,
premise and signboard licences, sector approvals from KPDN, MITI, BNM, the SC, MCMC
or a local authority — these regimes are built around companies incorporated under
the Companies Act 2016 and premises in the licensing authority's area. A Labuan
company is frequently outside them, and the structure that solved a tax question
creates a licensing question.

**You need onshore banking, credit or payment facilities.** Bank onboarding for
Labuan entities is materially harder than for a Sdn Bhd, and enhanced due diligence
is the norm rather than the exception. This is not a legal impediment; it is a
practical one that founders discover after incorporation, when the money has already
been spent.

**You need employment passes for a team in Malaysia proper.** Immigration approvals
are tied to the entity, its licensing and its establishment. A Labuan structure
places your hiring approvals in a different place from where you want to hire.

**The substance cost exceeds the benefit.** Two Labuan-based full-time employees
plus RM50,000 a year of Labuan operating expenditure plus trust company fees is a
real annual number. Below a certain profit level, a Sdn Bhd on ordinary corporate
rates costs less all-in — and comes with none of the structural friction above.

**You will want to raise, sell or list.** Investors, acquirers and their diligence
counsel are fluent in the Companies Act 2016. A Labuan holding company on a cap
table invites questions about substance, treaty access and regulatory standing that
you will pay advisers to answer. Migrating later is possible but is a restructuring,
not a form.

**You are counting on treaty benefits.** Access to Malaysia's tax treaty network for
Labuan entities is not uniform — several partners have limited or excluded Labuan
entities by protocol. Do not assume the treaty position; verify it for the specific
counterparty jurisdiction before the structure is built.

**You want privacy.** See Part Va above.

## Where Labuan does make sense

To be fair to the jurisdiction: it is a purpose-built financial centre with a real
statutory framework, and there are cases where it is the correct choice.

- **Licensed financial activity** — Labuan banking, insurance and reinsurance,
  leasing, money broking, fund management and digital financial services operate
  under the Labuan Financial Services and Securities Act 2010, with an authorisation
  route and capital regime distinct from the onshore one.
- **Regional holding and treasury** for a group whose operations are genuinely
  outside Malaysia, where a Labuan office with real staff is a sensible regional
  hub.
- **Captive insurance and risk-financing** structures for a multinational group.
- **Shipping and cross-border leasing** where the counterparties are non-Malaysian.
- **Foundations and trusts** under the Labuan Foundations Act 2010 and Labuan Trusts
  Act 1996, for succession and asset-holding purposes with no onshore operating
  footprint.

The common thread: the business genuinely operates from Labuan, or genuinely
operates outside Malaysia. Where the business operates on the peninsula and the
Labuan entity is a label, the structure is fragile.

## Common mistakes

- **Citing s.7(4) or s.7(5).** They were deleted by Act A1653, deemed in force from
  1 January 2019. So was the ten-working-day notification. Guides repeating them —
  and Labuan FSA's own consolidated PDF — are quoting repealed law.
- **Believing a Labuan company cannot deal with Malaysians.** Section 7(2) permits it
  expressly.
- **Believing a Labuan company cannot use ringgit.** Not since Act A1653, and since
  Act A1756 the share capital may be expressed in any currency too.
- **Treating substance as paperwork.** Section 2B(1A) charges 24 per cent on
  chargeable profits for failure, which removes the entire point of the structure.
- **Forgetting the control and management conditions.** A board meeting in Labuan
  once a year, the registered office in Labuan, a Labuan-resident secretary and
  records kept in Labuan have been conditions since 1 January 2021.
- **Diarising the annual return like a Sdn Bhd.** Section 109(3) is thirty days
  **before** the incorporation anniversary.
- **Assuming no audit means no accounts.** Section 110 requires proper records,
  entries within ninety days, and records kept in Labuan; s.113(1A) lets Labuan FSA
  compel an audit.
- **Choosing Labuan for confidentiality.** Part Va now requires a beneficial
  ownership register.
- **Planning to serve the domestic market through it.** The customer restriction is
  gone; the operating-location requirement in s.7(1) and the substance tests are not.

## What's next

Work through four questions in order, and stop at the first no.

1. **Where will the work actually be done?** If the answer is not Labuan or outside
   Malaysia, s.7(1) and the substance rules are already against you.
2. **Can you carry the substance floor?** Employees in Labuan and annual Labuan
   operating expenditure, every year, evidenced. Price it against the benefit before
   incorporating, not after.
3. **What licences and approvals does the business need onshore?** Check whether they
   are available to a Labuan entity. This is where structures most often fail.
4. **What does the exit look like?** If you expect to raise or sell, ask counsel what
   a Labuan holding company does to diligence.

If the answers hold, the tax analysis is the next step and it belongs on its own
page. If they do not, incorporate a Sdn Bhd. It is the boring answer, and for a
business that operates in Malaysia it is usually the correct one.

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**Verification status.** AI-assisted draft, not yet reviewed by a subject-matter
expert. Statutory references are to the Labuan Companies Act 1990 (Act 441) as
published by Labuan FSA, read together with the Labuan Companies (Amendment) Act
2022 (Act A1653) and the Labuan Companies (Amendment) Act 2025 (Act A1756);
substance requirements are from s.2B of the Labuan Business Activity Tax Act 1990
and Labuan FSA's circular on P.U.(A) 423/2021. Where Labuan FSA's consolidated text
and the amending Acts conflict, we have followed the amending Acts and said so.
Nothing here is legal or tax advice on a particular structure.

## Sources

- Labuan Companies Act 1990 (Act 441), updated version 23 August 2022 — https://www.labuanfsa.gov.my/clients/asset_120A5FB8-61B6-45E8-93F0-3F79F86455C8/contentms/img/documents/Legislation_and_Guidelines/Legislation/2022/Act%20441%20-%20Labuan%20Companies%20Act%201990%20-%20Updated%20Version_23082022.pdf (Labuan FSA)
- Labuan Companies (Amendment) Act 2022 (Act A1653) — https://www.labuanfsa.gov.my/clients/asset_120A5FB8-61B6-45E8-93F0-3F79F86455C8/contentms/img/documents/Legislation_and_Guidelines/Legislation/2022/Act%20A1653_LABUAN%20COMPANIES%20(AMENDMENT)%20ACT%202022_29062022.pdf (Labuan FSA)
- Labuan Companies (Amendment) Act 2025 (Act A1756) — https://www.labuanfsa.gov.my/clients/asset_120A5FB8-61B6-45E8-93F0-3F79F86455C8/contentms/img/documents/Legislation_and_Guidelines/Legislation/2025/A1756-BI-LABUAN-COMPANIES-(AMENDMENT)-ACT-2025_24042025.pdf (Labuan FSA)
- Circular — Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2021, P.U.(A) 423/2021 — https://www.labuanfsa.gov.my/clients/asset_120A5FB8-61B6-45E8-93F0-3F79F86455C8/contentms/img/documents/Legislation_and_Guidelines/Guidelines/tax-related/2021/Circular%20PUA%20423_Final_25112021.pdf (Labuan FSA)
- Labuan Business Activity Tax Act 1990 (Act 445), consolidated text — https://www.labuanfsa.gov.my/clients/asset_120A5FB8-61B6-45E8-93F0-3F79F86455C8/contentms/img/documents/Legislation_and_Guidelines/Legislation/2022/Draft%20ACT%20445%20BI%20update%202021%20-%20Website%20purpose%2012%20DEC%202022.pdf (Labuan FSA)
- Companies Act 2016 (Act 777), as at 1 August 2022 — https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf (SSM)
- FAQ — Labuan Companies — https://www.labuanfsa.gov.my/areas-of-business/labuan-structures/labuan-companies/faq (Labuan FSA)
- Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2021 [P.U.(A) 423/2021] — full regulation with First and Second Schedule — https://moore.com.my/taxflash/PUA-423-(1)-LBAT-(Requirements-for-Labuan-Business-Activity)-Regulations-2021.pdf (Moore Malaysia (reproduction of the gazetted regulation))
- Update to employee and annual opex requirements for Labuan companies — https://www.ey.com/en_my/technical/tax-alerts/update-to-employee-and-annual-opex-requirements-for-labuan-compa (EY Malaysia)
- Labuan: P.U.(A) 325/2025 — Labuan Business Activity Tax (Requirements For Labuan Business Activity)(Amendment) Regulations 2025 — https://www.kensington-trust.com/labuan-pua325-2025-lbta-requirements-for-business-activity-amendment-regulations-2025/ (Kensington Trust Group (reproducing the gazetted regulation))
- Revised Fees Schedule (Annual, Registration and Processing Fees), effective 1 January 2026 — https://www.labuanfsa.gov.my/areas-of-business/fee-schedule (Labuan FSA)
- Directive on Minimum Capital Requirement by Labuan Licensed Entities — https://www.labuanfsa.gov.my/clients/asset_120A5FB8-61B6-45E8-93F0-3F79F86455C8/contentms/img/documents/Legislation_and_Guidelines/Guidelines/directive-on-minimum-capital-requirement-by-labuan-licensed-entities.pdf (Labuan FSA)
- Tax Structure — Labuan IBFC (treaty access and exclusions) — https://www.labuanibfc.com/regulatory-tax/tax/tax-structure (Labuan IBFC)

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