Form a Labuan company
Labuan tax guide 2026

Labuan tax for companies: 0%, 3% or 24%, decided every year

Updated 10 November 2026Substance rules as amended for 2025About 10 minutes to read
The short answer

A Labuan holding company pays 0% and a trading company 3% of audited profit, as long as it meets that year's substance rules: staff and spending in Labuan.

Miss them and the year's profit is taxed at 24%. Royalties are never Labuan income, and every company files a return.

Work out my Labuan tax Holding or trading?
Yearly test 24% Labuan tax on audited profit in any year the substance rules are missed Meet them and a holding company pays 0%, a trading company 3%. The test runs again every year.

Labuan's rates look simple: 0% for holding, 3% for trading. What decides which one you pay, or whether you pay 24% instead, is a test the company passes or fails each year: staff in Labuan, money spent there, and the right kind of income. Here's that test with the 2025 changes, from the Labuan Business Activity Tax Act and the Inland Revenue Board's guidelines of December 2025.

Key takeaways

Chapter 1

Labuan holding company or trading company?

US$200,000 dividendsHolding
Labuan tax, substance metUS$0
Withheld on dividends to youUS$0
Same year, substance missedUS$48,000
Return to fileLE1, every year
Your own country may tax the dividends you take. Where you live: pick it

The company's mix of income decides its category, and the category decides the test. Tick what it will earn.

Dividends from companies it owns
Gains from selling shares
Interest on loans or deposits
Fees for services or sales
Royalties from IP

A company with mixed activities counts as trading, under the Inland Revenue Board's guidelines on Labuan trading and non-trading activity.

1
Key takeaway

Dividends and gains keep a holding company pure. Interest or fees change its test.

Chapter 2

Labuan substance requirements and the tax that follows

3,762
The company is
Staff
RM
US$

The minimums come from the Requirements for Labuan Business Activity Regulations 2021, as amended. Management and control must also sit in Labuan, and licensed businesses such as banks and insurers need more.

2
Key takeaway

Staff on your own payroll in Labuan and money spent there, every year.

Chapter 3

Labuan IP income and Malaysian customers

Outside the Labuan regime
  • Royalties and other income from intellectual property
  • Rent or gains from property outside Labuan
  • Taxed under the Income Tax Act 1967, at 24% for a company
Dealing with Malaysia
  • Malaysian customers are allowed
  • A Malaysian payer can deduct only part of what it pays a Labuan company
  • Management in Malaysia brings the Malaysian rules in
3
Key takeaway

Royalties never get 3% or 0%; Malaysian income tax applies.

Chapter 4

Labuan withholding tax and treaties

$
0%On dividends to owners, wherever they live
0%On interest, royalties and service fees paid to non-residents, years of assessment 2023 to 2027
SomeMalaysian treaties cover Labuan companies; others leave them out
ExemptFrom stamp duty; service tax on services bought from abroad is unsettled

4
Key takeaway

Nothing withheld on dividends, interest or fees paid abroad.

Chapter 5

Labuan tax return deadline and penalties

US$

Form LE1 is filed online with audited accounts. Not filing at all can bring a fine of RM20,000 to RM1 million, or a penalty of up to three times the tax. Every other yearly date, from the annual fee to the owner filing, is in Labuan annual fees and filings.

5
Key takeaway

An LE1 return seven months after the year end, even at 0%.

Chapter 6

Labuan and the 15% global minimum tax

Malaysia's top-up taxes apply from financial years starting 1 January 2025, and they reach Labuan companies, but only in groups with EUR 750 million or more of revenue. A holding company owned by you and your own businesses sits far below that. No separate Labuan top-up was found.

6
Key takeaway

Malaysia's 15% top-up only reaches EUR 750 million groups.

Chapter 7

Is Labuan a tax haven?

Labuan is part of Malaysia, which taxes companies at 24%. The EU looked at the Labuan regime for years; Malaysia left the EU watch list in October 2024 after the substance rules were tightened, and it is not on the FATF lists. The rules that made it acceptable are the same ones that set your yearly test.

7
Key takeaway

Malaysia left the EU watch list in October 2024.

Chapter 8

Labuan tax questions, answered

?!
What is the Labuan tax rate?
3% of audited net profit for trading, 0% for holding, and 24% in any year the substance rules are missed.
What does a Labuan pure equity holding company need?
Income only from dividends and capital gains, management and control in Labuan, and RM20,000 a year spent there. No staff.
Do outsourced staff count for Labuan substance?
Not since 2025. Staff must be fit and proper, employed by the company and working in Labuan.
Are royalties taxed at 3% in Labuan?
No. IP income falls under the Income Tax Act 1967, taxed at Malaysia's ordinary company rate.
When is the Labuan tax return due?
Within seven months of the year end, on Form LE1 with audited accounts. Tax is due the same day; late tax adds 10%.
Is there withholding tax on Labuan dividends?
No. Dividends to owners are exempt, and Malaysia has no dividend withholding.
Do you handle the Labuan substance rules?
Our Labuan holding company makes sure RM20,000 is spent in Labuan every year, and covers the audit and LE1 return, in one yearly price. Where the company keeps its money is covered in our Labuan bank account guide.

Changelog

  • 10 November 2026: first published.
  • 13 November 2026: official sources linked in the text.
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