LABUAN OFFSHORE COMPANIES:
POTENTIAL FOR GERMAN TAXPAYERS
The potential of Labuan IOFC as an inverstment centre for Europeans, or
in this case German nationals, is highlighted by Finanwirtz (FH) Lutz Alpers, a
German tax planning and consulting specialist with offices in Germany and
Labuan.
Labuan
IOFC - Asia’s Financial Centre
When the Malaysian government set up Labuan IOFC
as an offshore jurisdiction more than 12 years ago, it was initially greeted
with “great scepticism” as to whether the jurisdiction would prove a success
and gain international acceptance.
Today, however, the initial scepticism has given
way to cheers as Labuan IOFC has developed to be one of the established
offshore centres in the world, exceeding the forecasts of its most ardent
supporters
in the industry. Labuan IOFC is now home to over
3,700 trading and holding companies, and 53 multinational banks, including
German financial giants Deutsche Bank, Dresdner Bank, Commerzbank and
Bayerische Landesbank.
Tax
Regime
Labuan IOFC offers tax privileges to offshore
companies, specifically offshore companies whose earnings are derived from
offshore transactions for nonresidents; and offshore companies dealing in
foreign currency-based transactions.
With regard to assessing taxes, Labuan IOFC
makes distinctions between offshore Trading and Non-Trading activities. The
former includes, in addition to straightforward trading in goods,
activities directly involved in trading
activities such as banking and insurance, business management, licensing etc.
Trading income is subject to a flat corporate tax rate of 3%, or limited to a
maximum of RM20,000 (EURO5,000). The latter, by definition, includes investment
holding, securities and other investment instruments and is not subject to tax.
In cases where incomes are derived from a
combination of both trading and nontrading activities, there is no
differentiation made. Rather, all income (including such items as interest or
dividends) derived is considered as trading income and are thus subject to the
3% tax rate. However, this is still considerably more favourable, especially
compared with the current tax structures in Germany.
Another advantage to consider is the fact that
where and when a Labuan IOFC-based company distributes dividends to its
nonresident shareholders, or pays licence fees and interest to non-residents,
all withholding taxes are waived, i.e. the payments are received ‘gross’ (read
‘net’).
Facts to Consider When Setting Up Labuan Offshore
Companies
Offshore companies may be formed only as
corporate enterprises, either as Public Limited (equivalent to the German AG)
or Private Limited companies (similar to the German GmbH).
In order to prevent Labuan IOFC from being used
to circumvent Malaysian laws by locals,
offshore companies are prohibited from having or maintaining commercial relations
with Malaysian companies located outside of Labuan. Offshore companies are free
of all restrictions in financial transactions by virtue of their exclusively
non-resident status, as defined by the 1953 Exchange Control Act.
One partner or shareholder is sufficient to form
an offshore company. The Register of Companies (ROC) places great importance on
a company’s funds being adequate to meet its business objective(s), so obvious
imbalances will lead to delays or even a refusal of registration.
The same applies if the founding partner or
shareholder has a dubious reputation. In such cases, thorough inquiries are
made by the Malaysian Central Bank (Bank Negara Malaysia) in cooperation with
other national banks. However, if all registration formalities are prepared
professionally, registration can take place within 2 days. Only with
registration and the issuing of a corresponding document can the company
acquire legal status as a body corporate.
It is permissible for an offshore company to
issue shares of different types and with different rights. They must, however,
always be registered shares whilst bearer shares cannot be issued. The shares
must be denominated in a foreign currency or even be issued in multiple
currencies, although this can lead to complications at shareholders meetings
when determining voting rights.
Offshore companies can also offer their shares
for public subscription. Applications for approval must be made to the ROC
along with the submission of a prospectus, also subject to approval. However,
if the offer is restricted to a maximum of 20 persons, this considerably eases
the demands for quality placed upon the prospectus.
The company must also appoint a Company
Secretary who must ensure that the provisions of company law are adhered to,
and to conduct correspondence with the authorities. Company Secretaries must be appointed by a trust
company licensed in Labuan. Shareholders meetings can be held in any country, even
by teleconference, if necessary.
Business and banking secrecy is governed by law.
Strict penalties may be imposed on any person who breaches these laws, e.g.
disclosing information on the ownership of the shares of a company and its
financial transactions. Even the hearings in civil proceedings against offshore
companies are held in camera and the press can report them only with express
permission of the courts. Only in the case of suspicion of drug dealing, money
laundering and other similar serious criminal offences may result in information
being passed on to the relevant authorities.
Approval of a corporation’s name is normally a
simple process. Corporate names in foreign languages may be approved if written
in Roman script. Names such as “Deutsche Kaufhausgesellschaft GmbH” or “Bundeszentrale
für Finanzen GmbH” may be registered. An offshore company can set up branches
in Germany or other European countries and in this way, carry the corporate
name obtained in Labuan to other countries. This is a good way of bypassing the
German Chamber of Commerce which usually approves company names in Germany.
Under German law, it is compulsory for
the German branch of a foreign company to carry the name of the head office,
thus rendering the Chamber’s approval unnecessary.
It is not necessary for the founding partner(s)
or shareholder (s) to travel to Malaysia to form the company. The company may
be formed in Germany by employing the right specialists, which would be
standard practice for Germans. To avoid unnecessary costs, it is also possible,
at least initially, to entrust the managing of a Labuan company to management
consultants, including the provision of on-site office staff. It is the
declared intention of the Malaysian government to attract highly qualified
offshore professionals to Labuan to further promote the economic and technical
development of the country. Immigration regulations have therefore been
considerably liberalized for offshore professionals. In addition, earned income
of employees of offshore companies is taxed at only half the progressive income
tax rate.
Conclusion
In view of the favorable situation, it is
expected that more German enterprises will set up Labuan Offshore Companies,
which also offers an optimal platform to take advantage of the economic
development in the Asian region.
Reference:
Labuan Digest