Sdn Bhd vs Labuan Company Malaysia: Which Business Structure to Choose?
- Editorial Team
- Aug 1
- 6 min read
Updated: Sep 5
Quick Answer: If you're operating domestically in Malaysia and want access to local markets, banking, and government incentives, a Sdn Bhd (private limited company) is ideal. For international trading, investment holding, or offshore tax optimisation, a Labuan company offers preferential tax rates (0-3%) and simplified compliance - provided substance requirements are met.
Choosing the right business structure in Malaysia affects your tax obligations, operational flexibility, work permits, and market credibility. This comprehensive guide compares Sendirian Berhad (Sdn Bhd) and Labuan companies, helping you make the best decision for your 2025 business goals.
What Is a Sdn Bhd Company in Malaysia?
A Sdn Bhd (Sendirian Berhad) is a private limited company governed by the Malaysian Companies Act 2016. It's Malaysia's most popular business structure, offering:
Limited liability protection for shareholders
Separate legal entity status
Full access to Malaysia's domestic economy and banking system
Key Sdn Bhd Features:
Maximum 50 shareholders permitted
Minimum one director who must reside in Malaysia
Mandatory company secretary and registered office in Malaysia
100% foreign ownership allowed (subject to capital requirements)
Sdn Bhd Foreign Ownership Requirements:
For 100% foreign-owned Sdn Bhd companies:
RM500,000 minimum paid-up capital (general business activities)
RM1 million for companies requiring DP10 work permits
RM400,000 for joint ventures with Malaysian partners (51% Malaysian ownership)
What Is a Labuan Company?
A Labuan company operates under the Labuan Companies Act 1990 within Malaysia's Labuan International Business and Financial Centre (IBFC). This offshore jurisdiction, located off Sabah's coast, specialises in international business activities.
Key Labuan Company Features:
100% foreign ownership with no restrictions
USD 1 minimum paid-up capital requirement
One director and one shareholder minimum
International focus for trading, investment holding, fintech, and fund management
Critical Constraint: Labuan companies cannot transact in Malaysian Ringgit and must meet economic substance requirements for preferential tax treatment.
Sdn Bhd vs Labuan Company: Complete Comparison 2025
Category | Sdn Bhd (Private Limited) | Labuan Company |
Target Market | Malaysian domestic market | International markets only |
Foreign Ownership | 100% (with capital requirements) | 100% unrestricted |
Minimum Capital | RM500K–RM1M (foreign-owned) | USD 1 |
Tax Rate | 17% first RM500K, 24% above* | 0% non-trading, 3% trading |
Annual Audit | Mandatory for all companies | Trading activities only |
Work Permits | DP10 employment pass eligible | Expat tax incentives (50% rebate) |
Banking | Full Ringgit banking access | Foreign currency accounts only |
Regulator | SSM (Companies Commission) | Labuan FSA (Financial Services Authority) |
Setup Time | 3-5 working days | 7-14 working days |
Exchange Control | Subject to Bank Negara rules | Completely exempt |
*Tax rates shown are for Malaysian-controlled companies. Foreign-controlled companies may have different rates.
Tax Comparison: Sdn Bhd vs Labuan Company (2025 Update)
Sdn Bhd Corporate Tax Structure:
Small and Medium Enterprises (SMEs):
15% tax on first RM150,000 chargeable income
17% tax on next RM450,000 (RM150,001 to RM600,000)
24% tax on income above RM600,000
Requirements: Paid-up capital under RM2.5 million, annual sales under RM50 million, <20% foreign ownership
All Other Companies (including most foreign-owned):
24% standard corporate tax rate
Foreign-Controlled Companies:
Generally subject to 24% corporate tax rate
Sales and Service Tax (SST) applies if annual turnover exceeds RM500,000
Mandatory tax agent appointment required
Labuan Tax Advantages:
Trading Activities: 3% tax on net audited profits Non-Trading Activities: 0% tax (investment holding, dividends, interest)
Additional Benefits:
No SST, GST, or VAT obligations
No capital gains tax
No withholding tax on outbound payments
Access to Malaysia's double taxation agreements
Critical Compliance: Labuan companies must meet substance requirements or face standard 24% Malaysian corporate tax rates.
Labuan Economic Substance Requirements (2025)
To qualify for preferential tax treatment, Labuan entities must maintain:
General Requirements:
Physical office in Labuan Federal Territory
Adequate full-time employees in Labuan
Minimum annual operating expenditure in Labuan
Specific Requirements by Activity:
Business Type | Minimum Staff | Annual Expenditure |
Pure Equity Holding | None required | MYR 20,000 |
General Holding Company | 2 full-time employees | MYR 50,000 |
Trading/Leasing | 2 full-time employees | MYR 100,000 |
Professional Services | 2 full-time employees | MYR 50,000 |
Work Permits and Immigration Benefits
Sdn Bhd Employment Pass (DP10):
Requirements for Foreign Staff:
Minimum RM500,000–RM1,000,000 paid-up capital
Registered office with fixed telephone line
Business justification for expatriate employment
Clean company profile and unique business proposition
Labuan Expatriate Incentives:
Zero personal tax for non-Malaysian directors
50% personal income tax exemption for qualifying expatriate employees
No local equity requirements for work authorisation
Simplified immigration procedures within IBFC framework
When to Choose Sdn Bhd Company
Ideal for:
Domestic market operations (retail, services, manufacturing)
Government contract eligibility and grant applications
Local banking relationships and credit facilities
Industry licensing requirements (construction, education, healthcare)
Malaysian supply chain integration
Best suited for businesses that:
Serve Malaysian customers primarily
Require local credibility and partnerships
Need extensive Ringgit banking facilities
Plan to hire local and foreign staff
When to Choose Labuan Company
Optimal for:
International trading and cross-border transactions
Investment holding structures for regional portfolios
Fund management and financial services
Intellectual property holding and licensing
Regional headquarters for ASEAN operations
Perfect if you:
Focus on international clients and markets
Want legitimate offshore tax optimisation
Hold investments across multiple jurisdictions
Don't require Malaysian Ringgit operations
Hybrid Structures: Using Both Sdn Bhd and Labuan
Many sophisticated businesses operate dual structures.
Common Setup:
Labuan company holds intellectual property, investments, or regional assets
Sdn Bhd subsidiary manages Malaysian operations, staff, and compliance
Benefits:
Tax optimisation through proper structuring
Operational flexibility for different business lines
Risk segregation between domestic and international activities
Enhanced compliance with both onshore and offshore regulations
Each of these options have their pros and cons, so if you want the right strategy for your business venture in Malaysia, the experts at Douglas Loh & Associates are just a call or email away.
2025 Regulatory Updates and Compliance
Enhanced Labuan Substance Rules (Stricter Enforcement Since 2019):
Regular on-site inspections by Labuan FSA
Documentation requirements for staff and expenditure
Penalties for non-compliance include loss of tax benefits
Malaysian Tax Deduction Restrictions (New Rules for Payments to Labuan Entities):
Interest payments: Only 75% tax-deductible for Malaysian payers
Service fees/IP licensing: Only 3% tax-deductible
Exceptions exist for specific qualifying transactions
Cost Comparison: Sdn Bhd vs Labuan Company
Sdn Bhd Formation Costs:
Government fees: RM1,000–RM2,000
Professional fees: RM2,000–RM5,000
Ongoing annual costs: RM3,000–RM8,000
Additional: Company secretary, audit, tax agent fees
Labuan Company Formation Costs:
Government fees: USD 500–USD 1,000
Professional fees: USD 2,000–USD 4,000
Ongoing annual costs: USD 2,000–USD 5,000
Additional: Substance compliance costs in Labuan
Timeline: From Registration to Operations
Sdn Bhd Incorporation Timeline:
Name reservation: 1 day
Document preparation: 1-2 days
SSM registration: 1-2 days
Bank account opening: 2-4 weeks
Total: 3-6 weeks for full setup
Labuan Company Timeline:
Name reservation: 1-2 days
Document preparation: 2-3 days
Labuan FSA approval: 7-10 days
Bank account opening: 3-6 weeks
Total: 5-8 weeks for complete setup
Frequently Asked Questions (FAQs)
Q: Can foreigners own 100% of a Sdn Bhd company?
A: Yes, with minimum paid-up capital of RM500,000–RM1,000,000 depending on business activities and work permit requirements.
Q: What's the actual tax rate for Labuan companies in 2025?
A: 3% on net audited profits for trading activities, 0% for investment holding and non-trading activities (subject to substance compliance).
Q: Do I need a company secretary for both structures?
A: Yes. Both Sdn Bhd and Labuan companies must appoint a licensed company secretary under Malaysian law.
Q: Can Labuan companies open Malaysian bank accounts?
A: Limited to foreign currency accounts only. Cannot maintain Malaysian Ringgit accounts for business operations.
Q: Which structure is better for e-commerce businesses?
A: Depends on target market. Malaysian customers = Sdn Bhd. International customers = potentially Labuan (with substance compliance).
Q: Can I convert from Sdn Bhd to Labuan company or vice versa?
A: No direct conversion. Must incorporate new entity and transfer assets/operations according to regulatory requirements.
Final Decision Framework
Choose Sdn Bhd if:
70%+ of your revenue comes from Malaysian market
You need local banking, credit facilities, and government incentives
Your industry requires local licensing or partnerships
You plan to hire significant local workforce
Choose Labuan Company if:
You focus on international trading or investment holding
You want offshore tax optimisation within compliant framework
You don't need Malaysian Ringgit operations
You can meet economic substance requirements
Consider Both if:
You're building a regional business with Malaysian operations
You need sophisticated tax planning across jurisdictions
You want operational flexibility and risk segregation
Not Sure Which Business Structure to Choose?
Navigating Malaysian business structures requires expert guidance to ensure regulatory compliance and optimal tax positioning.
Let Douglas Loh & Associates Simplify Your Setup
Douglas Loh & Associates provides end-to-end support from initial consultation through ongoing compliance management. Established in 1993, we have 4 branches across Malaysia and have served over 1,100 businesses.
Our Comprehensive Services:
Sdn Bhd and Labuan company incorporation
Licensed company secretarial services
Audit and assurance (MIA-registered)
Tax planning and compliance (CTIM-licensed)
Work permit applications and immigration support
Professional Accreditations:
Malaysian Institute of Accountants (MIA)
Chartered Tax Institute of Malaysia (CTIM)
Association of Chartered Certified Accountants (ACCA)
Companies Commission of Malaysia (SSM) licensed
Speak to us about our simple 3-step process from incorporation to bank account opening, with transparent pricing and timeline guarantees.
Get Started Now:
FREE consultation to assess your business needs
Transparent pricing with no hidden fees
Fast-track incorporation with guaranteed timelines
Ongoing support for audit, tax, and corporate secretarial needs
Call us at: +603-9775 3759 / +603-2145-9566
Email: info@douglasloh.com
Visit: www.douglasloh.com
Book Your Free Consultation Today
Fill in your details HERE to schedule your FREE 15-minute discovery call with our business advisory team.
We’ll help you confidently choose the right structure and get your company setup on track.
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