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Offshore corporations in a changing offshore world. Alternative tax havens and offshore strategies. Offshore corporations in a changing offshore world. Alternative tax havens and offshore strategies.

Labuan, Malaysia

• Trading/Non-Trading Offshore Company
• Little-known, low profile option
• Tax free if non-trading, tax of 3% if trading
• Corporate anonymity possible

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with Michael Isaacson

Few have heard of Labuan, a small East Malaysian island in the South China Sea. Once a British base used to suppress piracy, the island's free port is today a principal transshipment point for the region. The island has broad, white beaches, and skin divers are attracted to the surrounding coral reefs.

Labuan was declared a tax haven in 1990 as the first step toward developing it into Malaysia's own offshore financial centre.

Although firmly established on the world's offshore map, Labuan has not been attacked during the recent offshore witch hunt.

Would this have something to do with the power wielded by Malaysia's rabble-raising, vociferous Prime Minister Mahathir? Mahathir has in the past expressed the view that George Soros and other currency speculators should suffer the death penalty (for the "damage" their actions can cause to the economies of developing countries) -- perhaps the OECD powers wisely chose to stay away from that particular conflagration?

Little Labuan did make it onto a ridiculous blacklist compiled by the Financial Stability Forum (FSF).

It attained intermediate status for having a regulatory system that was not quite up to scratch and thus was viewed as a potential threat to the world's economic stability.

The FSF is a grouping of regulators and Dr Mahathir might wish to know that the Chairman of the FSF is one Andrew Crockett.

Whatever the reason, Labuan has remained a low-key if somewhat underused tax haven, attractive for those wishing to conduct business away from the OECD spotlight.

Over the past ten years or so, Labuan has registered a mere 2,500 companies (as compared to some Caribbean jurisdictions with more than 100,000). Mohammad Razif, director-general of the Labuan Offshore Financial Services Authority, says:

"We don't want to be like other offshore tax havens, which are just a nameplate. We are not worried about numbers."

Offshore Trading Companies in Labuan pay 3% on net audited profits or a fixed sum of RM 20,000, whichever is lower. Offshore Non-Trading Companies do not pay tax.

Both trading and non-trading companies may elect to pay the maximum tax of RM 20,000 per annum and will consequently be freed from the requirement to file financial statements.

There are no capital gains taxes, contract note duties or exit levies.

Labuan does not impose any disclosure requirements as regards beneficial ownership.

It is worth mentioning that Labuan even has its very own stock exchange -- the Labuan Financial Exchange (LFX). LFX allows the listing of equities, investment funds, debt instruments and insurance-related instruments based on either conventional or Islamic principles.


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