Malaysia held her much anticipated elections on 19 November 2022. No one party obtained a clear majority needed to form the government but negotiations took place very swiftly. Alliances were soon created to give the Pakatan Harapan coalition another chance to steer the country with Anwar Ibrahim as Prime Minister for the next five years. And why is this noteworthy from an immigration perspective? It means that Malaysia now has a new Minister for Home Affairs, Saifuddin Nasution Ismail. He is from Pakatan Harapan, a party which leans left of centre on the political spectrum, and consists of multi-racial parties as compared to his predecessor who was with Perikatan Nasional, a Malay nationalist coalition with more restrictive immigration policies. It remains to be seen whether this change will actually result in a more liberal immigration policy for new MM2H applications or renewals.
While we are on the topic of MM2H as a visa to relocate to Malaysia, I’d like to cover another popular avenue that some foreign clients of mine have recently opted for, as an alternative visa to stay in Malaysia. This is via the employment and dependent passes obtained through setting up a company in Labuan, Malaysia’s special economic zone.
As with my previous article on Malaysia My Second Home (https://samchoong.com/mm2h-malaysia-my-second-home/), I’d like to offer some highlights of the Labuan option. The details have been well-covered by numerous articles by migration agencies. I assume the reader will work with an adviser to handle the administrative details.
Who would the Labuan Company set-up suit?
Here are the salient points:
- Fast Visa
This is one of the fastest ways of obtaining a visa to stay long-term in Malaysia. It takes about a week to incorporate the Labuan Company and another month to obtain the employment pass for a top management position in the Labuan Company;
The duration of this employment pass is typically issued by the authorities for two years and is renewable upon expiry.
- Eligibility Criteria and Whom can the applicant bring along?
To be eligible for this visa, the applicant should ideally hold some form of paper qualification such as a university degree and/or professional qualification.
The successful applicant can bring along his dependents such as his spouse, parents, and children under 18 years.
- Business Element
The applicant for this Labuan Employment Pass must incorporate a company in Labuan so he should be aware there will be running costs. For this visa application to work, the applicant must therefore already run a business outside Malaysia which he intends to shift to Labuan or start a new business based out of Labuan. As the running costs differ for each sector, do contact us with your specific plans and we’ll be pleased to give you an estimate set up and annual running costs;
- Office in Labuan/Live in Peninsular Malaysia
This is related to the above. The company and its main office have to be in Labuan for compliance purposes whilst the employment pass holder resides in Peninsular Malaysia for lifestyle reasons;
- Income Tax on Salary
The employment pass holder will need to draw a minimum salary of RM10,000 per month and pay income tax on this salary;
- Low Corporate Tax on Promoted Businesses/What businesses are suitable for a Labuan set up?
As Malaysia’s special economic zone, certain businesses are encouraged and given special tax treatment. Here is the list of businesses which come under the 0 – 3% tax structure in Labuan:
- Service provider
As the name suggests, the Labuan company to be set up should be a service provider to come within this favourable tax structure. Typical services which can be considered include administrative, accounting, legal, and payroll services. These are not exhaustive but should give the reader a rough idea of the types of companies which may come under this category. For further details, do drop us an email at [email protected]
- Investment Holding Company
This includes parent companies which hold shares in private or publicly traded companies anywhere in the world or properties in Labuan.
- Financial Licence
Banks, insurance companies, fund managers, commodities trading companies, etc.
Unfortunately, trading companies DO NOT come within this favourable tax structure. There’s nothing stopping an investor from setting up a Labuan company focussing on trading although there will be no tax advantage compared to setting up a regular onshore Malaysian company. Tax rates for trading companies are the same as the regular onshore Malaysian companies so it will be more efficient to just set up a regular onshore Malaysian company and apply for a regular employment pass.
- Tax efficiency
Most of our clients choose to domicile themselves as well as their company in Labuan because this usually results in lower company taxes as compared to those in the applicant’s original jurisdiction. In some cases, added advantages include Double Taxation Treaties with a wide number of countries as well as the ability to create a Tax Identification Number (TIN) in Malaysia as the applicant is earning and paying tax in Malaysia. Potential applicants should therefore have some tax knowledge or have access to a tax adviser in their current jurisdiction to make this comparison;
As I explained earlier, this article is intended as an overview to provide readers with some idea as to whether the Labuan set-up suits their needs. I’m attaching below a table of comparison between Labuan and MM2H for your ease of reference:
Bird’s Eye View:
Difference between Labuan Employment Pass & MM2H
|Labuan Employment Pass||Malaysia My Second Home (MM2H)|
|Type of Visa and Duration||Business Visa (Renewable for 2 years)||Social Visit Pass (Renewable for 10 years)|
|Purpose of Issuance||For international business||For retirement in Malaysia|
|Permissible Work/Business Conduct||Can be director and shareholder and work in senior management||Can only be shareholder. Can work part-time subject to approval|
|Corporate Bank Account||Can open multi currencies account||Not available|
|Personal Bank Account||Available||Available|
|Personal Income Tax||Maximum 30% unless stay over 182 days in which case the employment pass holder will be taxed in accordance with the Malaysian rate||Maximum 30% unless stay over 182 days in which case the MM2H visa holder will be taxed in accordance with the Malaysian rate|
|Requirements||Director or top management position in the Company Possess tertiary education or Professional qualification Nil Nil Nil Nil Invest a minimum paid-up capital of USD1/- Draw minimum monthly salary RM10,000 and Pay Income Tax No minimum stay in Malaysia||Nil Possess tertiary education or Professional qualification Must show liquid assets of RM1.5 million as proof of funds at application Must show income of RM40,000 per month proof of fund at application Place RM1 million Fixed Deposit in Malaysia account (after approval) Place a further RM50,000 as Fixed Deposit per additional dependent if main applicant is below 50 years old Nil Nil 90 days per year minimum stay|
|Timeline to obtain||2 months||90 – 120 days|