Tax Exemption Order for Labuan Entities carrying on Qualifying Takaful and Retakaful Activities Gazetted

04 February 2026

Background

A five-year exemption from income tax has been granted to Labuan trading entities that carry on certain qualifying Islamic finance related activities under the Labuan Business Activity Tax (Exemption) Order 2024 [P.U.(A) 127/2024]. The five year period runs from year of assessment (“YA”) 2024 until YA 2028.¹

To further attract investments in the Islamic finance sector to the Labuan International Business and Financial Centre, it was proposed in the Malaysian Budget 2025 that a full income tax exemption be given to Labuan trading entities that undertake qualifying Labuan takaful business activities and Labuan takaful related activities using digital solutions from YA 2025 until YA 2028 (“Exemption Period”). This exemption has now been formalised under the Labuan Business Activity Tax (Exemption) Order 2026 [P.U.(A) 34/2026] (“2026 Exemption Order”) that was gazetted on 26 January 2026.

The 2026 Exemption Order

A qualifying Labuan entity specified in column (2) of the Schedule to the 2026 Exemption Order that carries on a Labuan trading activity in relation to the qualifying Islamic finance activity specified in column (3) of the Schedule to the 2026 Exemption Order is exempted from payment of tax on its income derived from the qualifying activity for each YA during the Exemption Period.

The Schedule to the 2026 Exemption Order is reproduced below:

(1) No.	(2) Labuan Entity	(3) Qualifying Activity
1.	Labuan insurer, Labuan reinsurer, Labuan takaful operator or Labuan retakaful operator	Undertaking takaful and retakaful businesses in relation to family takaful business or general takaful business that are based on Syariah principles and utilisation of digital solutions in- risk management; or product development
2.	Labuan captive insurer or Labuan captive takaful	Undertaking takaful and retakaful businesses that are based on Syariah principles and utilisation of digital solutions for takaful participants which are related companies, associated corporation or as approved by the Labuan Financial Services Authority in– risk management; or product development
3.	Labuan underwriting manager or Labuan takaful underwriting manager	Providing underwriting services including administration related to Labuan takaful business that are based on Syariah principles and utilisation of digital solutions
4.	Labuan insurance manager or Labuan takaful manager	Providing management or administrative services related to Labuan takaful business that are based on Syariah principles and utilisation of digital solutions
5.	Labuan insurance broker or Labuan takaful broker	Providing services that are based on Syariah principles and utilisation of digital solutions for- arranging Labuan takaful business on behalf of prospective policy owners or existing policy owners; arranging Labuan retakaful business on behalf of any takaful operator seeking retakaful; analysing the financial circumstances of another person and providing a plan to meet the other person’s financial needs and objectives

Where a Labuan entity carries on any activity or business other than the qualifying activity, each of such activity or business shall be treated as a separate and distinct source of activity or business for the Labuan entity.

A Labuan entity which is granted an exemption under the 2026 Exemption Order is required to maintain a separate account for the income derived from each activity or business carried on.

Alert by Sheba Gumis (Partner) of the Tax Practice of Skrine.

¹ Our Alert on this exemption can be accessed here.

This article/alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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Tax Exemption Order for Labuan Entities carrying on Qualifying Takaful and Retakaful Activities Gazetted