The Minister of Finance has exempted a Labuan entity
which carries on a Labuan business activity related to “pure equity holding
” from the requirement of having “an adequate number of full time employees in Labuan
under section 2B(1)(b)(i) of the Labuan Business Activity Tax Act 1990 (the “Act”).
This exemption was made pursuant to the Labuan Business Activity Tax (Exemption) Order 2020
(the “Exemption Order”) which was gazetted on 2 June 2020 and is deemed to have come into operation on 1 January 2019
Section 2B(1A) of the Act provides, inter alia
, that a Labuan entity which does not satisfy the requirements set out in section 2B(1) thereof, including the requirement under section 2B(1)(b)(i) to have an adequate number of full time employees in Labuan, will be subject to tax at the rate of 24% of its chargeable profits for a year of assessment.
It is to be noted that the expression “pure equity holding
” is not defined in the Act or the Exemption Order. While this expression would include the holding of equity in other companies, it is unclear whether it would include the holding of other interests, such as in partnerships or in collective investment schemes. It would appear that the holding of non-equity assets, such as debt securities and derivatives, together with the holding of equity, may disqualify a Labuan entity from the exemption under the Exemption Order.