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Malaysian Government updates Labuan income tax exemptions

03 March 2025

The Malaysian Government issued the Income Tax (Exemption) Order 2025 [P.U.(A) 59/2025] (“2025 E.O.”) on 13 February 2025.
 
The 2025 E.O. has effect from the year of assessment 2023 to the year of assessment 2027. It revokes the Income Tax (Exemption) (No. 22) Order 2007 [P.U.(A) 437/2007] (“2007 E.O.”).
 
Pursuant to the 2025 E.O., the Minister of Finance has granted the following exemptions from payment of income tax under the Income Tax Act 1967 (“ITA”):
 
Para. of E.O. 2025 Exemption Comments
2(1)(a) A Labuan company1 in respect of chargeable income from dividends received Amendment to para. 3(a) of 2007 E.O.
2(1)(b) Any person in respect of chargeable income from dividends received from a Labuan company which are paid, credited or distributed out of income derived from a Labuan business activity or income exempted from tax Amendment to para. 3(b) of 2007 E.O.
2(1)(c) A non-resident person in respect of chargeable income from interest received from a Labuan company other than interest accruing to a business carried on by a non-resident person in Malaysia which is licensed to carry on a business under the Financial Services Act 2013 (“FSA”) or the Islamic Financial Services Act 2013 (“IFSA”) Amendment to para. 3(e) of 2007 E.O.
2(1)(d) A Labuan company in respect of chargeable income from interest received from another Labuan company Amendment to para. 3(e) of 2007 E.O.
2(1)(e) A resident person other than a person licensed to carry on a business under the FSA or IFSA in respect of chargeable income from interest received from a Labuan company Amendment to para. 3(f) of 2007 E.O.
2(1)(f) A non-resident person in respect of chargeable income from royalties received from a Labuan company Amendment to para. 3(d) of 2007 E.O.
2(1)(g) A Labuan company in respect of chargeable income from royalties received from another Labuan company Amendment to para. 3(d) of 2007 E.O.
2(1)(h) A beneficiary in respect of chargeable income from distributions received from a Labuan trust2 or Labuan Islamic trust3 Amendment to para. 3(c) of 2007 E.O.
2(1)(i) A partner of a Labuan limited partnership4, a Labuan limited liability partnership5, a Labuan Islamic limited partnership6 or a Labuan Islamic limited liability partnership7 in respect of chargeable income from distributions of profit after tax paid, credited or distributed by the Labuan limited partnership, Labuan limited liability partnership, Labuan Islamic limited partnership or Labuan Islamic limited liability partnership New
2(1)(j) A member of a Labuan foundation8 or a Labuan Islamic foundation9 in respect of chargeable income from distributions of profit after tax received from the Labuan foundation or Labuan Islamic foundation New
2(1)(k) A non-resident person in respect of chargeable income from amount received from a Labuan company in consideration of services, advice or assistance as specified in paragraphs 4A(i) and (ii) of the ITA Amendment to para. 3(g) of 2007 E.O.
2(1)(l) A Labuan company in respect of chargeable income from amounts received from another Labuan company in consideration of services, advice or assistance as specified in paragraphs 4A(i) and (ii) of the ITA Amendment to para. 3(g) of 2007 E.O.
 
One deduction rule
 
 Any person who has been granted an exemption under: 
  1. paragraphs 2(1)(c) and 2(1)(d) of the 2025 E.O. is not entitled to any deduction of tax under section 109 of the ITA; 

  2. paragraphs 2(1)(f) and 2(1)(g) of the 2025 E.O. is not entitled to any deduction of tax under section 109 of the ITA 

  3. paragraphs 2(1)(k) and 2(1)(l) of the 2025 E.O. is not entitled to any deduction of tax under section 109B of the ITA; or 

  4. paragraph 2(1)(e) of the 2025 E.O. is not entitled to any deduction of tax under section 109C of the ITA. 
Comments
 
The 2025 E.O. updates the tax exemptions for income derived from Labuan entities. It also introduces two new categories of exemptions for income derived from entities formed under laws that were enacted after the 2007 E.O. came into operation, such as limited partnerships under the Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 (“Labuan LP & LLP Act”) and Labuan Islamic foundations under the Labuan Islamic Financial Services and Securities Act 2010 (“Labuan IFSS Act”).
 
Article by Joey Tiw (Senior Associate) of the Corporate Practice of Skrine.
 
 
1 “Labuan company” has the meaning assigned to it in section 2(1) of the Labuan Business Activity Tax Act 1990.
2 “Labuan trust" has the meaning assigned to it in section 2(1) of the Labuan Trusts Act 1996.
3 “Labuan Islamic trust” has the meaning assigned to it in section 2(1) of the Labuan IFSS Act.
4 “Labuan limited partnership” has the meaning assigned to it in section 2(1) of the Labuan LP & LLP Act.
5 “Labuan limited liability partnership” has the meaning assigned to it in section 2(1) of the Labuan LP & LLP Act.
6 “Labuan Islamic limited partnership” has the meaning assigned to it in section 2(1) of the Labuan IFSS Act.
7 “Labuan Islamic limited liability partnership” has the meaning assigned to it in section 2(1) of the Labuan IFSS Act.
8 “foundation” has the meaning assigned to it in section 2(1) of the Labuan IFSS Act.
9 “Labuan Islamic foundation” has the meaning assigned to it in section 2(1) of the Labuan IFSS Act.

This 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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