Live in Malaysia with US SMLLC + Labuan Holding Company

[andrew28fl]

Hey guys,

I am a holding company newbie, so let me try to explain what I am trying to do.

I am interested in living in Malaysia (Kuala Lumpur specifically), and I am awaiting the new MM2H regulations to apply. I own a Single Member LLC which is sufficient for my business. I am looking at ways to keep the single-member LLC tax-free, while living in KL. I have been reading about Labuan Entities, which if used as strictly a Holding Company has 0% tax (3% if not a holding company).

Does anyone have experience with a similar structure? If my US LLC is owned by a Labuan Company, how difficult would it be for that LLC to have a US bank account? Would I transfer my current LLC ownership, or have to set up a new US LLC under the Labuan Entity? How about the current bank account for the LLC, transferable? I have a ton of questions, so please share any insights you have on this or similar structures. Thanks.

 

[JackAlabama]

andrew28fl said:
Hey guys,

I am a holding company newbie, so let me try to explain what I am trying to do.

I am interested in living in Malaysia (Kuala Lumpur specifically), and I am awaiting the new MM2H regulations to apply. I own a Single Member LLC which is sufficient for my business. I am looking at ways to keep the single-member LLC tax-free, while living in KL. I have been reading about Labuan Entities, which if used as strictly a Holding Company has 0% tax (3% if not a holding company).

Does anyone have experience with a similar structure? If my US LLC is owned by a Labuan Company, how difficult would it be for that LLC to have a US bank account? Would I transfer my current LLC ownership, or have to set up a new US LLC under the Labuan Entity? How about the current bank account for the LLC, transferable? I have a ton of questions, so please share any insights you have on this or similar structures. Thanks.
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when do the new mm2h regulations come out?

Well you can transfer/sell your llc to the new corp. Many use this way since it has a few advantages (inheritance etc), than owning llc outright. If the bank is happy with this or not depends on the banks in question.

 

[andrew28fl]

JackAlabama said:
when do the new mm2h regulations come out?

Well you can transfer/sell your llc to the new corp. Many use this way since it has a few advantages (inheritance etc), than owning llc outright. If the bank is happy with this or not depends on the banks in question.
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The prime minister said the new regulations will be out in 2 months. That was at the end of June. That's Malaysia for you.

Has anyone used a Labuan Holding company? Would it be tax-free, even if the UBO lives in Malaysia?

 

[fshore]

andrew28fl said:
Hey guys,

I am a holding company newbie, so let me try to explain what I am trying to do.

I am interested in living in Malaysia (Kuala Lumpur specifically), and I am awaiting the new MM2H regulations to apply. I own a Single Member LLC which is sufficient for my business. I am looking at ways to keep the single-member LLC tax-free, while living in KL. I have been reading about Labuan Entities, which if used as strictly a Holding Company has 0% tax (3% if not a holding company).

Does anyone have experience with a similar structure? If my US LLC is owned by a Labuan Company, how difficult would it be for that LLC to have a US bank account? Would I transfer my current LLC ownership, or have to set up a new US LLC under the Labuan Entity? How about the current bank account for the LLC, transferable? I have a ton of questions, so please share any insights you have on this or similar structures. Thanks.
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Yes, but technically the us llc could be tax resident in Malaysia so it won't really help, just add complications.

 

[andrew28fl]

fshore said:
Yes, but technically the us llc could be tax resident in Malaysia so it won't really help, just add complications.
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Thanks for answering. I am told that I have to create the right substance (which is a requirement in Labuan), to make the entity Labuan entity tax free. I am talking to a lawyer early next week and will update this thread with what I have learned.

 

[wonderfulboy]

With the bank account you could choose Mercury bank they are easy with such setup.

 

[fshore]

andrew28fl said:
Thanks for answering. I am told that I have to create the right substance (which is a requirement in Labuan), to make the entity Labuan entity tax free. I am talking to a lawyer early next week and will update this thread with what I have learned.
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I'm not talking about the Labuan company, I'm talking about the US company.

 

[andrew28fl]

fshore said:
I'm not talking about the Labuan company, I'm talking about the US company.
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The US company has no effectively connected activities to the US. I have owned such entities for the past 15 years, and have paid 0 taxes in the US, as long as my personal tax residency is in order (0 tax country or territorial country with no enforcement).

 

[fshore]

andrew28fl said:
The US company has no effectively connected activities to the US. I have owned such entities for the past 15 years, and have paid 0 taxes in the US, as long as my personal tax residency is in order (0 tax country or territorial country with no enforcement).
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You're not paying attention to what I'm writing. I said tax resident in Malaysia!
Enforcement hasn't been strict in Malaysia, but now they started taxing worldwide income so it might be changing.

 

[andrew28fl]

fshore said:
You're not paying attention to what I'm writing. I said tax resident in Malaysia!
Enforcement hasn't been strict in Malaysia, but now they started taxing worldwide income so it might be changing.
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I heard you. I think you are missing my point. I need to create substance in Labuan if I were to own a Labuan company. That Labuan company would own the US LLC. The Labuan company will have real employees, office space etc. in Labuan. Without substance, any offshore entity becomes taxable where you live.

With this setup, and me living in Malaysia, is this structure still flawed? Am I still missing something? If I am, please elaborate and I apologize in advance.

 

[fshore]

andrew28fl said:
I heard you. I think you are missing my point. I need to create substance in Labuan if I were to own a Labuan company. That Labuan company would own the US LLC. The Labuan company will have real employees, office space etc. in Labuan. Without substance, any offshore entity becomes taxable where you live.

With this setup, and me living in Malaysia, is this structure still flawed? Am I still missing something? If I am, please elaborate and I apologize in advance.
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What's the substance for the us llc? If in labuan then it's tax resident in Malaysia, not taxable under labuan 3%.

 

[andrew28fl]

fshore said:
What's the substance for the us llc? If in labuan then it's tax resident in Malaysia, not taxable under labuan 3%.
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I am a newbie for a scenario where a company owns another company, and that was my original question. Maybe I didn't explain it properly. Let me try to rephrase my question:

My requirements are 1) Have a US LLC, either owned by me or by an offshore entity owned by me. 2) I should be able to live in Malaysia.

Keeping these two requirements in mind, is there a possibility for me to create a tax-free, or low-tax structure? I am okay with spending money on substance, I can use 3-4 cheap resources for basic Internet work like SEO/website maintenance, etc.

 

[fshore]

andrew28fl said:
I am a newbie for a scenario where a company owns another company, and that was my original question. Maybe I didn't explain it properly. Let me try to rephrase my question:

My requirements are 1) Have a US LLC, either owned by me or by an offshore entity owned by me. 2) I should be able to live in Malaysia.

Keeping these two requirements in mind, is there a possibility for me to create a tax-free, or low-tax structure? I am okay with spending money on substance, I can use 3-4 cheap resources for basic Internet work like SEO/website maintenance, etc.
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Companies are generally tax resident where they are controlled and managed, no matter if they are owned by another company or not. If you control and manage the us llc from Malaysia then it might be tax resident in Malaysia, if they find out and if they care about it (in the past there was no strict enforcement).

 

[Marzio]

andrew28fl said:
That Labuan company would own the US LLC. The Labuan company will have real employees, office space etc. in Labuan.
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Then US LLC will be tax resident in Labuan presuming control and management will be done by the employees working for the Labuan company.

For peace of mind i would hire a Labuan resident manager for the Labuan company.

 

[fshore]

Marzio said:
Then US LLC will be tax resident in Labuan presuming control and management will be done by the employees working for the Labuan company.

For peace of mind i would hire a Labuan resident manager for the Labuan company.
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However it will not be taxed under the Labuan 3% tax rate, unless it's registered as a foreign Labuan company and fullfill the other requirements for companies to be taxed under the Labuan tax regime. It's probably quite complicated to achieve for a small company.

 

[Marzio]

fshore said:
However it will not be taxed under the Labuan 3% tax rate
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Probably not according to this site: A Guide To Labuan Companies 2022 - Doing business in Labuan Malaysia

Not sure if the informations about company requirements are up to date.

 

[fshore]

Marzio said:
Probably not according to this site: A Guide To Labuan Companies 2022 - Doing business in Labuan Malaysia

Not sure if the informations about company requirements are up to date.
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Where does it say there that foreign companies are taxed under labuan regime? Anyway, the company would also have to fulfill the criteria with local employees and expenses, which means it would have to register as a foreign company in order to be able to hire local staff legally. Else it would be taxed as a normal Malaysian company.

 

[Marzio]

fshore said:
Where does it say there that foreign companies are taxed under labuan regime?
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When i said "probably not" i meant "The company will probably not be taxed at 3%", i agreed with you but badly worded my phrase 🙂

 

[andrew28fl]

Thanks for the input guys. I will let you know what the lawyer says.

 

[bergermeyer]

I've been looking at the same question and I think it's a question of what your business is. However you probably can't hold an LLC under a Labuan holding company as a holding company is not active. An LLC is bound to its shareholder as one and the same. So if your holding company was the LLC shareholder it would be active and hence not a holding company. If it's a C corp and a separate entity then it might be acceptable. For Labuan 3% you can only run a financial services or one of the 9 service company category businesses. In the link the Marzio posted it says "Labuan company that is not listed within permitted activities Eg, Trader, manufacturer, IP intellectual property, etc" are all taxed at 24%. So again it depends on the business. You should speak with a Labuan CPA or Lawyer to see if your business might fit.

As for the Visa you can get a Labuan director's Visa and live in certain areas like KL, but you need to claim 10,000 MYR per month in income and pay tax on that in Malaysia. This can even count towards your required spend under the Labuan company. But maybe the new MM2H laws make better financial sense.