Labuan Return of Profits Filing Update for YA 2025
Beginning from the Year of Assessment (“YA”) 2025, the Inland Revenue Board of Malaysia (“IRBM”) has introduced a significant reform to the Labuan tax reporting framework by implementing the Self-Assessment System (“SAS”). This change, enacted via the Labuan Business Activity Tax (Amendment)(No. 2) Act 2024 [Act A1741], brings the Labuan Business Activity Tax Act, 1990 (“LBATA”) in line with the SAS regime already applied under the Income Tax Act, 1967 (“ITA”) and the Petroleum (Income Tax) Act 1967.
This shift reflects the Government’s broader strategy to enhance tax transparency, consistency, and alignment with international standards. Under the SAS, Labuan entities are responsible for assessing and declaring their own tax liabilities, thereby replacing the long-standing official assessment model.
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Comparison of Old and New Filing Requirements
To better appreciate the scope of changes introduced under the SAS, it is useful to examine how the new regime companies with the previous filing requirements. The following table provides a concise comparison between the old and new systems:
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Aspect
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Prior to YA2025
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From YA2025 onwards
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Assessment System
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Official Assessment System
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Self-Assessment System
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Basis Period
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Previous Year Basis
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Current Year Basis
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Filing Form
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Form LE1, LE4/LE5
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Consolidated into Form LE1 only
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Submission Method
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Manual or postal submission
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Mandatory electronic transmission
(e-Filing)
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Statutory Declaration
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Required via Form LE4/LE5
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No longer required
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Filing Due Date
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31 March of the following year
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Within seven (7) months from end of
accounting period
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Grace Period
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Not applicable
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One-month grace period for e-Filing
submission of return and payment of balance tax (if any)
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Assessment Issuance
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Issued by Director General after
filing
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Deemed assessment upon submission
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Audited
Accounts Requirement
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Not required
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Required
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Penalty for Late Filing
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Imposed under Section 23A
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Imposed under Section 23A, plus 10%
late payment penalty (if any)
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Transition from Official Assessment to SAS
Previously, Labuan entities operated under an official assessment system. This required entities to submit returns based on the financial results of the preceding year, with the IRBM issuing assessments to determine tax payable. Under this model, tax was only finalised once the Director General of Inland Revenue issued an official assessment.
In contrast, starting from YA 2025, the SAS introduces a current year basis for determining taxable profits. Entities will now file returns reflecting the modernised approach aims to streamline the tax filing profess and improve timeliness.
As part of the transition for YA 2025, Labuan entities are required to file two returns:
i. One of the financial period ended in 2024, following the previous year basis and official assessment process.
ii. Another for the financial period ended in 2025, based on the current year basis under the SAS.
This dual-filing requirement ensures continuity in compliance during the changeover to the new regime.
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Filing Obligations Under the New SAS
From YA 2025 onwards, Labuan entities conducting business activities as defined under the LBATA must submit Form LE1 electronically via the MyTax Portal. This form consolidates and replaces previous forms, including LE4 and LE5, and must be supported by audited financial statements.
The filing deadline is seven (7) months after the end of the accounting period, with an additional one-month grace period for e-Filing submissions. Once submitted, the Form LE1 is deemed to be a final assessment by law, unless the IRBM identifies discrepancies.
Entities must ensure that submissions are made by authorised personnel, such as Director, Organisation Administrators, or licensed tax agent actings on behalf of the Labuan entity. Filing responsibility ultimately lies with the persons identified under Section 16 of the LBATA. Mistakes or omissions can lead to penalties under Section 23A and a 10% late payment penalty under Section 11.
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Supporting Documentation under Section 22EB
Another important requirement under the amended LBATA is the submission of supporting documents under Section 22EB. These must be submitted electronically through the Malaysian International Tax Reporting System (MITRS) within thirty (30) days after the LE1 filing deadline. Although specific guidelines will be released by the IRBM, entities should be prepared to provide the following:
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Audited financial statements; and
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Detailed income and expense schedules.
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Failure to comply may lead to increased scrutiny and penalties.
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Filing Requirements for Dormant Entities
Dormant Labuan entities must also file Form e-LE1, even if no business activity occurred. An entity is considered dormant if it:
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Has not commenced operations;
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Has ceased operations; or
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Has no significant transactions in the financial year before a change in ownership of 50% or more. This means that there is no recording entry in the Labuan entities’ account other than the minimum expenses for compliance with stipulated statutory requirement. The minimum expenses referred to are as follows:
* Filing of the Labuan entities’ annual return to the Labuan Financial Services Authority (“LFSA”);
* Secretarial fee for filing of Labuan entities’ annual return;
* Tax filing fee;
* Audit fee; and
* Accounting fee.
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Such entities must still declare the following mandatory fields in the Form e-LE1:
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Their accounting period and basis period.
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The relevant business code registered with the LFSA.
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Net profit as '0', where applicable.
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However, entities with passive income such as rental or interest are not treated as dormant and must comply with full reporting obligations.
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Payment Timeline and Penalty Concession
For assessments under subsections 6(2), 6(3), or 6(4), or revised assessments under subsection 101(2) of the ITA, tax must be paid within thirty (30) days of the assessment date. An additional seven-day grace period is granted.
If payment is not made within this timeframe, a 10% penalty may be imposed on the outstanding tax. Continued non-payment may attract further surcharges.
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Conclusion
The introduction of the SAS marks a major evolution in the Labuan tax compliance landscape. It reflects Malaysia’s commitment to improving efficiency and aligning with global tax practices. Labuan entities must now take full ownership of their tax affairs, including timely submission of returns, proper recordkeeping, and strict adherence to deadlines. Given the complexity of the transition and the increased responsibility placed on taxpayers, entities are strongly encouraged to seek professional tax advice to ensure all compliance under the new system.
For further information, please visit the official website of the Inland Revenue Board of Malaysia at
https://www.hasil.gov.my/en
KAIZEN Group, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professional accountants in Kaizen for further clarification.
KNOWLEDGE
