Payments to Labuan Entities (2026 Exemption)
The Malaysian government has recently issued the Income Tax (Labuan Company)(Exemption) Order 2026 [P.U.(A) 147/2026], introducing targeted tax exemptions for residents making payments to Labuan companies under specific trading programmes. This initiative aligns with Malaysia’s broader strategy to enhance its position as a regional hub for international commodity trading. The order is effective from the YA2026 up to 2030.
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Definition of Labuan International Commodity Trading Company
A Labuan International Commodity Trading Company is a Labuan Company which is:
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Incorporated under the Labuan Company Act 1990;
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Licensed under Section 92 of the Labuan Financial Services and Securities Act 2010;
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Establish its operational office anywhere in Malaysia;
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Maintain a registered office in Labuan; and
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Undertaking a qualifying activity1 under the Global Incentives for Trading Programme.
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The qualifying activity1 means the trading of physical products and related derivative instruments in relation to:
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Petroleum and petroleum related products including liquefied natural gas;
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Minerals;
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Agriculture products;
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Refined raw materials;
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Chemicals；
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Base minerals；
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Coal; and
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Carbon trading.
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Exemption from Deduction Restrictions
Under Section 39(1)(r) of the Act, a portion of payments made by Malaysian resident to Labuan entities are generally subject to partial disallowance, meaning only a portion of such expenses is deductible for tax purposes.
Kindly refer to our publication at https://www.kaizencpa.com/knowledge/info/id/2156.html。
The 2026 Exemption Order now provides that payments made to Labuan companies undertaking qualifying activities under the Global Incentives for Trading programme are fully exempt from the application of Section 39(1)(r) of the Act.
In effect, this means that the above disallowance rates no longer apply to such qualifying payments, and the expenses incurred by the Malaysian residents are fully deductible, given that the resident is compliant with any requirement to submit any return or statement of accounts or to furnish any other information under the Act.
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Conclusion
The Income Tax (Labuan Company)(Exemption) Order 2026 provides a clear incentive for Malaysian residents and businesses to work with Labuan International Commodity Trading Companies, supporting Malaysia’s ambition to be a leading hub for international commodity trading. The exemption is applicable for payments from the YA2026 to 2030, reinforcing Malaysia’s commitment to encouraging strategic trading activities through Labuan.
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
