When setting up a company in Malaysia, one critical compliance question arises:

Do you fall under Labuan audit requirements or Malaysia Sdn Bhd audit obligations?

Although both involve statutory audits, the governing laws, tax treatment, and reporting standards differ significantly. Below is a clear breakdown.

Labuan Companies
Companies incorporated in Labuan International Business and Financial Centre are governed by:

• Labuan Companies Act 1990
• Regulated by Labuan Financial Services Authority (Labuan FSA)

A Labuan audit is required for most Labuan companies unless specifically exempted (e.g., certain dormant or specific structures).

Malaysia Sdn Bhd Companies
Companies incorporated in mainland Malaysia are governed by:

• Companies Act 2016
• Regulated by Companies Commission of Malaysia (SSM)

Generally, all Sdn Bhd companies must appoint an auditor unless they qualify for audit exemption under specific criteria (e.g., dormant or small companies).

1️⃣ Nature of Business
Labuan Companies

• Typically international trading, holding, leasing, investment activities
• Often cross-border structures
• Focus on offshore or midshore transactions

Malaysia Sdn Bhd

• Domestic trading, services, manufacturing
• Primarily local operations
• Subject to broader operational regulations

2️⃣ Audit Focus
Labuan Audit

• Compliance with Labuan regulatory framework
• Offshore income classification
• Substance requirements
• Verification of Labuan tax election (3% or flat tax regime)

Malaysia Audit

• Full statutory audit of financial statements
• Compliance with Malaysian Financial Reporting Standards
• Local tax compliance under Income Tax Act 1967

In short, Labuan audit reviews both financial accuracy and regulatory positioning, while Sdn Bhd audit emphasizes financial compliance and domestic taxation.

Labuan Company Tax
Under the Labuan Business Activity Tax Act 1990:

• 3% tax on net audited profits (for Labuan trading activities), or
• RM20,000 flat tax (for certain non-trading activities, subject to current rules)

⚠️ Important: To enjoy the 3% rate, audited financial statements are required. This makes Labuan audit directly linked to tax benefits.

Malaysia Sdn Bhd Tax
Governed by the Income Tax Act 1967:

• Standard corporate tax rate: 24%
• SME rate: 15%–17% on first chargeable income threshold (subject to prevailing rules)

Audit is required for statutory compliance, but tax calculation is submitted separately to LHDN.

Labuan Companies
Financial statements may be prepared under:

• IFRS
• Malaysian Financial Reporting Standards (MFRS)
• Other approved accounting standards (subject to Labuan FSA requirements)

Audited accounts are lodged with Labuan FSA.

Malaysia Sdn Bhd
Financial statements must comply with:

• MFRS or MPERS
• Filed with SSM annually

Audited reports are part of statutory annual compliance.

Choosing between a Labuan company and a Malaysia Sdn Bhd is not just about tax rates — it’s about compliance structure, regulatory expectations, and long-term business strategy.
A proper understanding of Labuan audit requirements ensures:

• Tax efficiency
• Regulatory compliance
• Smooth annual filings
• Reduced penalty risks

Before incorporation or restructuring, always consult a qualified auditor familiar with both Labuan and mainland Malaysia regulatory frameworks. If you need guidance on Labuan audit compliance, auditor appointment, or tax election strategy, professional advice can prevent costly mistakes later.