Labuan’s Securities Investment and Taxation

When conducting securities transactions, taxation methods are divided into 2 categories: “Income gain tax” and “Capital gain tax”.

This section summarises the main points regarding the tax system’s view when trading securities such as stocks and bonds under the name of Labuan Company.


Handling of income gain taxation for securities transactions

Income gain taxation varies depending on the market in which the transaction is conducted, and the tax rate varies depending on the dividend tax in the country where the company’s head office is located. If you own stock, it will be as follows.

Country where the head office of the stock is locatedincome gain taxation
US stocks (US)30%
Japan stocks (Japan)20%
Singapore stocks (Singapore)0%

In the case of the above figure, if dividends are generated between Japanese stocks and US stocks, the securities company will automatically withhold the tax and the remaining net amount will be transferred to your account (Labuan corporate account). If agreements between countries, you will be eligible for reduction.)

When using an asset management company (private company) as a source of dividends, Labuan will be tax-free and no tax return will be required. However, depending on the country of investment, finally, dividends cannot be taxed.

There are so many investors who have misunderstood this point, but the explanation that “Using company in Tax Haven and trading in the name of the comany makes dividends tax-free” is clearly an error.

However, there is a way to defer (postpone) the tax on dividends. It is to purchase “Reinvestment-type financial products”, not stocks itself or ETFs (listed investment trusts). For financial products such as balanced funds, dividends are automatically reinvested, allowing tax deferral.

Distribution-type financial products (Unique brand stocks, ETFs, monthly distribution funds, etc.)
As dividends are distributed to investors, income gain tax is regularly withheld.
Reinvestment-type financial products (balanced funds, etc.)
Dividends are reinvested in the fund, so no distribution is made and tax can be deferred until the product is sold.

* Reinvestment-type financial products are recommended for those who make long-term funded investments because they can maximise the compounding effect. On the other hand, management fees tend to be slightly higher, so it is desirable to balance of them.


Handling of gain on capital gain tax for securities transactions

The tax system view of capital gain tax is slightly more complicated than income gain tax. First of all, as you already know, there are 2 types of taxation systems for Labuan companies.

· Trading Company conducting business activities: 3%
Revenue signed by Labuan will be subject to 3% tax. (※ Business activities ex: banking, insurance, fund management, leasing etc.)
· Non-Trading Company does not conduct business activities: 0% (tax exempt)
Labuan company do not conduct business activities are tax exempt and do not need legal audit by Auditor. (* Non-business activities ex: Securities transactions: stocks and bonds, loans, deposits, real estate investment etc.)
· When both of the above are done by the same Labuan company: 3%
In the case of Labuan company conducting both activities, it is regarded as a Labuan company conducts commercial activities.

Our view (Using opinions from auditors as a reference) as a trust company is as follows:-

Tax system view of gain on capital gain tax
Actions frequently accompanied by Buy & SellTaxable as business income
When sold by Buy & Hold after a certain period of timeNot taxable as business income (Tax-free privileges can be enjoyed at the time of sell)

* Kindly make a proper tax return based on the tax system in your country of residence.

Should you have any queries, please do not hesitate to contact us.


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