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Q：
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What is Economic Substance Requirements (ESR)?
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A：
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A Labuan company must show economic substance by employing a certain number of staff in Labuan and meeting the minimum annual expenditure requirements based on the type of business activity it conducts.
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Q：
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How is Labuan business activity defined?
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A：
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A Labuan business activity refers to either a Labuan trading activity or a Labuan non-trading activity that is carried out in, from, or through Labuan.
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Q：
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How can we determine what ESR applies to the company?
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A：
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The Labuan business activities are classified and outlined in the First Schedule and Second Schedule of Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2021, which specify the minimum ESR that must be met under the Labuan Business Activity Tax Act 1990.
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Q：
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What is the benefit of complying with ESR?
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A：
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Once ESR is fulfilled, the company will be eligible for the 0% to 3% tax rates on its audited profit.
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Q：
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What happens if my company fails to comply with ESR?
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A：
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A 24% flat tax will be charged on the audited profit if it fails to comply with the ESR. However, if the company reports audited loss, there is no tax payable regardless ESR is met or not.
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Q：
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Are all Labuan business activities subject to ESR?
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A：
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Labuan entity that undertakes Labuan business activity other than those specified under Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2021 does not require to comply with ESR.
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FAQ
