Malaysia has released the Income Tax (Exemption) Order 2025 in its Official Gazette on 13 February 2025.  This order grants tax exemptions on specific payments made to or received from Labuan companies.

A Labuan company is incorporated under the Labuan Companies Act 1990 (LCA 1990). Both Malaysian residents and non-residents can establish Labuan companies. Those meeting certain conditions, including substance requirements, qualify for preferential tax rates.

This Order has effect from the year of assessment 2023 to the year of assessment 2027.

The Income Tax (Exemption) Order 2025 grants income tax exemptions for the following:

1. a Labuan company from the payment of income tax in respect of chargeable income from dividends received;
2. any person from the payment of income tax in respect of chargeable income from dividends received from a Labuan company which are paid, credited or distributed out of income derived from a Labuan business activity or income exempted from tax;
3. a non-resident person from the payment of income tax in respect of chargeable income from interest received from a Labuan company other than interest accruing to a business carried on by a non-resident person in Malaysia if that non-resident person is licensed to carry on a business under the Financial Services Act 2013 [Act 758] or the Islamic Financial Services Act 2013 [Act 759];
4. a Labuan company from the payment of income tax in respect of chargeable income from interest received from another Labuan company;
5. a resident person other than a licensed person to carry on a business under the Financial Services Act 2013 or the Islamic Financial Services Act 2013 from payment of income tax in respect of chargeable income from interest received from a Labuan company;
6. a non-resident person from the payment of income tax in respect of chargeable income from royalties received from a Labuan company;
7. a Labuan company from the payment of income tax in respect of chargeable income from royalties received from another Labuan company;
8. a beneficiary from the payment of income tax in respect of chargeable income from distributions received from a Labuan trust or Labuan Islamic trust;
9. a partner of a Labuan limited partnership, a Labuan limited liability partnership, a Labuan Islamic limited partnership or a Labuan Islamic limited liability partnership from the payment of income tax in respect of chargeable income from distributions of profit after tax paid, credited or distributed by the Labuan limited partnership, Labuan limited liability partnership, Labuan Islamic limited partnership or Labuan Islamic limited liability partnership;
10. a member of a Labuan foundation or a Labuan Islamic foundation from the payment of income tax in respect of chargeable income from distributions of profit after tax received from the Labuan foundation or Labuan Islamic foundation;
11. a non-resident person from the payment of income tax in respect of chargeable income from the amount received from a Labuan company in consideration of services, advice or assistance as specified in paragraphs 4A(i) and (ii) of the Act;
12. a Labuan company from the payment of income tax in respect of chargeable income from amounts received from another Labuan company in consideration of services, advice or assistance as specified in paragraphs 4A(i) and (ii) of the Act.