Labuan Partnerships
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The Labuan Limited Partnerships and Limited Liability Partnerships Act, 2010 (“LLPA”) provides the business and operations of Labuan Partnerships. The legislation provides a flexible partnership vehicle to entrepreneurs and businessmen with the benefit of limited liability.

All registration documentation must be submitted to the Labuan Financial Services Authority (“Labuan FSA”) through a registered trust company. For your information, Kensington Trust Labuan Limited is a licensed trust company in Labuan.

Common forms of partnerships in Labuan:

  1. Labuan Limited Partnership
  2. Labuan Limited Liability Partnership

A. Labuan Limited Partnership

Composition

  1. Labuan Limited Partnership (“Limited Partnership”) is a business organization comprising not less than two (2) partners and not more than fifty (50) partners of whom -
    • one (1) at least shall be the General Partner (“GP”); AND
    • one (1) at least shall be the Limited Partner (“LP”)
    A person may be a GP and LP at the same time in the same Limited Partnership. Partners may be in the form of corporation.
  2. If a Limited Partnership is formed for the purpose of carrying on any professional practice, the Limited Partnership shall -
    • consist of partners none of whom is a corporation; and
    • have in force professional indemnity insurance cover for an amount not less than the prescribed amount with any insurer approved by the Labuan FSA
  3. Roles of partners -
    • GP
      A GP shall have management control, responsible to run, manage and have active role in the decision and operations of the business, share the right to use Limited Partnership property, share the profits of the Limited Partnership in predefined proportions and have joint and several liabilities for debts of the Limited Partnership
    • LP
      The liability of LP is only limited to the capital invested. They contribute capital to the Limited Partnership but do not participate in the daily operations. They shall not be liable as a GP unless the LP participates in the management of the Limited Partnership.


Advantages

  • Excellent choice for individuals who lack the time or expertise to run a business but who would like to participate in the profits
  • Commonly used for joint venture. Liability for LP merely is capital which they invest in the business. As an added benefit, they are also personally shielded from the partnership’s debts and other liabilities
  • LPs may leave or be replaced without the Limited Partnership being dissolved
  • Commonly used to acquire, hold and operate real restate and act as a private equity fund.


Registration of Labuan Limited Partnership

  1. Name of Limited Partnership shall end with the words “Limited Partnership” in full or the abbreviation “Ltd.P.”, “LP”, “L.P” or any other form of abbreviation in Romanised character or words in the national language of a country which connotes a limited partnership or any abbreviation thereof as may be approved by the Labuan FSA
  2. A certified copy of a partnership agreement executed by each person who is, on the formation of the Limited Partnership, to be a partner shall be lodged with the Labuan FSA. The partnership agreement shall state amongst others -
    • name of the Limited Partnership;
    • intended address of the registered office of the Limited Partnership;
    • full name and address of each GP or, in the case of a corporation, the place where it is incorporated and its registered or principal office;
    • the term, if any, for which the Limited Partnership is to exist or, if for unlimited duration, a statement to that effect;
    • nature of business to be undertaken; and
    • such other information as may be specified by the Labuan FSA
  3. Upon lodgement of complete documentation and payment of fees as well as clearance from the due diligence process conducted by Labuan FSA, a Labuan Limited Partnership can be approved for registration within 5 days. For urgent registration within 24 hours, an express filing fee is payable to Labuan FSA to fast track the registration.
  4. Upon the registration of a Limited Partnership, Labuan FSA shall issue a certificate of registration which shall be conclusive evidence that a limited partnership has been registered with the Labuan FSA


Key Operational Requirements

  • A Limited Partnership must have its registered office in Labuan, which may be the registered office of a Labuan Trust company
  • A register showing particulars of the Limited Partnership as well as its constituent documents must be kept in the registered office
  • Any change of particulars in the partnership agreement must be filed with Labuan FSA within thirty (30) days with a notice signed by a GP specifying the nature of change
  • All documentations required to be submitted to Labuan FSA must be filed through a Labuan Trust company
  • A Limited Partnership has the duty to keep proper accounting and records which could sufficiently and accurately explain its transactions and financial position. These records must be kept at the registered office or any other suitable place in Labuan and accessible by all partners for inspections at all times
  • Dissolution of a Limited Partnership is only effective upon the lodgment of notice of dissolution made by the GP to Labuan FSA. A Limited Partnership may also be dissolved upon the death of the GP or by a Court Order.


Annual Obligations

Annual Government Fee Pay an annual fee of such amount as may be prescribed on or before its anniversary date of registration
Annual Tax Filing Annual tax return needs to be filed with the Malaysian Director General of Inland Revenue by 31 March of that year of assessment. Normally, an extension of time for filing is allowed by the Inland Revenue.


B. Labuan Limited Liability Partnership

Labuan Limited Liability Partnership (“Labuan LLP”) may be considered a hybrid vehicle which consist the elements of a limited liability company and a partnership. It has legal personality separate from the partners, which means it can sue and be sued, acquire, own, hold and develop or dispose its property.

Composition

  1. Labuan LLP may comprise of two or more partners ie.
    • one (1) at least shall be the Designated Partner (“DP”); and
    • one (1) at least shall be the Limited Partner (“LP”);
    individual or a corporation, who operate or manage a business together
  2. The role of the DP is to ensure that the Labuan LLP is in compliance with statutory obligations and will be personally liable to penalties imposed on the Labuan LLP for contravention of its obligations under the LLPA. Where there is no DP appointed, then every partner will be a DP.
  3. Relationship between the partners in a Labuan LLP is determined according to the partnership agreement
  4. Every partner of a Labuan LLP is the agent of the Labuan LLP and accordingly, the acts of a partner in the partner’s capacity as a partner shall bind the Labuan LLP
  5. Liability of the partners are only limited to the agreed contribution in the Labuan LLP. Its liabilities shall be met out of the property of the Labuan LLP.
  6. A Labuan LLP permits a partner to be shielded from liability for partnership obligations created by the misconduct, unauthorised actions, wrong business decisions or negligence of another partner


Advantages

  • Commonly used for joint venture business. The liability of each interested party involved in the joint venture business is only limited to the amount of capital invested and terms in the partnership agreement
  • Suitable for professionals as it protects the partners from personal liability for claims arises from the other partners incompetency, error and omission
  • Limited liability of partners
  • Perpetual succession
  • Powers of a natural person
  • Any change in the partners of a Labuan LLP shall not affect the existence, rights or liabilities of the Labuan LLP


Registration of Labuan LLP

  1. Name of Labuan LLP shall end with the words “Labuan Limited Liability Partnership” in full or the abbreviation “(Labuan) L.L.P.” or “(Labuan) LLP” or any other form of abbreviation in romanised character or words in the national language of a country which connotes a limited liability partnership or any abbreviation thereof as may be approved by Labuan FSA
  2. A DP of a Labuan LLP shall submit an application for registration stating -
    • name of the Labuan LLP;
    • intended address of the registered office of the Labuan LLP;
    • full name and address of each partner who is to be a partner in the Labuan LLP and, where any of these persons is a corporation, the place where it is incorporated and its registered or principal office;
    • full name and address of the person who is to be a DP and, where the person is a corporation, the place where it is incorporated and its registered or principal office;
    • nature of business to be undertaken; and
    • such other information as may be specified by the Labuan FSA
  3. Upon lodgement of complete documentation and payment of fees as well as clearance from the due diligence process conducted by Labuan FSA, a Labuan LLP can be approved for registration within five (5) days. For urgent registration within 24 hours, an express filing fee is payable to Labuan FSA to fast track the registration.
  4. Upon the registration of a LLP, Labuan FSA shall issue a certificate of registration which shall be conclusive evidence that a limited liability partnership has been registered with the Labuan FSA


Key Operational Requirements

  • A Labuan LLP must have its registered office in Labuan, which may be the registered office of a Labuan Trust company
  • A register showing particulars of the Labuan LLP as well as its constituent documents must be kept in the registered office
  • A Labuan Limited Partnership or a Labuan company may be converted into a Labuan LLP subject to statutory provisions. The liabilities, obligations, undertaking, interests, rights, privileges, contracts, employment agreements and obligations entered into prior to the conversion shall continue as in their prior capacity as a partner in a Labuan Limited Partnership or a shareholder in a Labuan company.
  • All documentations required to be submitted to Labuan FSA must be filed through a Labuan Trust company
  • A Labuan LLP is required to keep proper accounting records but auditing and filing of accounts with Labuan FSA is not required. These records must be kept at the registered office or any other suitable place in Labuan and accessible by all partners for inspections at all times
  • A Labuan LLP may be dissolved by winding up or by a Court Order


Annual Obligations

Annual Government Fee Pay an annual fee of such amount as may be prescribed on or before its anniversary date of registration
Annual Solvency Certificate File with Labuan FSA an annual solvency certificate on or before its anniversary date of registration
Annual Tax Filing Annual tax return needs to be filed with the Malaysian Director General of Inland Revenue by 31 March of that year of assessment. Normally, an extension of time for filing is allowed by the Inland Revenue.


C. Labuan IBFC Tax System

LBATA governs the imposition, assessment and collection of tax on a Labuan business activity carried on by a Labuan entity in, from or through Labuan. Only Labuan entities carrying on a Labuan business activity are chargeable to tax under the LBATA. Labuan entities that carry on a non-Labuan business activity are subject to the provisions of the Malaysian Income Tax Act, 1967 (ITA).

“Entity” in LBATA also includes Labuan Limited Partnership and Labuan LLP registered under the Labuan Limited Partnerships and Limited Liability Partnerships Act, 2010

“Labuan non-trading activity” means an activity relating to the holding of investments in securities, stock, shares, loans, deposits or any other properties by a Labuan entity on its own behalf. Such activity is not subject to tax under LBATA.

“Labuan trading activity” includes banking, insurance, trading, management, licensing, shipping operations or any other activity which is not a Labuan non-trading activity. The Labuan entity shall pay either 3% of net profits as per audited accounts OR RM20,000/- upon election annually.

Labuan entity carrying on both Labuan trading and non-trading activities will be deemed to be carrying on Labuan trading activities. Hence, it will have the same tax treatment as those undertaking Labuan trading activity mentioned above.


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