New Tax Exemption for Labuan Foundations and Trust

The Malaysian government has introduced a new Income Tax (Exemption) Order 2025 [P.U. (A) 59/2025], providing tax relief for Labuan entities, including Labuan Foundations and Labuan Trusts. Effective from Years of Assessment (YAs) 2023 to 2027, this exemption replaces the previous Income Tax (Exemption) (No. 22) 2007 order and strengthens Labuan’s position as a preferred jurisdiction for wealth structuring and estate planning.

What Does the Exemption Cover?

The new order provides income tax exemptions for beneficiaries of Labuan Foundations and Labuan Trusts, specifically on distributions of profit after tax received. This means that individuals receiving distributions from these entities will not be liable for income tax on these amounts.

Additionally, with Malaysia’s new dividend tax coming into effect from 1 January 2025, this exemption ensures that distributions from Labuan Foundations and Trusts remain tax-free - an advantage for both resident and non-resident beneficiaries.

Key Considerations

• The Labuan Foundations Act 2010 does not define "members," but in practice, beneficiaries are the intended recipients of the exemption.

• Further clarification is needed on whether "profit after tax" includes income assessed and exempted under the Labuan Business Activity Tax Act, 1990.

• A legal review is recommended for those with existing Labuan structures to ensure compliance and to optimise tax benefits under the new exemption.

Why This Matters

This exemption enhances Labuan’s appeal as a tax-efficient jurisdiction for wealth and succession planning, making it an attractive option for high-net-worth individuals, family offices, and corporate trustees.

At Alpadis, we specialise in structuring and administering Labuan Foundations and Trusts, ensuring compliance while optimising tax efficiency. If you’d like to explore how this exemption can benefit you, get in touch with our team today.