Hybrid structure — a Sdn Bhd for local business plus a Labuan IBC at 3%

How the tax flows through the structure

Overall burden on this flow: roughly 3–5% (3% Labuan tax plus 2% on individual dividends above RM 100K). A Japanese company pays corporate taxes at an effective rate of about 21–34% as a small company in Tokyo (rising with income; 29.74% for large companies), and dividends are then taxed again in the shareholder's hands. Labuan substance costs and Japan's CFC rules are not included. Figures are indicative; individual results depend on facts and current law.
* The intercompany dividend exemption comes from the Income Tax (Exemption) Order 2025 [P.U.(A) 59/2025]: it covers dividends paid out of Labuan business income and runs from YA2023 to YA2027. No extension has been announced, so model the years after YA2027 separately.

Single company vs hybrid

Each structure on its own — Sdn Bhd, Labuan and how to choose — is explained in the company formation overview.

* Sdn Bhd: 24% for companies more than 20% foreign-owned; the 15–17% SME rates apply only if foreign ownership is 20% or less (LHDN; Finance Act 2023).
** Annual profit after paying salaries to you and your family member or partner. A rough guide under our default assumptions (trading activity; two full-time staff in Labuan — you and one family member or business partner on Labuan work passes; Bangga's local presence Plan C/D; RM 1 ≈ JPY 38.5 (BNM middle rate, 2026-09-30)); it changes with your conditions (a simulator is available on our Japanese page). To use the 3% rate, two full-time staff (you may count yourselves) must work in Labuan; foreign nationals working there on Labuan work passes must be paid a salary that meets the work-pass requirement (RM 10,000+ a month). Assumes the profits are not attributed to Japanese shareholders under Japan's CFC rules.

Substance on the Labuan side (LHDN 2025–2026 rules)

• 2+ full-time, fit-and-proper employees (3–4 in some industries; direct employment with EPF/SOCSO) — if you and your family member or partner are the two full-time staff, there is no extra payroll cost (the salaries stay within your household, so we count only the income tax and EPF on them as a cost); hiring 2 local staff at RM 5,000 a month adds about JPY 5.31M a year in salaries and employer contributions (EPF, SOCSO, EIS; RM 1 ≈ JPY 38.5 (BNM middle rate, 2026-09-30)).
• Physical office (virtual offices not accepted) — Bangga's local presence Plan C/D costs JPY 120,000 a month (about JPY 1.44M a year).
• Industry-specific minimum annual OPEX — administration RM 50K / funds RM 100K / banking & insurance RM 200K per year. The salaries and office rent paid in Labuan count toward the OPEX (it is not an extra amount on top).

What Bangga covers

• Simultaneous setup of the Sdn Bhd + Labuan IBC — incorporation 2–6 weeks / 2–8 weeks, bank accounts 1–3 months, work visa 3–6 months, run in parallel
• Bank accounts (Sdn Bhd: UOB, OCBC, Alliance Bank and others; Labuan IBC: the Labuan branches of Hong Leong Bank, CIMB Bank, Maybank and others)
• Arranging the annual accounts and audits for both companies (for the Labuan company, a trust company licensed by Labuan FSA keeps the books and prepares the financial statements; a local auditor performs the audits)
• Organising the facts of transactions between the two companies, and arranging the transfer-pricing documentation (prepared by a local accounting firm)
• Employment Pass for directors and key staff