The 8 Tax Treasures Of A Labuan Trading Company

No businessman relishes the disruption caused by a tax audit. And yet, with the new mechanisms in place to exchange tax information and tax collectors now working together to aggressively challenge international tax structures the risk of audit is increasing.

Sophisticated tax planning now works on the basis that tax collectors can pierce the corporate veil where hitherto secrecy rules may have thwarted them. This approach assumes that 'tax planning' relying solely on secrecy is flawed and will eventually fail. Consequently, the concept of 'future proofing 'is finding favour.

In the context of international tax, future proofing anticipates the known interest areas of tax collectors to create a tax structure which is sufficiently robust to withstand future enquiry, for instance, a probe by tax collectors into business purpose and operational substance.

As a general rule, international tax structures lacking business purpose may be struck down. Operational substance, on the other hand, is essentially about having the right people and infrastructure in the right place at the right time doing the right things. Getting the 'mix' wrong can have unexpected and possibly unpleasant tax consequences.

Trading companies located in low tax locations attract tax collectors interest because the multiple activities a trading company undertakes, the cause and effect on profits such activities have and the possibility that the activities may be conducted in a number of locations gives rise to considerable complexity and the possibility of 'tax mischief".

Business has to be mindful that as tax information begins to flow efficiently the future proofing of trading companies in low tax locations is paramount.

In this environment the Labuan Trading Company 'star ' is rising ! As with many other possible locations Labuan is highly suitable as a low tax 'profit centre' for trading companies. But Labuan is distinguished by a number of interesting and possibly unique features- its 8 Tax Treasures - that should help trading companies navigate the new tax landscape.

Tax treasure 1

A trading company located a long distance from its market attracts the interest of tax collectors'. If for instance, the targeted market is in the Asia-Pacific region, a Labuan Trading Company, being centrally located in the same region, makes hard practical sense and can help indicate business purpose.

Tax Treasure 2

Labuan is part of Malaysia, an established trading nation ranking 24...