Labuan Company vs Sdn Bhd: US Person CFC & Tax Guide
Every US person incorporating in Malaysia faces the same pivotal question: Labuan company or Sdn Bhd? The answer depends almost entirely on US international tax law — not on Malaysian corporate rates. A Labuan company taxed at 3% under LBATA still triggers Controlled Foreign Corporation status under IRC §957, exposing its US owner to immediate Subpart F income inclusions and GILTI at ordinary US rates up to 37%. Without a Check-the-Box election on Form 8832, the 3% Malaysian advantage is systematically eliminated at the US level.
This technical guide compares both entities across 12 dimensions: CFC analysis, Subpart F traps (FPHCI and FBCSI), GILTI mechanics and the critical individual vs C-Corp asymmetry, Check-the-Box election procedure and trade-offs, economic substance requirements, IRS filing obligations, and a decision matrix covering six distinct US investor profiles — from passive holding and active SaaS businesses to family offices and real estate structures.