e-migrator

Hi all,

I am 50, single, and currently living in winter-wonderland, a.k.a. Central Europe I make money in the form of short-term capital gains from trading on Wall Street. I have wanted to move to a warmer country for a long time and compared all possible destinations on a large Excel spreadsheet. And the winner is ... Labuan, closely followed by Langkawi. I like islands, I like tropical islands even more, and I just love tax and duty free tropical islands The question I have now relates to the best way of getting there. There are at least two of them:

1. The "Labuan route". Gary of LabuanTax.com has helped me a great deal with this one. In a nutshell, it means setting up a Labuan company that would do my US stock market trading. The work permit I would be getting would allow me to live and work in most of Malaysia, even if I wanted to stay on Labuan. I am not planning to trade on the KL or any other stock exchange.

2. MM2H status. I have searched this topic extensively, but I am still not sure. I can see two sub-routes:

2.a. If I live in Malaysia (Labuan or Langkawi) with an MM2H visa and do my stock market trading in my own name through the internet from my home, does this count as work so I would have to pay income tax on my profits? Just to be clear, I only invest my own money, so I am not a financial advisor or anything, just a private investor.

2.b. I would form a “classical” offshore company in, say, the BVI in whose name I would do my trading, still from my home. Would this set-up count as work, and would profits be taxed? Or would it provide me with offshore income that would be tax-free? I do not want to move abroad and bend, much less break their rules. Even less so since the “Labuan route” would be completely legal.

Any advice would be greatly appreciated Thank you very much!

bakedbean

Re 2a. You cannot (easily) work (officially) with a mm2h visa in Malaysia. That's not what the visa is for.

Having said that, if your company is offshore (outside Malaysia) and your earnings are going somewhere other than Malaysia, that is perfectly acceptable on MM2H and you may bring in your income from elsewhere without incurring tax in Malaysia.

I know of several people who do this on MM2H.

e-migrator

Thank you Bakedbean. Actually, I was planning to bring my trading profits into Malaysia. I mean, making money is only half the fun if you cannot spend it The irony of it is that the "work" (that I do not consider as such) is identical in all the three cases, but that I need to make a detour in order to be MM2H compliant. Given your experience and your knowledge, would you prefer option 1 or 2b if you were in my place?

bakedbean

I really don't know. It's your choice

and I only know about mm2h not Labuan. I think you may (eventually) get input from others on this forum, both re Labuan and re "working" from home.


Umm just something else. You are doing this exercise remotely? Have you visited Langkawi? If not, do so, before deciding. Do not assume anything.

I live in Penang. It's a short 40 minute flight to Langkawi but they are chalk and cheese. Langkawi is a beautiful Island but I got bored after 5 days. Just saying.

e-migrator

Well, Malaysia-wise I have so far been only to Malacca on a short day trip from Singapore. But then I have been to and lived in so many other places, and my conclusion has always been that I could hang up my hat anywhere. Yes, I have heard about people who sometimes get bored, but I could never confirm that from my own experience At least as long as I have an internet connection You are of course right that I will have to personally check out any place before I decide to go there for good. Planning to go to Labuan and to Langkawi on a vacation early next year. Can hardly wait to get there

ex reg

Just on Labuan, when I worked there must be 25+ years ago it was a very quiet place.
IIRC there was an ex pat club in town but not much else.

Of course things will have developed over time.

mikemike

The way I understood the the Labuan route is that you do not have to go through the MM2H process. You are in effect an officer of a Malay registered company and receive residential qualification through that method.

Things do change and Gary of the same company who advised me is in a far better position to confirm.

e-migrator

The Labuan Financial Center was established only in 1995 and has probably grown since then. At least there is a Financial District today.
That's how I understand it, too. The question I am asking myself is this: What is less of a hassle? The MM2H application process or setting up a Labuan company? And, in the case of MM2H, does stock market trading from home count as work? If bakedbean is right (and she probably is), if I trade in my own name, it is considered work. If I do the very same thing from my home, but in the name of an offshore entity, it is not

mikemike

Gary at Labuan tax.com should be able to answer the tax implications. Malaysia does not have a capital gains tax as such . All gains are treated as income

e-migrator

Gary has been most helpful indeed as far as the Labuan route is concerned But he does not do MM2H.

My suspicion is that, as in most countries, if the place of management and control is in Malaysia, then trading through an offshore entity may be tax-dodging. Whereas forming a Labuan company that does the trading is completely legal, so I tend to favour this option.

NeonHippy

Take a look at the FAQs on Joy-Stay's website Frequently Asked Questions for MM2H Malaysia My Second Home Programme this states that under mm2h you are entitled to invest in the MY stock exchange but income would be taxable. Any income earned outside MY and remitted into the country is non taxable. An interpretation of this is that investing is not considered working in the sense that you are not taking a job away from a Malay person. On the contrary you would be helping generate employment if you invest in the MY market.

However it is sensible to get confirmation on this aspect and not risk breaking the law. If you were to apply for mm2h would you apply in person or use an agent? DIY requires very little investment up front, be honest and up front and your application will either be approved or rejected. At least you will know the answer. A quicker route if you want to use an agent is to sign up with one that offers a refund if you are not successful such as Joy-stay. They will pre-screen your application and only proceed if they believe it will be a success. If they are in doubt as to your specific circumstances they will likely know someone in the mm2h office to ask.

e-migrator

Thank you, NeonHippie. Very helpful information I will first have to decide whether to go for MM2H or for Labuan. In the first case, deciding for an approved agent or doing it myself would be the second step. Appointing an experienced agent who does the pre-screening may be a good idea.

I have taken a look at joy-stay's website and found this:
I take this to mean that income earned on foreign stock markets is not liable to income tax. However, he goes on to say:

I think the crucial question is: If I make my investments from my 2H in Malaysia, are my profits being generated there (and hence liable to tax), or do they count as foreign income since I make my profits in the USA through a US stockbroker (not taxable according to the territoriality principle)?

bakedbean

I think Yvonne at Joy Stay could probably answer you if you contact. Tell her what you are planning to do. If it isn't kosher, she will say so.

I used Joy Stay to get my visa as have a few others on this forum. So can heartily recommend.

Maybe might be worth you doing the trip first checking out Labuan and Langkawi (or anywhere else). Y'know if you fall in love with Labuan, then no point in thinking about MM2H i guess.

e-migrator

Thank you, bakedbean. You are all being so helpful. I feel welcome already I have filled out her preliminary questionnaire and will ask her when she replies. Of course, I will keep you posted.
Not necessarily. I mean, Labuan is not part of either Sarawak or Sabah, but a Federal Territory, so it is possible to live there under MM2H rules. The opposite holds true, too, by the way. Gary has pointed out that with a Labuan company and work permit, I would be allowed to live in all of West Malaysia (plus Labuan, of course), but not in East Malaysia for whatever historic reasons.

teejaydee

I would like to see what formulas you used on your spreadsheet to make Labuan and Langkawi preferable to "all possible destinations". The danger of using a spreadsheet as a decision aid is it includes only facts and figures. It cannot include a sense of feeling that you have for a location. Only a visit to the shortlisted destinations can do that.

As bakedbean has mentioned a couple of times, you should visit Labuan and Langkawi before you make any decisions as to whether to take the "Labuan route" or apply for an mm2h visa. Do what I have done; come for a year as a tourist, spend an extended period of time in both destinations (and maybe Penang and elsewhere in Malaysia), and then decide. You can carry on trading during this year, although if you are a day trader the US stock exchange opening hours mean you will be trading during the Malaysian night.

If you like Malaysia, and decide that Labuan or Langkawi offer you more than Switzerland, then decide how best to structure your trading. But try not to complicate things. One advantage of investing while living in Malaysia is there is no need for complicated (and expensive) offshore companies, trusts, etc. It can be done legally in your own name. Of course you raise the valid point as to when trading ceases to be a hobby and becomes a trade. This is a grey area, as it is in the tax rules of most countries. It would generally depend on how many trades you place, and whether trading is you sole money-making occupation.

First though, come and take a look and see what you think of Labuan and Langkawi. I know you mentioned you like warm countries, but the best destination for a frequent trader is the UK, where investing on spreads is tax-free. If you really are looking for a warm island, take a look at Malta or Gibraltar. They offer a first-world standard of living and considerable tax benefits.