teejaydee

I will take you up on your offer, as soon as I have done some more internet research into the topic. In the meantime, many thanks for answering my questions. I am sure the answers you kindly provided will be helpful not just to me, but to other readers (including of course, the OP).

e-migrator

Thanks everyone I have sent Yvonne a direct e-mail asking about the state of affairs, and it seems she had not got my webform inquiry. So I resent it to her and just got the reply that I am indeed eligible for MM2H Whether I will be doing it remains to be seen. I must admit the many forms she has sent with her reply are a bit of a put-off. Next thing I am going to ask her is my tax question. I will gladly post her answer here.

@Davita: Panama was included in my spreadsheet but did not fare too well. I haven't actually been there, only in neighboring Costa Rica that is similar in many ways. While it may indeed be peaceful and stable, I did not really feel secure there. At least in San José, there was police at every other street corner, CCTV cameras everywhere, security guards in every supermarket, barbed wire fence on top of the walls surrounding every expensive-looking property... I do not think Panama would be much different, at least the big cities.

I am neither an American citizen nor a US person, so I do not owe the IRS anything. Since I am a trader, I rather invest my money in the stock market than in real estate. It is, how to put it, a bit immobile If part of my capital is locked in a property, I cannot use it for trading, which would curtail my profits. Unless I take out a loan, but I tend to avoid that, too.

@TJD, thank you for your compliment Trading profits by their nature are rather volatile. This two-account solution is a good idea It may simplify things considerably. True, I could keep my Labuan company even if I chose to move elsewhere later on. However, in most countries of the world, channeling profits through offshore entities and not declaring them is tax evasion, something that I want to avoid. This is one of the reasons why I have been considering Malaysia in the first place. I am not too fond of the "perpetual traveller" option, either. According to Gary's website labuantax.com, your Labuan work permit is valid throughout the life of your company.

@Jack Black, great to read from someone who has gone the Labuan route There are two things that I do not understand in your posts:
1. You say you are the CEO of your company. Who is its director? Do you have one? Why don't you take on that role? If I have understood Gary correctly, Director's fees are entirely tax-free. The 50% tax exemption holds true for managerial staff.
2. You say you have to make some extra arrangements to make your company trading. I would rather do the opposite since non-trading companies are entirely tax-exempt. Unfortunately, I cannot trade through a non-trading (i.e. holding) company Again, if I am not mistaken, according to Gary you can get a work permit for a non-trading company on the same terms as for a trading one.

Trading companies have the choice of either paying a flat-rate tax of MYR20,000 (approx. USD6,000) per year or 3% of audited profits. I prefer the latter, and for a reason: Director’s fees are deductible as operating expenses. Now if they just happen to equal net profit, you pay 3% of zero. Gary has confirmed that this procedure is perfectly legal. It makes sense only if the auditors do not charge more than the MYR20,000 flat-rate tax. Again according to Gary, their bills are based on company turnover. While there may be an element of hassle associated with this option, in my case things would be very simple since I would not have to do much more than handing them over my broker’s statements.

@Twixy: Gary has told me that with a Labuan company and a corresponding work permit, you are entitled to live anywhere in West Malaysia and, of course, Labuan, but not in Sarawak or Sabah. These two states have only joined the Federation under the condition that they retain some of their former autonomous powers which include immigration. I am told even Malaysians from the Peninsula need a visa to go there. Anyone confirm?

e-migrator

I have already got Yvonne's reply. (Wonder if she is working 24 hours a day.) According to her:

Interestingly, MM2H participants are allowed to set up companies in offshore jurisdictions, be their "sleeping" directors, and receive director's fees and dividends tax-free. But I would not be allowed to work in my "home office" for my own company. At least not as long as I receive a monthly salary, since that would be equivalent to working for a company. If I drew a director's fee from this company, it would be taxable.

Now I am spoilt for choice And back at the initial question: MM2H with private trading in my own name, or a Labuan company with a work permit? This will be my own personal decision now that all facts are on the table. I will probably draw up another Excel table

Davita

This thread has me interested and confused at the same time. Yvonne's reply seemed to me the simplest to understand.

What is wrong with living in Malaysia, on an MM2H visa, and electronic trading in markets outside of Malaysia? This kind of trading, as I think Yvonne infers, is not considered work or need a work permit and doesn't require any license or formation of a Registered Company.

i.e. My recollection is there is no Capital Gain on profit from the trades on the Hong Kong Market (Hang Seng) and, as an MM2H holder, I understand gain/income can be remitted to Malaysia free from tax. Aren't there other markets to play world-wide where profits/losses do not need to be audited, and filed for taxation, by the home country?

When I worked for 16 years in Hong Kong, I played the market, thru' a brokerage (before e-trading), and wasn't taxed on anything except my salary from my employer. I simply kept an account with the broker and used a password to order a buy/sell over the phone from the account withheld at the brokerage. They took a charge on each transaction as a fee.

This arrangement helped me make my first million...

e-migrator

@Davita, there is nothing wrong with trading or investing in the world's stock markets from your 2H as a private trader and have the profits remitted to Malaysia tax-free. According to Yvonne, you can trade anywhere in the world except Kuala Lumpur.

The reason I had asked her was that in most countries, trading profits and investment returns are taxed either as capital gains or as income if you exceed a certain number of transactions per year, if your turnover is above a certain threshold, if you go short, if you use derivatives or leverage, and/or (my favorite) if your investment income exceeds your employment income.

There are only three jurisdictions where trading your own funds does not count as work and profits are, hence, tax-free: Malaysia under the MM2H program, the Cayman Islands and the Turks and Caicos Islands. There are more countries and territories that follow the principle of territorial taxation like Panama, Costa Rica, Singapore and Hong Kong. Nonetheless, they may classify the systematic pursuit of stock market profits as a commercial activity liable to taxation. Provided they learn of it, of course, but as I had said before, if I wanted to dodge taxes, I could do that home.

Forming a Labuan company and getting a work permit as its director is merely an alternative route to the same goal, i.e. being able to stay in Malaysia indefinitely and reaping stock market profits tax-free. According to Gary who has a comparison on his website, the Labuan route is less of a hassle, but I am sure Yvonne would disagree

InVinoVeritas

Also for true for residents of Monaco, I believe - not so cheap but closer to home.

Davita

@e-migrator
I'm not about to argue but.....having read the many threads on this complex and expensive 'Labuan' route, and knowing how easy it was for both my wife and I to get an MM2H, leaves me bewildered that there is any comparison.

btw Our MM2H was all done by Joy-Stay....DIY was not available then. We have only visited Malaysia to have it recorded in our passports, and enjoy holidays.
Many have now gained MM2H as a DIY and they don't seem to have too much hassle...unless unable to comply with requirements.

e-migrator

Quite right. I also forgot Sark, Channel Islands. I think if you qualify under Gibraltar's HNWI scheme where you pay an annual flat-rate tax of £19,500 your income from outside the Rock may be as high as you want it to be. Malta operates a similar scheme.

I have meanwhile read Yvonne's forms, and it seems indeed doable. Though I wonder if Swiss Banks would reply to Malaysian authorities should they try to verify my financial information.

There is no argument here, just two different options, each with its advantages and drawbacks. As an MM2H participant, MYR150,000 (reduced to MYR100,000 from year two onwards) are blocked as a fixed deposit. With a Labuan company, I can use my entire capital for trading. I am also told getting a work permit for a Malaysian company is even easier than going for MM2H once I have my company established.

To sum up, MM2H and Labuan companies are aimed at two different kinds of people: MM2H typically appeals to retirees, Labuan to entrepreneurs. I just happen to qualify for both. Now I only need to make up my mind

InVinoVeritas

I think it's only reduced if you use the RM50,000 to buy a house, a car or for medical expenses.

teejaydee

Like Davita, I am also getting a little confused. I think we are all agreed that Malaysia (like a small number of other countries) operates a "territorial" tax system, meaning that even for tax residents, income earned from outside of the country is not taxable.

In the case of Malaysia and other countries, it seems e-migrator has delved in to the fine print, and found an exception, in that regular securities traders are taxed on this overseas income. However, this was not made clear by Yvonne's reply. In fact she says "As for the income you earn from trading, if the income/profit is coming from abroad then you are not liable for taxation."

I appreciate that e-migrator needs a visa in order to live in Malaysia, but I cannot yet see why it is necessary to complicate matters by setting up companies, paying on-going administration and audit fees, accounting for taxation, etc.

Maybe I am missing some knowledge on this topic, but I was under the belief that for all countries with a territorial tax system, all offshore income was considered tax free. I know some countries have a hybrid territorial system, where offshore income is taxed if remitted, but this is not the case with Malaysia.

Following past experience with offshore structures, I am all for keeping things simple. Could someone correct me if I am wrong, but I believe that an mm2h visa holder has no obligation under normal circumstances to complete an annual tax return, or have any contact with the tax department. If this is true, however much money is generated outside Malaysia is surely of concern only to the visa holder.

e-migrator

True, though I am not sure about the car. But you can also withdraw MYR50,000 for your kids' education.

No one wants to complicate things. Or confuse anything. Let us keep the apples apart from the oranges:

1. The MM2H scheme. Intended for non-working retirees. Most of them will neither have offshore companies nor do professional trading from their own home. But if they wish, and I do, they may either be passive directors of offshore companies or do trading from their 2H on stock markets outside of Malaysia without incurring any obligation for tax. What they may not do, at least not tax-free, is working for an offshore company or trade on the KL stock exchange. What I am not sure is whether doing so "only" leads to a liabilty for tax or whether it is prohibited under the terms of the MM2H program.

2. Labuan companies. Aimed at entrepreneurs, traders and investors who intend to work as the benefit of such a company is a work permit. These companies, if trading, can only deal with parties outside of Malaysia and in currencies other than Malaysian Ringgit. While more expensive at the outset and on an on-going basis, a Labuan company does not block any funds in the form of a fixed deposit. Since the Federal Government of Malaysia wants to attract foreign direct investment, I am told that setting up Labuan companies is being made as easy as possible. And Gary at least is convinced that a work permit for a Labuan company is easier to obtain than MM2H status, but this is up for debate.

For most of us, MM2H may be the way to go, but as I had already mentioned, not necessarily in my case. Each scheme has its particular pro's and con's, and it is once again upon each of us to weigh them and draw the right conclusions.

As far as taxation is concerned, matters are not as simple as they may seem. There is not only worldwide taxation on the one hand, and territorial on the other, but there are probably 50 shades of gray in between Some examples:
- Gibraltar does not tax foreign-source income as long as it is not remitted there.
- Singapore also operates a territorial regime, but considers the kind of trading that I do as a professional activity that would be taxed.
- Hong Kong takes a look at the place where deals are contracted. If from within Hong Kong, then again there will be a liability to tax.
Correct me if I am wrong. I am not an expert on taxation. But I hope I could make some things a bit clearer.

InVinoVeritas

I don't think this is true. It may be most MM2H'ers are retired but the scheme allows, even encourages, people over 50 who are not retired to participate. The monthly income requirement is pension OR salary. The only no-no is that you cannot work in Malaysia.

teejaydee

Without wishing to be pedantic, I believe it is possible to work part-time (if granted Ministry of Tourism and Culture approval) for a maximum of 20 hours per week. There is also a concession made for part-time lecturing.

In principle though, the Malaysian government do not want mm2h visa holders to take employment away from Malaysians. Of course e-migrator would not be doing that, and so however many hours he spends trading per week (whether less or greater than 20, there should not be a problem.

InVinoVeritas

That is quite correct but if you ask around it seems that few if any on MM2H have received permission to work part time.

teejaydee

Regarding working for an offshore company, the key question here would seem to be where control of the company is held. The company may be registered in BVI for example, but could be deemed to be controlled from Malaysia due to one of the directors (e-migrator) being resident there, and the company's income being generated from Malaysia (through e-migrator's trading activities). If the company was to be deemed Malaysian controlled, it would presumably be taxed the same as a Malaysian company.

Regarding trading on Bursa Malaysia, it is allowed, but is taxable. In practice this means not mm2h are likely to invest or trade on foreign exchanges.

I have no doubt a work permit is easier to obtain than an mm2h visa. The only thing is the work permit has to be renewed every two years (as confirmed by jackblack) via a personal visit to Labuan, whereas the mm2h visa last for ten years.

Quite true, and of course tax rule change from time to time, which adds further complication .