The Sultan's subsequent reoffering of Labuan to the company did not result in the establishment of a permanent British settlement on the island either.

Captain Rodney Mundy acquired the island for Britain through the Treaty of Labuan with the Sultan of Brunei, Omar Ali Saifuddin II on 18 December 1846.

[8][18][19] The main reason why the British acquired the island was to establish a naval station to protect their commercial interest in the region and to suppress piracy in the South China Sea.

[22] The island became a Crown Colony in 1848 with James Brooke appointed as the first governor and commander-in-chief, with William Napier as his lieutenant-governor.

[24] The company was formed to exploit coal deposits on the island and adjacent coast of Borneo but soon became involved in a dispute with James Brooke.

[6][25][26] Not proving itself a great commercial or strategic asset, administration of Labuan was handed to the British North Borneo Company in 1890.

[11][12] In World War II, Labuan was occupied by Japan from 3 January 1942 until June 1945 and garrisoned by units of the Japanese 37th Army, which controlled Northern Borneo.

Maeda was killed in an air crash at Bintulu, Sarawak when en route to the island to open the airfield there.

[36] Soon, the 9th Division of the Australian Army launched the attack with support from airstrikes and sea bombardments until the capture of the Labuan airstrip.

[37][38] Most of the Labuan island area including the main town of Victoria was under the control of Allied forces within four days of the landing on 10 June.

Labuan Island is mainly flat and undulating; its highest point is Bukit Kubong at 148 metres (486 feet) above sea level.

The vigilance of the local Coast Guard and Customs and Excise contribute to the maintenance of Labuan's reputation and status as an international offshore financial centre and free trade zone.

The majority of Chinese people in Labuan are from the Hokkien dialect group (but has been since decreasing due to migration to the Peninsula as well as overseas); however, there are also many Hakkas, most of whom are migrants or descendants of migrants from mainland Sabah as well as local-born Hakkas, whom are settled for more than 2 to 3 generations in the island dating as long as the colonial period, in which they came as stopover migrants or traders before embarking to the mainland (even when it was still an only island offshore municipality within Sabah state jurisdiction from 1963 to 1984) as well as a negligible minority of Fuzhounese from neighbouring Sarawak, mostly working as government staff and those posted in the petroleum and gas offshore industries and to a lesser extent a large minority of Dayaks also from Sarawak who are resident here and their local-born descendants whom are mostly ethnically Iban with pockets of Bidayuh and Orang Ulu residents.

As of 2010[update] Census the population of Labuan is 76.0% Muslim, 12.4% Christian, 9.0% Buddhist, 0.4% Hindu, 2.1% follower of other religions, and 0.1% non-religious.

Virtually all of its commodities including crude oil, methanol, HBI, gas, flour, animal feed, sea products, and ceramic tiles are exported either to Peninsular Malaysia or overseas.

At the time it was established to strengthen the contribution of financial services to the Gross National Product (GNP) of Malaysia as well as to develop the island and its surrounding vicinity.

The jurisdiction, supervised by the Labuan Offshore Financial Services Authority or LOFSA, offers benefits such as 3% tax on net audited results or a flat rate of Malaysian Ringgit (MYR) 20,000 to trading companies; low operational costs; liberal exchange controls; and a host of other advantages including readily available, experienced and professional service providers.

[52] Labuan IBFC is embarking on an aggressive growth strategy to become the premier international business and financial centre in the Asia Pacific region.

Labuan's business focus is on five core areas: offshore holding companies, captive insurance, Shariah-compliant Islamic Finance structures, public and private funds, and wealth management.

Labuan IBFC's position is further enhanced by the launch of the Malaysian International Islamic Finance Centre initiative in August 2006.

Key infrastructure projects, such as road networks and public transportation systems, are less advanced nor extensive, resulting in significant traffic issues during peak hours, particularly in the early morning and evening commutes.

Labuan-Menumbok bridge aims to enhance connectivity and stimulate economic growth by providing a direct link between the island and the mainland.

This ferry service is a vital link for passengers and vehicles, providing a convenient and scenic route across the island's strait.

In May 2024, Prime Minister Datuk Seri Anwar Ibrahim emphasised the need to update existing technical studies to reflect the current situation, such as upgrading works at the terminal, which costed RM22 Million.

The Prime Minister said the estimated one-hour embarkation time could be reduced by addressing delays caused by immigration checks.

He emphasised that efficient services from local enforcement agencies were crucial in resolving congestion issues at the terminal, rather than relying solely on new infrastructure.

This includes British, Australian, Indian, Sarawakian, Bruneian, North Bornean, and Empire troops, with a total of 3,908 graves of fallen soldiers.