Date: Sunday 20-Apr-14


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Invest in Malaysia

Banking, Finance and Exchange Administration

4. Labuan Financial Services

4.1 Labuan Offshore Financial Service Authority (Labuan FSA)

Labuan Financial Services Authority (Labuan FSA) is the statutory body responsible for the development and administration of the Labuan International Business and Financial Centre (Labuan IBFC). Investors wishing to establish their businesses in the Labuan IBFC may deal with Labuan FSA, a one-stop agency which licenses and regulates entities operating in or out of the Labuan IBFC.

The functions of the Labuan FSA are guided by the following three main objectives:
(i) to promote and develop Labuan as an international centre for business and financial services;
(ii) to develop national objectives, policies and priorities for the orderly development and administration of the international business and financial services in Labuan; and
(iii) to act as the central regulatory, supervisory and enforcement authority of the IBFC in Labuan.
The Labuan IBFC Incorporated Sdn Bhd (Labuan IBFC Inc) serves as the marketing arm of Labuan FSA to promote the products and services of the jurisdiction. It has a team of specialists to provide technical advice in the areas of international tax, fund management, wealth management, insurance and Islamic finance.

 

4.2 Business Activities of Labuan IBFC

Labuan IBFC offers a comprehensive financial solution in both conventional and Shariah-based principles products and services include banking, insurance and insurance-related products, takaful / retakaful, leasing, trust administration and capital raising.

Since the enhancement of the legislative framework in 2010, the IBFC has further diversified its offer of niche products covering captive, foundation, wealth management and shipping operations under the Malaysia International Ship Registry initiative. A wide range of cost-effective business structures such as the Labuan Holding Company, Labuan Protected Cell Companies, Labuan Limited Liability Partnership and Special Trust are also available. Having revised its fee structures in 2010, the IBFC has emerged as one of the most competitive jurisdiction in the Asia Pacific region.

The Labuan International Trading Company introduced in 2011 under the Global Incentive For Trading Program provides incentives to enable international trading companies involved in oil and gas to tap on the huge market potential and maximize their return of investment from Labuan and its surrounding region.
The Labuan International Financial Exchange (LFX) complements the traditional banking facilitiesthrough its offer of full-fledge capital raising services with unlimited access to international markets through the activities of listing, trading and settlement of financial instruments.

4.3 Business Incentives in the Labuan IBFC

Business activities undertaken by Labuan companies are categorised as trading and non-trading activities. Trading activities include banking, insurance, fund management, leasing, money broking and other trade related business. Whereas non-trading refers to activities relating to holding of investments in securities, stocks, shares etc.

(i) Competitive Tax Structure

•Under the Labuan Business Activity Tax Act 1990, a Labuan entity carrying on Labuan
trading activity may elect to pay tax each year at the rate of 3% of its audited net profits or pay a fixed tax of RM20,000. There is currently no tax imposed on a Labuan entity conducting non-trading activities.

•A Labuan entity carrying on a Labuan business activity could also make an irrevocable election to pay tax under the Income Tax Act 1967. This would not only give Labuan entity more flexibility to structure their business transactions effectively, but also create a more favourable tax conditions for the investors operating in or through the Labuan IBFC.

•A Labuan entity could also pay Business Zakat in lieu of tax.

(ii) Tax Exemption for Labuan Entities Under the Income Tax Act

The government has granted tax exemptions to further entice investors and professional services to
establish their presence in Labuan, where the following exemptions are available for the Labuan entities under the Income Tax Act 1967.

•Dividends paid to a resident or a non-resident person by a Labuan entity.

•Dividends received from a Malaysian domestic company, which are paid out of dividends received from a Labuan entity.

•100% tax exemption on fees paid to a non-citizen Director.

•Distribution by Labuan foundation and partnerships to beneficiaries and partners.

•Labuan entities are exempted from withholding tax on the following:

-Interest paid to a resident person or a non-resident who is not engaged in the business of banking, finance or insurance in Malaysia.

-Interest paid to a non-resident person or another Labuan entity.

-Lease rental paid to non-resident by a licensed Labuan leasing entity.

-Technical or management fee paid to a non-resident or another Labuan entity.

-Royalty to a non-resident person or another Labuan entity.

-Payment of fees paid to a non-resident under Section 4(f) of Income Tax Act 1967.

-Distributions made by a Labuan trust to non-resident beneficiaries.

-Distributions made by a Labuan foundation or a Labuan Partnership to the beneficiaries and partners

•Tax Exemptions for Qualifying Professional Services and Employment

-Any person or his employee or a company rendering qualifying professional services to a Labuan entity in Labuan is exempted from income tax of up to 65% of the statutory income. Qualifying professional services includes legal, accounting, financial and secretarial services.

-Non-citizens employed in a managerial capacity in a Labuan entity, working in Labuan and
co-located / marketing office (as approved by Labuan FSA) enjoy an income tax exemption
of up to 50% of gross employment income.

-50% tax exemption on Labuan and housing allowances paid to Malaysian employee working in a Labuan entity.

•Stamp Duty Exemption

All documentation executed by any Labuan entity in relation to Labuan business activities
(including M&A and transfer of shares of a Labuan company and constituent documents of a
Labuan trusts, partnerships and foundations) are exempted from payment of stamp duty.

For more information on Labuan FSA, please visit http://www.labuanfsa.gov.my


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