Rise of Fintech in Malaysia

Rise of Fintech in Malaysia

A lucrative industry – Fintech is both in demand and booming with uprising financial systems and progressions in technology. The most popular services presently trending in Malaysia are online payments and mobile wallets, along with many regional fintech connoisseurs, arduously working to increase their own portfolio and develop distinctive products for local consumption.

Ever since the adoption of fintech technology in Malaysia, the interest from the local government to pursue this profitable industry is proving as a real game changer. With a significant rise in cell phone penetration rates, the government has been immensely supportive to uplift the growth and development of the fintech industry rapidly as the new generation of cell phone users can benefit from the access to fintech and begin employing it to their routined lifestyle.

Value Propositions

  1. Cost-Effective

The price of sustenance and even conducting business is so ever affordable in Malaysia, which is a third of having the same in Singapore, which might see more organisations pushing non-client facing jobs such as operations, marketing and technology support to be based out of Malaysia.

  1. Pioneer in Islamic Finance

Islamic finance in Malaysia has developed into a comprehensive and sophisticated Islamic finance marketplace. Our marketplace, with over 30 years in Islamic offering, is characterised by a robust regulatory, supervisory, Shariah and legal framework, a deep primary market and active secondary sukuk market, a diverse players and talent base with global capabilities and connectivity for business deals anywhere in the world, product innovation, breadth and depth and an efficient system for multi-currency clearing and settlement. Malaysia’s Islamic finance marketplace is open to global industry players and market participants to collaborate with and mutually benefit from a highly conducive business environment of innovation, expertise and deal flow.

Malaysia being the global hub for Islamic finance, with the industry total assets reaching USD 204.4 billion, it has been recognised as the most developed Islamic financial market for five consecutive years by leading experts. Additionally, the growing Muslim population in ASEAN region has resulted in a growing demand for development of fintech in respect to Shariah-compliant investment-related products, particularly in Malaysia and Indonesia. In this context, Malaysia has appeared as the world’s No. 1 hub for Islamic fintech start-ups, and has inadvertently been awarded the label for housing the world’s top organisations in Islamic financing.

Hence, with experts that are proficient in Islamic finance, along with its well developed Shariah-compliant finance infrastructure and ecosystem, Malaysia is most ideal and suitable to host and establish Islamic fintech start-ups and initiatives, and furthermore to become a versatile regional hub which can provide both conventional and Islamic fintech support.

  1. Labuan International Business and Financial Centre (Labuan IBFC)

Labuan is the only place in South East Asia which offers two separate regulatory frameworks for international businesses. As an international mid-shore and low-tax jurisdiction, Labuan IBFC has a comprehensive, contemporary and globally-recognised regulatory framework, which follows international standards and compliance while still keeping up with an attractive and favourable tax rate of 3%. Labuan IBFC offers a distinctive and unique proposition for organisations, including fintech.

Fintech Business in Labuan

Setting up and operating a business in Labuan is simple, flexible and cost-effective, in comparison to other jurisdictions like Hong Kong and Singapore. A business set up in Labuan can benefit from minimum corporate tax of 3% on its net profits per year and enjoy specific tax exemptions, like no withholding tax on lease rentals, dividends, interests, royalties, technical and management fees and stamp duty exemption on instruments performed by a Labuan entity made in association with a Labuan business activity.

In connection to fintech and digital services, Labuan IBFC has adopted a distinctive style to IFS (International Financial Services) and specific license is required for businesses that involves solicitation of third party’s fund to operate certain IFS-related business in Labuan and is required to apply to function as a Labuan-licensed entity under the Labuan Financial Services & Securities Act 2010 or the Labuan Islamic Financial Services & Securities Act 2010.

In 2018, Labuan FSA has approved four IFS-related Labuan entities comprising Algebra, Asia’s first robo-adviser to provide Shariah-compliant investments, and HWG Cash, Asia’s first stable and secure licensed cash token that provides cryptocurrency services out of Labuan. Furthermore, Labuan FSA has also newly approved China Construction Bank Corporation Labuan Branch, a licensed Labuan bank to perform digital banking activities in the Labuan IBFC.

Therefore, the mentioned instances reflect the start of a fascinating journey which will additionally strengthen Labuan IBFC’s placement as the preferred jurisdiction for businesses looking to associate with Asia’s economies and further too.

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Labuan Vehicle for Foreign Funding

Recent amendments under the Finance Act 2018 has eliminated the restriction on transaction done by Labuan entities with Malaysian residents and has since allowed transaction in Malaysia Ringgit (MYR). The proficiency to handle both MYR and non-MYR for the advantages of businesses, particularly for start-ups, is distinctive as no other countries in ASEAN are able to do that.

Thus, the distinctiveness of Labuan’s regulatory framework will permit fintech start-ups, SMEs, development and scalable organisations to set their foot on foreign investments and funds.

A fund set up in Labuan would not be subject to onshore Malaysia’s exchange control regulations when dealing with non-residents and would not have any issue to invest into domestic companies in Malaysia. Furthermore, foreign investors are free to remit divestment proceeds, profits, dividends or any income arising from investments in Malaysia and no income tax and withholding tax will be imposed on any dividend or distribution from the Labuan fund to the investors.

Find out: How Foreigners are Leveraging Asian Businesses via Labuan

Investment Holding Entity in Labuan

The preferred investment and tax regime, along with its exceptional regulatory framework makes Labuan IBFC an attractive destination to set up a holding company. A Labuan holding company which receives its investment income from a non-trading activity (i.e. holding of investment in securities, stock, shares, loans, deposits or any other properties located in Labuan by a Labuan entity on its own behalf) is not subject to tax under Labuan laws. Additionally, a Labuan holding company is able to enjoy particular tax exemptions like stamp duty exemption on any instruments performed by the Labuan holding company in regard to its non-trading activity, and exemption from withholding tax on any payments of dividends, interest, service fees and royalties made by such Labuan holding company to non-resident/foreign company.

Read more: What is an Investment Holding Company and How to Set Up an Investment Holding Company

A Labuan holding company will not be subjected to Malaysia’s exchange control regulations when dealing with non-residents and are free to invest in any form of MYR and non-MYR investments in Malaysia. Likewise, it is permitted to remit out divestment proceeds, profits, dividends or any income emerging from investments in Malaysia. Furthermore, the Malaysian government and regulatory authorities are usually in support and promote the development of the fintech ecosystem in Malaysia. Find out how to setup your fintech business by connecting with our QX Trust team of consultants at +60 3 9212 6940 or consultant@qx-trust.com.