What makes Labuan IBFC Unique?

What makes Labuan IBFC Unique?

Labuan Financial Services Authority (Labuan FSA) was founded in 1996 as a statutory body, responsible for the development and administration of the Labuan International Business and Financial Centre (Labuan IBFC). Labuan IBFC supports the Malaysian financial services sector with its provision of multifarious product or services further to strong governing and supervisory regime which is determined in line with international standards and ideal practices.

Labuan IBFC possesses a broad range of business and investment structures aiding with cross-border transactions, offshore company incorporations and wealth management needs. These distinctive qualities provide persistent substitutes for regional organisations going international or worldwide organisations’ expansion to Asia’s developing markets.

Strategically situated in the heart of Asia Pacific, Labuan IBFC is well positioned and part of the fastest developing country in this region, offering abundance of opportunities for organisations seeking to connect with Asia’s economies and further.

Read more about: Private Wealth Management

Main Functions

Exchange Controls

Contrary to the other parts of Malaysia, Labuan has no exchange regulations. Hence, all transactions can be done in foreign currencies via Labuan’s competent banking system. Labuan entities are also allowed to perform business in Malaysian Ringgit (MYR).

Chief Legal Formation

One of the main benefits of Labuan as a whitelist offshore jurisdiction is its robust legal system, taking on the common English law. Labuan’s legal framework authorises the Labuan FSA to administer, license and offer for the setting up of all Labuan entities taking part in the international business and financial centre. The jurisdiction’s tax provisions are included within the Labuan Business Activity Tax Act 1990 (LBATA).

Company Law Structure

In Labuan, 100% foreign ownership is allowed. A company can be setup by one or more stakeholders, that can be corporate entities or individuals, of any nationality or residency. The company can have one or more directors appointed (either natural or corporate persons) and there are no specifications related to their nationality or residency.

All Labuan companies must utilise a Labuan trust company offering the registered address and resident secretary service. Companies must also maintain their books and records at their registered office.

Distinctive Needs in Islamic Wealth Management

With its complete suite of Islamic wealth management frameworks and solutions, impactful regulatory standards, a Shariah Supervisory Council (SSC) and coadjutant business atmosphere, Labuan IBFC is well-positioned to manage the requirements of the global Islamic wealth management industry.

Solutions like private foundations, waqf foundations, Islamic trusts and private trust companies and as a complete raft of Islamic fund management vehicles surely expedite wealth management requirements for a developing Islamic ummah.

Underpinning these progressive frameworks is Labuan IBFC’s extensive infrastructure with committed legislations, Shariah governance and financial incentives for Shariah-compliant financial transactions offering an assistive and versatile structure for industry players. Therefore, this creates a facilitative foundation from which industry practitioners are able to undertake advanced solutions to match personalised needs and specifications, particularly in order to match the outlooks of UHNWIs.

In Labuan IBFC, Shariah compliance is supported by the Labuan Financial Services Authority’s Shariah Supervisory Council (SSC) including leading global Shariah scholars and practitioners. This is one of the key advantages as opposed to other likely bodies in different jurisdictions, Labuan IBFC’s SSC takes on a managerial role, not solely advisory, and therefore SSC rulings are able to be employed as reference in the court of law.

In encouraging the development of Islamic wealth management, Labuan IBFC also provides a profitable atmosphere for global Islamic banking and Retakaful (Islamic Reinsurance) players to function. It is home to several Islamic private funds with net asset value of USD 1 billion inclusive of other private equity funds, global Sukuk funds, infrastructure funds and money market funds from several countries including Malaysia, Kuwait and South Korea.

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Attractive Tax Management

Labuan has a basic tax framework which entails Labuan business activity executed by a Labuan entity in, from or through Labuan. Tax is charged at a rate of 3% for a year of assessment on the net audited profits of a Labuan entity exercising a Labuan business activity that is a Labuan trading activity.

There is no capital duty or stamp duty, that provides to making transaction costs lesser. The LBATA also offers that a Labuan entity exercising on a Labuan business activity which is a Labuan non-trading activity will be exempted from tax in Labuan. A Labuan non-trading activity comprising an activity relating to the holding of investments in securities, stock, shares, loans, deposits or any other properties by a Labuan entity on its own behalf.

Payments to Non-Residents

Labuan does not levy any applicable withholding taxes on payments to non-resident individuals. This comprises of payments of dividends, interest, royalties and directors’ fees.

Entry to Tax Treaties

It is presently vague whether Labuan entities, that are taxed under the LBATA, have availability to Malaysia’s tax treaties network. Certain tax treaties like the Malaysia-Japan tax treaty especially exclude entities which are taxed under the LBATA from treaty advantages. Although, for treaties which are silent on this matter, Labuan entities can be able to attain treaty advantages.

Unalterable Election to be taxed under ITA

A Labuan entity can make an unalterable election for its benefits to be taxed under the Malaysian Income Tax Act 1967 (ITA). Therefore, the Labuan entity will be subjected to the provisions of the ITA for its tax matters rather than the LBATA.

Substance Enabler

Labuan is the only offshore jurisdiction in Asia which possesses its own offshore laws and is a whitelist offshore jurisdiction which complies to the new economic substance requirements that is the new norm for offshore. Being able to proof your business is conducted in Labuan is crucial so as to avoid any issues proofing the same to the relevant authorities at a later stage.

For a better understanding of Labuan IBFC history or Labuan FSA guidelines as well as how would your business be able to leverage on the Labuan offshore tax framework, internationalise your business especially to Asia and start planning for your business succession; kindly reach out to the QX Trust consultants at +60 3 9212 6940 or consultant@qx-trust.com for a complimentary consultation today.