Factoring business means the business of acquiring debts to any person or institution at a discount or such other business as approved by Labuan FSA. The Labuan factoring business is governed by the Labuan Financial Services and Securities Act 2010.
APPLICATION FOR LABUAN FACTORING LICENSE
Any person intending to undertake factoring activities may submit an application to Labuan FSA.
Kensington Trust Labuan Limited is a licensed trust company in Labuan and is able to assist you with license application, establishment and administration of your Labuan company.
WHO IS ELIGIBLE TO APPLY?
An applicant should meet the following minimum eligibility criteria:
- A factoring company registered under the Malaysia Banking and Financial Institutions Act 1989;
- A special purpose vehicle (SPV) set up to facilitate inter-company factoring transactions.
- Substance requirements under Labuan Business Activity Tax Regulations 2018:
A Labuan factoring company will need to comply with the substance requirements of minimum number of two (2) full time employees in Labuan and an annual operating expenditure in Labuan of RM100,000.
- Must maintain capital sufficient to manage the company's daily operations.
- Must conduct its business with due diligence and sound principles and comply with the local laws and regulations where it services its clients.
- To indicate clearly its name on its letterhead, stationery and other documents.
- Appoint approved auditor.
- To submit to Labuan FSA within three months after the close of each financial year, one copy of its audited annual balance sheet and profit and loss account.
- To provide statistics and information as required by Labuan FSA in relation to prudential information, general business conduct and volume and direction of business in Labuan.
- Must notify Labuan FSA of any change to its constituent documents, shareholdings, management or business plan; and
- Must comply with any other requirements issued by Labuan FSA from time to time.
LABUAN FACTORING LICENSE FEES
- License processing fee (once-off)
- Annual license fee
The annual license fee is payable when the license is approved by Labuan FSA and remains valid until 31 December of the year of approval. All licensees are required to pay to Labuan FSA subsequently the annual license fees on or before 15 January of each calendar year.
LABUAN IBFC TAXATION SYSTEM
- Labuan Business Activity Tax Act 1990 (“LBATA”) governs the imposition, assessment and collection of tax on a Labuan business activity carried on in, from or through Labuan.
- “Labuan business activity” means:
- a Labuan trading or a Labuan non-trading activity carried on in, from or through Labuan,
- excluding any activity which is an offence under any written law.
- “Labuan trading activity” includes banking, insurance, trading, management, licensing, shipping operations or any other activity which is not a Labuan non-trading activity. The Labuan entity shall pay 3% of net profits as per audited accounts.
- “Labuan non-trading activity” means 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. Such activity is not subject to tax under LBATA.
- Labuan companies carrying on both Labuan trading and non-trading activities will be deemed to be carrying on Labuan trading activities. Hence, it will have the same tax treatment as those undertaking Labuan trading activity mentioned above.
- Labuan entities that carry on a non-Labuan business activity are subject to the provisions of the Malaysian Income Tax Act, 1967 (ITA).
DEALINGS WITH RESIDENT
All Labuan entities are allowed to conduct transactions with residents of Malaysia in Ringgit Malaysia as long as it is not an offence under any written laws in Malaysia. “Resident” here means:
- in relation to a natural person, a citizen or permanent resident of Malaysia; or
- in relation to any other person, a person who has established a place of business, and is operating in Malaysia.
- and includes person who is declared to be a resident pursuant to s.43 of the Malaysian Exchange Control Act 1953.
The amount of deductions allowed in respect of payments made by Residents to Labuan entities are as follows:-
|> Interest expense||67% deductible|
|> Lease rental||67% deductible|
|> General reinsurance premiums||100% deductible|
|> Other type of payments||3% deductible|
ADVANTAGES AND KEY BENEFITS OF LABUAN FACTORING BUSINESS
- ZERO withholding tax on payments of dividend and interest to non-residents.
- No stamp duty on all instruments relating to offshore business activities including share transfer.
- No import duty / sales tax.
- No foreign exchange controls.
- No capital gain tax / inheritance tax.
- Double Tax Agreements between Malaysia and over 70 countries.
- 50% tax abatement for expatriate professionals and managers employed under Labuan companies.
- 100% exemption for director’s fees received by non-citizen directors of Labuan companies.