A Labuan fund manager carrying on fund management activities are regulated under the Labuan Financial Services and Securities Act 2010 (“LFSSA”) or Labuan Islamic Financial Services and Securities Act 2010 (“LIFSSA”).
A Labuan fund manager is defined as:
a person, for valuable consideration, provides management services which may include investment advice or administrative services in respect of securities for the purposes of investment, including dealing in securities. For a Labuan fund manager undertaking Islamic fund management activities, its operation shall also comply with Shariah principles.
APPLICATION FOR FUND MANAGER LICENSE
Any person intending to undertake fund management 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 individual who holds a relevant degree or professional qualification to carry on fund management activities. Labuan FSA may also consider an applicant with at least minimum qualification of diploma holder and 3 years’ relevant experiences in capital market or direct experiences in fund management activities;
- An approved fund manager or any provider of such services from a country or jurisdiction who is a member of the International Organization of Securities Commission (IOSCO); or
- A person who does not fulfil the above may also be considered, provided that the fund management activities are run and managed by suitably qualified and experienced individuals.
- Maintain a paid-up capital unimpaired by losses of at least RM300,000 equivalent in any foreign currency throughout its operations. Where the Labuan fund manager has Asset Under Management (AUM) of more than RM150 million, it must maintain additional capital equivalent to 0.2% of the AUM in excess of RM150 million.
- Maintain a professional indemnity insurance policy with coverage of not less than RM1 million or its equivalent in any foreign currency throughout its operations.
- Substance requirements will be required to maintain an appropriately furnished operational office in Labuan for business purposes.
- May apply for marketing office outside of Labuan in Malaysia.
- Directors, principal officer and persons in control must be ‘fit and proper’ persons. The Labuan fund manager must have at least two directors.
- Established adequate set of internal policies and controls for its operations, compliance, corporate governance and risk management.
- Ensure segregation of clients’ assets as stipulated under LFSSA and LIFSSA.
- Appoint approved auditor in Labuan.
- Submission of audited financial statements and other statistics/information to Labuan FSA.
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 entities that carry on a non-Labuan business activity are subject to the provisions of the Malaysian Income Tax Act, 1967 (ITA).
> “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.
SUBSTANCE REQUIREMENT UNDER LBATA (with effect from 1st January 2019)
> Pursuant to section 2B(1) (b) of LBATA, the Labuan entities shall, for the purpose of the Labuan business activity, have :-
- an adequate number of full time employees in Labuan; and
- an adequate amount of annual operating expenditure in Labuan, as prescribed by the Minister by regulations made under this Act.
> Section 2B (1A) of LBATA provides that a Labuan entity carrying on a Labuan business activity which fails to comply with the substance requirement for a basis period for a year of assessment shall be charged to tax at the rate of twenty four per cent (24%) upon its chargeable profits for that year of assessment.
> To benefit under LBATA, a Labuan Fund Manager 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
DEALINGS WITH RESIDENT
All Labuan entities are allowed to conduct transactions with Residents of Malaysia in Ringgit Malaysia subject to the filing of a notification to Labuan FSA within 10 days from the transaction effective date. “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||75% deductible|
|> Lease rental||75% deductible|
|> General reinsurance premiums||100% deductible|
|> Other type of payments||3% deductible|
LABUAN FUND MANAGER LICENSE FEE
Processing Fee (once-off)
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.
ADVANTAGES & KEY BENEFITS OF LABUAN FUND MANAGER
- 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.
- 100% exemption for director’s fees received by non-citizen directors of Labuan companies.
(Last updated on January 2020)