Labuan International Business and Financial Centre (IBFC), located in Malaysia is strategically located in the heart of the Asia Pacific region, sharing a common time zone with many major Asian cities, complementing the financial centres of Hong Kong, Singapore and Shanghai.
Its regulator, Labuan Financial Services Authority (Labuan FSA) promotes a robust, modern and internationally recognised regulatory regime.
Labuan IBFC boasts Asia’s widest range of business and investment structures for cross border transactions, business dealings and wealth management needs.
It also offers straightforward and simple tax framework and with access to Malaysia’s extensive double tax treaty network with more than 70 countries.
Malaysia is a leader in Islamic finance and Labuan IBFC is the pioneer amongst international centres by having the world’s first omnibus legislation governing Islamic finance transactions in an international business and financial centre.
WHERE IS LABUAN?
LABUAN IBFC PRODUCTS AND OFFERINGS
Labuan IBFC’s comprehensive legal framework provides for a wide range of legal entities and varies choices of products & offerings.
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 by a Labuan entity 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
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 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 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.
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.
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|
WHY LABUAN INTERNATIONAL BUSINESS AND FINANCIAL CENTRE (IBFC)
- Strategically located in Malaysia, sharing common time zone with major Asian cities, complementing financial centres of Hong Kong, Singapore & Shanghai.
- A leading business and financial centre in Asia Pacific with growing reputation and track record.
- Striking an ideal balance between client confidentiality and compliance with international best standards.
- Robust and well-balanced legal and regulatory framework.
- A tax-efficient jurisdiction to facilitate businesses.
- Access to Malaysia’s double taxation treaty network with more than 70 countries.
- A complete range of solutions for business and investment structures for cross border transactions, business dealings and wealth management needs
LABUAN IBFC POPULAR USES
Labuan Investment Holding
Labuan Islamic Finance
Labuan Captive Insurance
Labuan Private Fund
- MAXIMUM 50 INVESTORS
First time investment by each investor is NOT LESS than RM250,000 (equivalent in Non-Ringgit);
UNLIMITED NUMBER OF INVESTORS
First time investment by each investor is NOT LESS RM500,000 (equivalent in Non-Ringgit)
- Not offered to general public.
- Fund manager need not be licenced.
- No approval required from Labuan FSA.
- Notification to Labuan FSA prior to launching of fund by submission of fund offering documents.
- Common types of fund vehicles:
Ordinary shareholder & Preference shareholder(s)
General Partner & Limited Partner(s)
Trustee & Unitholder(s)
- Support multiclass fund – multi currency / asset class.
- ZERO withholding tax on payments to non-residents.
- No stamp duty on all instruments relating to offshore business activities including share transfer.
- No foreign exchange controls
- No capital gains tax / inheritance tax.
- Stamp duty on all instruments executed by Labuan entity in connection with Labuan business activity, including M&A and transfer of shares instruments in Labuan entity.
- Dividends received from Labuan entities.
- Distributions received from Labuan trusts and foundations by the beneficiaries.
- Distributions of profits by Labuan partnerships.
- Interest received from a Labuan entity by another Labuan entity, resident or non-resident person (other than interest accruing to a business carried on by a non-resident person in Malaysia where that non-resident person is licensed to carry on business under the Malaysian Banking and Financial Institutions Act 1989, Islamic Banking Act 1983, Insurance Act 1996 or Takaful Act 1984).
OTHER ATTRACTIONS OF LABUAN IBFC
- NO Withholding Tax
- NO Capital Gains Tax
- NO Inheritance Tax
- NO Indirect Tax
- NO VAT / goods and services tax (GST)
- NO import duty / sales tax
- NO exchange control