Labuan IBFC’s insurance industry continues its vibrant growth in the past few years. Comprising not just reinsurers and direct insurers, Labuan IBFC also provides unique underwriting vehicles in the form of captives. Aside from conventional (re)insurance services, Labuan IBFC also offers Islamic (re)insurance, also known as (re)takaful, for those seeking Shariah-compliant protection. Other insurance-related businesses such as Insurance brokers, underwriting managers as well as insurance managers complete the supply chain by offering the needed services within the sector.

A Labuan insurance business is defined as an insurance business that is transacted in foreign currency and includes general, life, reinsurance, Labuan takaful and retakaful windows and captive insurance.

DEFINITION OF LABUAN REINSURANCE BUSINESS

An insurance business whereby the reinsurer assumes a part of the liability under an original contract of insurance of another insurer or reinsurer. A Labuan reinsurer may be conducting either a general or life reinsurance business.

DEFINITION OF LABUAN RETAKAFUL BUSINESS

A business in compliance with Shariah principles whereby the Labuan retakaful operator assumes a part of the liability under an original contract of takaful of another takaful operator or retakaful operator.

APPLICATION FOR LABUAN REINSURANCE LICENCE

Application for a licence to carry out Labuan Insurance and Insurance-related activities can be made to the Director General of Labuan FSA.

The setting up of takaful or retakaful windows do not require a separate licence and there is also no additional licence fee involved. Labuan retakaful operators are expected to observe the objectives, management and activities of investments are in compliance with Shariah principles at all times.

Kensington Trust Labuan Limited is a licensed trust company in Labuan and may assist you with license application, establishment and administration of your Labuan Company or branch.

LICENSING AND OPERATIONAL REQUIREMENTS

1. The Labuan licensed entity must be a member of the Labuan International Insurance Association.
2. The Labuan licensed entity must provide a letter of guarantee or undertaking from the parent company to Labuan FSA.
3. The Labuan reinsurance entity must establish:
   • an operational management office in Labuan with minimum three (3) full time employees in Labuan and minimum annual operating expenditure of RM200,000 in Labuan. The management team must have adequate knowledge and expertise in the insurance business; or
   • appoint a licensed Labuan underwriting manager.
4. Appointment of any person in control, director or principal officer (PO) of a Labuan reinsurer must obtain prior approval from Labuan FSA. Notwithstanding, Labuan reinsurers that are established as a branch are not required to obtain approval on the appointment of their directors.
5. The person in control, director and PO of a Labuan reinsurer must be fit and proper persons and shall not be subject of any adverse report from any reliable sources.

ANNUAL LICENCE FEE REQUIREMENTS

CAPITALISATION / WORKING FUND AND SOLVENCY REQUIREMENTS

Notes:

¹ The surplus of assets is to be maintained by the branch licensee in the books of its office in Labuan.

The Labuan licensed entity must maintain a minimum paid-up capital or working funds as required above with a bank in Labuan.

“Capital requirement” and “Capital adequacy” shall be applied to the insurance licensees of subsidiary and branch set-ups as illustrated below:-

The term “unimpaired by losses” means that the paid-up capital amount and/or working funds shall be maintained at all times and shall not be impaired by any losses. In the event it is impaired, further capital injection is required to restore it to the required level.

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

Pursuant to the Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2021 that took effect on 1^st January 2019:

• Labuan trading activity has been restricted to license business activities and selected type of trading activities only. Please refer to the above Regulations 2021.
• Labuan non-trading activity has been restricted to holding company, namely Pure Equity Holding and Non-Pure Equity Holding.

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 Reinsurance Company will need to comply with the substance requirements of minimum number of three (3) full time employees in Labuan and minimum annual operating expenditure of RM200,000 in Labuan.

DEALINGS WITH RESIDENT

All Labuan entities may conduct transactions with Residents of Malaysia in Ringgit Malaysia except for:

• Issuing or offering to any Residents of Malaysia for subscription or purchase; or
• Invite any resident to subscribe or purchase

any interest pursuant to the relevant provisions of the Interest Schemes Act 2016 where such issue or offer or invitation is made in Malaysia, other than Labuan, unless the provisions of the Interest Schemes Act 2016 are complied.

“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 paragraph 214(6)(a) of the Financial Services Act 2013 and paragraph 225(6)(a) of the Islamic Financial Services Act 2013.

The amount of deductions allowed in respect of payments made by Residents to Labuan entities are as follows:-