The Global Incentives for Trading (GIFT) programme was established to encourage companies to use Malaysia as an international trading base for specified types of commodities to be conducted on in, from or through Labuan.
On 17 April 2020, the Labuan Financial Services Authority (“Labuan FSA”) issued a revised Guidelines on the establishment of Labuan International Commodity Trading Company (“LITC”) under the GIFT programme setting out the parameters relating to the establishment and operation of the LITC.
APPLICATION FOR LICENSE
Any person intending to undertake Labuan international commodity trading business under the GIFT programme may submit an application to Labuan FSA. Upon receiving approval from the Labuan FSA, the applicant is required to establish a LITC.
Kensington Trust Labuan Limited is a licensed trust company in Labuan and may assist you with application for LITC, establishment and administration of your LITC.
GLOBAL INCENTIVES FOR TRADING PROGRAMME
The GIFT programme is a framework of incentives for traders that are undertaking the trading of the following physical products and related derivatives, and use Malaysia as their international trading base to undertake international commodity trading business in Labuan IBFC.
- Petroleum and petroleum-related products including liquefied natural gas (LNG)
- Agriculture products
- Refined raw materials
- Base minerals and
In setting Malaysia as its trading base, LITC is expected to have some or all of the following functions in Malaysia:-
- Strategic management;
- Banking, finance and treasury management;
- Risk management;
- Market research and product portfolio development;
- Logistics management;
- Global procurement; or
- Marketing and sales planning.
- Sufficient capital or working funds that commensurate with its operations and activities.
- Establish its operational office, which can be anywhere in Malaysia but there will be requirements to comply with Substance in Labuan. Please read below.
- Business is conducted with both corporate governance and risk management & compliance frameworks in place.
- Principal Officer, Director(s) and Officer(s) responsible for the management of the company are fit and proper persons.
- Prior approval from Labuan FSA is required on any new changes relating to the business plan, Principle Officer, Directorship and Shareholding
- Appoint an approved auditor in Labuan.
LITC must comply with the following conditions after the granting of its licence and commencement of its business:
- Achieve minimum annual turnover of USD50 million;
- Incur minimum annual business spending of RM3 million payable to Malaysian residents in Malaysian Ringgit; and
- Employ at least three professional traders that fulfil the following requirements:-
- Principal officer or any person performing a senior management function.
- These professional traders shall be involved in any one of the following areas:
- Risk Management;
- Procurement; or
- Sales & Marketing.
- These professional traders shall be residents of Malaysia in a calendar year for the year of assessment under the Income Tax Act 1967 (ITA).
SUBMISSION TO LABUAN FSA
- Annual update submission form latest by 15 January of each year; and
- A copy of its audited financial statements within six (6) months after the close of each financial year.
FEES TO LABUAN FSA
- License processing fee: USD350 (one-off)
- Annual license fee: USD13,000
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. Subsequent payment of annual fee is payable not later than 15 January of every 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 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 International Commodity Trading company will need to comply with following requirements on the substance requirements in the following manner :-
Two (2) full time employees in Labuan and an annual operating expenditure of RM3,000,000 per entity in Malaysia (including minimum of RM100,000 in Labuan)
Please note that if all the 3 professional traders are not based in Labuan but at the operational office, these additional 2 full time employees based in Labuan can be at any level.
If there are more than 5 LITCs (within a group), the full time employees will be increased to 3 for every additional 5 LITC companies.
ATTRACTIONS OF GIFT PROGRAMME
- Corporate tax rate of 3% of audited chargeable profits
- Stamp duty exemption on all instruments for Labuan business activities.
- Tax exemption on dividends received by or from the LITC.
- Operational cost in Malaysia is substantially lower than in other commodities hubs across the world.
- World class storage facilities in Malaysia.