The Labuan Financial Services Authority (“FSA”) has issued new Guidelines for Labuan companies carrying out leasing business in Labuan IBFC. This Guidelines came into effect on 1 January 2018.
DEFINITION OF LEASING BUSINESS
It is the business of letting or sub-letting property on hire for the purpose of the use of such property by the hirer, whether the letting is with or without an option to purchase the property, including charters of ships (bare-boat basis). “Property” includes any plant, machinery, equipment or other chattel attached or to be attached to the earth.
WHO IS ELIGIBLE TO APPLY?
Any person intending to undertake leasing business in Labuan IBFC may apply to Labuan FSA for approval.
Kensington Trust Labuan Limited is a licensed trust company in Labuan and is able to assist you with license applications, establishment and administration of your Labuan entities.
TYPICAL LABUAN LEASING STRUCURE
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- Sufficient and positive capital / working funds which commensurate with the Labuan leasing business at all times.
- Directors and officers must be fit and proper person.
- Adequate set of internal policies and controls for its operations, compliances, corporate governance and risk management.
- All leased assets are adequately insured.
- Appointment of a Labuan approved auditor.
- Maintain bank account(s) preferably in Labuan IBFC and/or Malaysia to facilitate leasing operations.
- Lease agreement to be stamped and endorsed at the Stamp Duty Office of Inland Revenue Board of Malaysia, Labuan branch.
- Related party leasing transactions are conducted at arm’s length basis and are subjected to transfer pricing rules and guidelines issued by relevant authorities.
- Comply with applicable laws, rules, regulations and guidelines relevant to leasing business issued by Labuan FSA and where applicable, regulatory requirements of the jurisdictions where the Labuan leasing business is authorised to operate in.
- With effect on 1 January 2019, Labuan leasing company has to establish substantial activities and perform strategic functions in Labuan. Substance requirements shall include but not limited to the following factors:-
(a) Physical presence: Maintain operational office in Labuan for business purposes only and appropriately furnished with office equipment;
(b) Employment: Adequate number of full-time employees with necessary qualifications or experiences related to leasing business;
(c) Key leasing activities: Core income generating activities are expected to be carried out from the Labuan office; and
(d) Annual business spending: Incur adequate business spending in Malaysia including Labuan.
PRIOR APPROVAL REQUIRED FROM LABUAN FSA
- Each new and subsequent leasing transactions. No leasing transaction shall be undertaken prior to Labuan FSA’s approval.
- Establishment of office outside of Labuan.
- Establishment or acquisition of subsidiary.
- Change of lessee and leased asset.
- Change of shareholders of more than 10%.
- Appointment of new directors.
REPORTING TO LABUAN FSA
- Audited financial statements within 6 months from financial year end.
- Statistics and other information required by Labuan FSA.
ADVANTAGES & KEY BENEFITS OF LABUAN LEASING BUSINESS
- Leasing company in Labuan is taxable at 3% of net audited profits or a flat amount of RM20,000, upon election by the company annually.
- ZERO withholding tax on payment of dividend, interest, technical fee, royalty (lease rental) etc. to non-residents.
- No stamp duty on all instruments relating to offshore business activities including share transfer.
- No import duty / sales tax.
- No capital gain tax / inheritance tax.
- No foreign exchange controls.
- 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.
LABUAN FSA LEASING FEES
Fees are payable to Labuan FSA to undertake Labuan leasing business dealing with Malaysian resident and non-resident. Payment of annual licence fee is payable by 15 January of each year.
Type of fees:
- Annual license fee of RM60,000
- Subsequent approved lease transaction of RM20,000 each