Revised guidelines for Labuan companies carrying out leasing business (including Islamic leasing business) in Labuan IBFC effective on 1 January 2019 was issued by the Labuan Financial Services Authority (“FSA”) on 5 March 2019. This Guidelines is not applicable for the underlying leasing transactions which are done for the purpose of facilitating the issuance of Sukuk Al-Ijarah. However, leasing structure structured by way of ijarah shall observe all the requirements of the Guidelines.
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, regardless whether the letting is with or without an option to purchase the property. “Property” may include plant, machinery, aircrafts, ships (bare-boat basis) or other chattel attached or to be attached to the earth.
APPLICATION FOR LEASING LICENSE
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.
- Sufficient and positive capital or working funds which commensurate with the business operations at all times. Considerations shall include but not limited to the following factors:
- Volume of the business;
- Value of the asset leased; and
- Leasing arrangement i.e. operating or finance lease
- 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.
- Maintain adequate and proper records and accounts.
- Appoint approved auditor in Labuan.
- Maintain bank account(s) preferably in Labuan IBFC and/or Malaysia to facilitate leasing operations.
- 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.
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.
> With effect on 1 January 2019, Labuan leasing company has to establish substantial activity requirements in Labuan. Substance requirements shall include but not limited to the following factors:-
- Physical presence: Maintain operational office in Labuan;
- Employment: Minimum two (2) full-time employees;
- Key leasing activities: Core income generating activities are to be carried out from the Labuan office; and
- Annual business spending: Incur annual minimum operating expenditure in Labuan of RM100,000
TYPICAL LABUAN LEASING STRUCURE
PRIOR APPROVAL REQUIRED FROM LABUAN FSA
- Each new and subsequent leasing transactions including any change of lessee(s) and leased asset(s);
- Change of shareholders of more than 10%; and
- Appointment of directors
NOTIFICATION TO LABUAN FSA WITHIN 30 DAYS
- Change of place of business or office;
- Change of constituent documents and business plan including change of company’s name; and
- Termination/extension of any leasing transactions.
REPORTING TO LABUAN FSA
- Submit audited financial statements within six months from financial year end.
- Statistics, Compliance reporting and other information required by Labuan FSA.
LABUAN FSA LEASING FEES
Fees are payable to Labuan FSA to undertake Labuan leasing business dealing with Malaysian resident and non-Malaysia resident. Annual licence fee is payable latest by 15 January of each year.
Type of fees:
- Non-refundable processing fee of USD350 (once-off)
- Annual license fee of USD20,000
- Each subsequent approved lease transaction of USD6,000
ADVANTAGES & KEY BENEFITS OF LABUAN LEASING BUSINESS
- Labuan leasing company is taxed at 3% of net audited profits.
- ZERO withholding tax on payment of dividend, interest, lease rentals to non-residents.
- No foreign exchange controls.
- No import duty / sales tax.
- No capital gain tax / inheritance tax.
- Strategically situated in the Asia Pacific region and sharing a common time zone with many large Asian cities.
- Double Tax Agreements between Malaysia and over 70 countries.
- 100% exemption for director’s fees received by non-citizen directors of Labuan companies.