Guidelines for money broking business that is carried on in the Labuan IBFC was issued by the Labuan Financial Services Authority (“FSA”) with effect from 1 January 2018.
DEFINITION OF MONEY BROKING BUSINESS
It is the business of arranging transactions between buyers and sellers in the money or foreign exchange markets as an intermediary in consideration for brokerage fees paid or to be paid. This DOES NOT include the buying and selling of Ringgit or foreign currencies as a principal in such markets.
PERMISSIBLE MONEY BROKING ACTIVITIES
Labuan money broking business is intended to serve institutional investors and high-net-worth individuals. The licensee is expected to -
- bring together the counterparties on mutually acceptable terms for the same financial products in money or foreign exchange market to facilitate the conclusion of a transaction;
- receive payment for its service in the form of brokerage or commission fees; and
- act as a mediator and is strictly not permitted to act as a principal(1).
(1) Principal will ‘deal for their own account and based on its own risk’. This Guidelines restricts position-taking by the money broker.
APPLICATION FOR MONEY BROKING LICENSE
Any person intending to undertake money broking activities may submit an application to Labuan FSA.
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.
WHO IS ELIGIBLE TO APPLY?
- An individual or institution with money broking expertise & has good track records, including sufficient number of experience(2); or
- A regulated money broker or any provider of such services from other jurisdictions with good track records in carrying on such business including sufficient number of experience(2); or
- Any licensed institutions including approved money broker under the Malaysia Financial Services Act 2013.
(2) Typically, Labuan FSA expects applicants to have a minimum of three years' experience in money broking business.
- Maintain minimum paid-up capital unimpaired by losses of RM500,000 or its equivalent in any foreign currency(3).
- Substance requirements will be required to maintain an appropriately furnished operational office in Labuan for business purposes only.
- Directors, principal officer and persons in control must be ‘fit and proper’ persons.
- Adequate set of internal policies and controls for its operations, compliance, corporate governance and risk management.
- Counterparties (e.g. principal broker and liquidity provider) are regulated by a recognised supervisory or regulatory authority.
- Appointment of a Labuan approved auditor.
- Internal policies on Anti-Money Laundering and Counter Financing of Terrorism.
- For business model/customer interface which is exclusively/substantially electronic, proper management of technology risk must be in place.
(3) Labuan FSA may exercise its discretion to require additional capital to commensurate with the business operations in Labuan.
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.
> “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 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 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 requirements under Labuan Business Activity Tax Regulations 2018: To benefit under LBATA, a Labuan money broking company will need to comply with the substance requirements of minimum number of two (2) full time employees in Labuan and an annual operating expenditure in Labuan of RM100,000.
DEALINGS WITH RESIDENT
All Labuan entities are allowed to conduct transactions with residents of Malaysia in Ringgit Malaysia. “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||67% deductible|
|> Lease rental||67% deductible|
|> General reinsurance premiums||100% deductible|
|> Other type of payments||3% deductible|
LABUAN MONEY BROKING LICENSE FEE
- Annual license fee of RM5,000 upon granting of the money broking licence.
- Subsequent payment of annual license fee is payable by 15 January of each year.
REPORTING TO LABUAN FSA
- Audited financial statements within six months from financial year end.
- Statistics and other information required by Labuan FSA.
ADVANTAGES AND KEY BENEFITS OF LABUAN MONEY BROKER
- ZERO withholding tax on payments of dividend and interest to non-residents.
- No stamp duty on all instruments relating to offshore business activities including share transfer.
- No import duty / sales tax.
- No foreign exchange controls.
- No capital gain tax / inheritance tax.
- 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.
The information in this document is not advice of any kind but general information only and should not be relied on as legal advice. Kensington Trust Group recommends seeking professional advice on legal or tax issues affecting you before relying on it. While Kensington Trust Group tries to ensure that the content of this document is accurate, adequate or complete, it does not represent or warrant, express or implied, its accuracy, correctness, completeness or use of any of the information. Kensington Trust Group does not assume legal liability for any loss suffered as a result of or in relation to the use of this document. To the extent permitted by law, Kensington Trust Group excludes any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this document.