WHY LABUAN IBFC?
Federal Territory of Labuan is an Island and part of Malaysia. Labuan Island is located East Coast of Malaysia or Borneo. The Island comprises one main island and six other smaller ones covering an area of 92 sq. km. Labuan is a free port island and in 1990 the island was designated as Malaysia’s official offshore financial hub. The name Labuan International Business and Financial Centre or Labuan IBFC was introduced in January 2008 to reflect the jurisdictions’ growth and burgeoning international status, and was accompanied by an aggressive rebranding and marketing exercise. Beyond the postcard pictures of long white sandy beaches line with palm trees, the Labuan IBFC has become over time an important financial center in south east asia. This is evident in the large number of companyes, insurance companies, international banks and Independent Asset Managers currently licensed and operating in the Labuan IBFC.
Labuan Island Brief Facts
Location : East Coast of Malaysia / 5° 16' 50" N - 115° 14' 55" E
Area : 92 sq km.
Population : 89,908 (year 2010)
Official language spoken : English and Malay Language
Politics : Malaysian legal system based on English Legal System (Common Law) and democracy based on the parliamentary system of government.
Exchange Control : No exchange control imposed in Labuan IBFC
Infrastructure : Equipped with world class infrastructure i.e fibre optics cable, satellite communication, 5 star hotels, modern airport and many more.
Economic Sector : Oil and Gas Industry, Manufacturing and Financial.
LABUAN IBFC KEY ADVANTAGES & BENEFITS
As one of the major International Business Financial Centre in the Asian region, Labuan IBFC is well positioned as a gateway for connecting investment activities in the region, especially through its fiscal incentives and other value added propositions. Labuan IBFC is now home to more than 300 international financial institutions offering a diversified range of products and services, available both under conventional and Islamic principles. These financial institutions include among the top international banks and reinsurance companies serving more than 11,000 companies from over 90 countries, reflecting the international stature of the centre. To-date, there are 55 banks, 209 insurance and insurance related companies, 359 leasing companies, 61 fund managers and 39 trust companies operating in the Labuan IBFC. Briefly there are seven major attraction of Labuan IBFC:
Companies, entities and businesses registered in Labuan IBFC enjoy many advantages and incentives granted by the government of Malaysia, from low operational costs to tax-friendly incentives. Apart from that, Labuan IBFC offers competitive pricing in terms of business establishment within the jurisdiction. The following is a brief feature of tax and business incentives offered by Labuan IBFC:-
a) Corporate Tax incentive – Zero or Low Tax
No or 0% tax is imposed for non-trading company (such as holding Investment company)
- The term "non-trading activity" refers to activity relating to the holding of investments in securities, stock, shares, loans, deposits and immovable properties by a Labuan company and/or entity on its own behalf whilst;
For a company engaged in trading activities, the company can elect to pay 3% tax on chargeable profit or a flat rate of MYR 20,000.
- The“trading activity" includes banking, insurance, trading, management, licensing, shipping business or any other activity which is not an offshore non-trading activity.
Labuan International Commodity Trading Company (LICT) licensed under the GIFT programme is taxable at 3% of net profits per audited accounts
The following income is exempted from income tax:
- Dividends received from Labuan entities
- Distributions received from Labuan trusts and foundations (conventional or Islamic) by the beneficiaries
- Distribution of profits by Labuan partnerships (conventional or Islamic partnerships)
- Interest received by residents, non-residents or another Labuan entity from a Labuan entity
- Royalties and fees for services, advice or assistance received by a non-resident or another Labuan entity from a Labuan entity
- Lease rental from leasing activities
- Other gains or profits under Section 4(f) of ITA received by a non-resident from a Labuan entity
No withholding tax imposed on payments:
- to non-residents for interest, royalties, fees for services, advice or assistance, or other gains or profits under Section 4(f) of ITA by a Labuan entity;
- to non-residents for use of moveable properties by a Labuan licensed leasing company.
Stamp duty is exempted on all instruments executed by a Labuan entity in connection with a Labuan business activity, including its memorandum of articles/constituent documents and on transfer of shares in a Labuan company.
Director fee's received by a non resident individual in his capacity as a director of Labuan Company will be exempted from income tax.
50% tax exemption on of gross income received by a non resident individual from exercising an employment with a Labuan entity in a managerial capacity, in Labuan or at its marketing or co-located offices approved by LFSA.
65% tax exemption on the statutory income of any person providing qualifying professional services such as legal, accounting, financial and secretarial services, rendered in Labuan by that person to a Labuan entity.
50% tax exemption on of gross housing and Labuan Territory allowances received by a Malaysian citizen from exercising an employment in Labuan with a Labuan entity
Labuan Company has the flexibility to be taxed under the Malaysian Income Tax Act 1967 (ITA) at the prevailing rate of 25%, thereby gaining more secure access to all of Malaysia's 72 DTAs (as of 5th July 2010) and enjoy exemption on foreign sourced income as well as capital gains:
- Dividend and capital gains are not subject to tax
- Income derived from foreign sources will be tax exempt
- Income derived from activities within Malaysia will be taxed at the prevailing corporate tax rate under the ITA (currently 25%)
Any business established within Labuan IBFC will now be able to ‘co-locate’ their operations to include offices in Kuala Lumpur or other ‘onshore’ parts of domestic Malaysia.This flexibility also applies to any entities wishing to co-locate from any jurisdiction.
b) Company and business benefits
Introduction of no par value shares for a Labuan Company to facilitate the Company to raise share capital
Labuan Company can carry on shipping business through Labuan and enjoy Labuan tax treatment and incentive.
Labuan Company can operate and establish any size of private fund without obtaining prior approval from the Authority.
Labuan Company now can carry out business with Malaysian resident and can hold 100% equities in any Malaysian domestic company.
Reduction in capital requirement of a captive insurance company in Labuan from USD300, 000 to USD79, 000 and an exemption from physical presence in Labuan.
Provision for advance tax rulings which will be a boon for potential investors who seek certainty and clarity in their tax obligations.
Central Bank of Malaysia guarantees all deposits made in any Bank in Labuan or Malaysia.
No restriction for a Labuan entity to acquire or purchase a property in Malaysia or else where, however subject to local requirements such as minimum purchase price and others.
c) Organisation for Economic Co-operation and Development (OECD) White List Jurisdiction
Labuan IBFC is categorised as 'white list' or category 1 jurisdiction by OECD which carry the meaning of "substantially implemented the internationally agreed tax standard" and has signed exchange of tax information agreements with at least 12 of its treaty partners.
2. STRATEGIC LOCATION WITH EXPERIENCED WORK FORCE
Labuan IBFC is strategically located between the two emerging economic giant, China and India – as well as close proximity to several other regional financial centres in Asia and the Middle East. This puts Labuan IBFC in a unique position to tap many investment opportunities in Asia and beyond. Sharing a common time zone with many large Asian cities makes Labuan convenient for business dealings. Labuan IBFC is easily accessible from Kuala Lumpur and Kota Kinabalu with many domestic flights available daily. Additionally, Labuan has highly skilled professional talent pool and a dynamic work force. They are conversant and well versed in international financial business.
3. ADEQUATE AND STRINGENT CONFIDENTIALITY LAWS
Malaysia and Labuan has a highly developed common law legal system. Whilst Labuan IBFC adheres and complies with international compliance standards of performance, service and confidentiality through a comprehensive and progressive regulatory and supervisory framework, legitimate confidentiality and privacy for users of Labuan structures are not compromised. Further, Labuan is a ‘white listed’ jurisdiction that endorses the OECD ‘level playing field’ approach to the bilateral exchange of tax information with foreign tax authorities. Notwithstanding this, Labuan has safeguards in place and limitations on the sharing of information that ensures that no ‘fishing expeditions’ will be entertained. This reputation makes the use of Labuan IBFC safe from unwanted attention commonly drawn by more popular offshore centres.
4. EXTENSIVE DOUBLE TAXATION TREATIES NETWORK
Malaysia like other developing countries, cannot deny the need of facilitating trade and investments with the other countries through international tax treaty network. The increase of cross border business transactions requires tax treaty arrangements with other countries so as to provide investors with certainty and guarantees in the area of taxation. As of 5th July 2010, Malaysia has entered into double taxation agreements with 72 countries. Even though an offshore jurisdiction, Labuan is part of the Federal Territory of Malaysia and is included in Malaysia’s DTA. As a result Labuan offers the benefit of being able to access the extensive double taxation agreements by Malaysia. The major benefit is that the tax treaty allows claims of tax relief that can significantly reduce withholding tax rates. Not only that, any client who wish to tap into the Asian market or anywhere in the world and for clients who uses many jurisdictions for the purpose of “treaty shopping” Labuan IBFC can be used for this purpose. Labuan IBFC’s access to Malaysia double tax treaties with many countries and jurisdictions in the world can be fully utilised by the client as a platform to properly structure and expand their businesses and ultimately gain the advantages and incentives provided under the treaties of which is to reduce the tax burden and to retain more profit.
5. ROBUST LEGISLATIVE ENVIRONMENT
Labuan IBFC has always been a well-regulated jurisdiction with a robust financial services legislative environment adhering to stringent compliance parameters that further enhance the value proposition of Labuan IBFC and offers various incentives to those considering Labuan as a jurisdiction for their business activities.
6. MALAYSIAN SATAY STRUCTURE
For those countries that do not recognize Labuan as part of Malaysia, the Malaysian Satay structure offers an effective tax efficient route to gain access to Malaysia’s extensive DTA network and to minimize withholding taxes. It allows the Malaysian domestic and Labuan offshore companies to effectively and profitably carry out such transactions, and derive maximum tax benefits from this approach. The two key features in the structure are a Malaysian domestic company and a Labuan company, where the Malaysian domestic company being wholly owned by the Labuan offshore company. The Labuan offshore company can hold a foreign equity thereby allowing it access to the extensive DTA networks. The combination of these entities offers exceptional opportunities for the effective management of wealth and tax planning.
7. SUPPORT SERVICE AND INFRASTRUCTURE DEVELOPMENT
Availability of excellent banking services and facilities.
Good infrastructure, including telecommunications and transport
Availability of first class support services such as management, legal and accountancy services
Well-educated and experienced professionals.
English is the dominant language in commerce
Labuan IBFC is hub for banking, leasing, and insurance entities licensing
Low operating costs
Work permit for shareholders and management of Labuan entities
Labuan FSA is a member of international bodies
Shipping business and shipp registration available through Labuan IBFC