Making Labuan an international business,

financial centre

By Sazali Suzin

Trust Officer and Chartered Accountant at Labuan Borneo Trustees Limited. He has deep knowledge
about Labuan International Business Financial Centre (IBFC) structures and finance.

Federal Territory of Labuan is a small island located on the East Coast of

Malaysia and very near to Sabah. Most of us know that Labuan is well known for
its duty free status, oil and gas industries and the place where the Japanese
surrendered during World War II. But not many of us know that Labuan is one of
the international business and financial centre in this region.

For a start, some of you must be wondering what actually is an international

business and financial centre (IBFC) or an offshore financial centre. IBFC is
usually a small, low-tax jurisdiction specialising in providing corporate and
commercial services mostly to non-residents in the form of offshore companies
and the investment of offshore funds.

Labuan is one of the major IBFC in the Asian region. Currently, Labuan is home
to more than 300 international financial institutions which offer a diversified range
of products and services, available both under conventional and Islamic
principles.

These financial institutions include the top international banks and insurance
companies serving more than 7,000 companies from over 90 countries. To date,
there are 60 banks, 160 insurance and insurance related companies, 148 leasing
companies, 20 fund managers and 23 trust companies operating in Labuan and
the number is gradually increasing, reflecting the international stature of the
centre.
So what can Labuan as one of the IBFC jurisdiction offer you?

Tax incentive

There are many benefits to have companies or businesses registered or

incorporated through Labuan IBFC. One of it is tax incentives. Labuan offers tax-
friendly incentives to companies in Labuan IBFC.

Starting from year 2010, a Labuan Company is given the flexibility to elect to be
taxed under Labuan Business Activity Tax Act, 1990 (LBATA) or under the
Malaysian Income Tax Act, 1967.

Under LBATA 1990, a trading Labuan Company can opt to pay 3% tax on
chargeable profit or a lump-sum of MYR 20,000.00.

There is no tax imposed for a Non-Trading Labuan Company under LBATA

1990. A Labuan Company can also elect to be taxed under Malaysian Income
Tax Act 1967 to have a secure access to all Malaysias Double Tax Agreement
(DTA) with 72 countries such as Germany, USA and Australia.

Besides that, there are no withholding tax imposed for dividend paid out, interest,
royalties, management or technical fees and lease rental. There are also other
tax benefits offered for staff and managers that work in Labuan IBFC.

Labuan Financial Services Authority (Labuan FSA), the statutory body that is
responsible to supervise the activities in Labuan IBFC have implemented eight
new Acts in the year 2010, 4 of which are amended Acts and 4 are new Acts.
Confidentiality is taken seriously under the new Labuan legislative framework.
There are provisions in the Acts that ensure this matter is equally balanced
against those requiring any information from trustees, officers, secretary and
others to provide information.

There are also provisions in the Acts that provides for a criminal offence for
wrongful disclosure of any information concerning the Labuan entity. These Acts
are put in place to meet modern needs.

For example, the introduction of Labuan Special Trust is one of the attractive
features in Labuan Trust Acts 1996. Labuan Special Trust allows a trust to hold
shares in a Labuan Holding Company.

Asset protection

The introduction of these four new Acts has taken Labuan IBFC into a new
height. First of all, Labuan IBFC is the first jurisdiction in Asia that offers Private
Interest Foundation under the Labuan Foundations Act, 2010.

A Labuan Foundation should appeal to the need of individual and families from
Civil Law countries like Indonesia, Thailand and the Middle East. It can be used
as an asset protection and wealth management entity.

Labuan IBFC has been steadily enhancing its reputation as a specialist

jurisdiction for Islamic Finance. Labuan Islamic Financial Securities and Services
Act 2010 streamline all the rules and guidelines issued on Islamic finance.

The establishment of Syariah Supervisory Council ensure that all business

matters is in compliance with the syariah laws.
Another interesting Act is the Limited Partnerships and Limited Liability
Partnerships Act, 2010. It essentially identifies the types, roles and duties of
partners within the framework of a partnership.

The introduction of these commonly used partnerships in Labuan IBFC should

meet and attract the professionals appeal in this jurisdiction.

In summary, Labuan IBFC is a perfect jurisdiction that offers confidentiality of

information, strong legislative laws and good management control. It offers many
interesting products and services to cater and meet the need of individuals or
corporate body.