Labuan Companies and Labuan Trusts

Labuan is a tax haven that has undertaken a series of ambitious development programmes that would raise the country’s economic growth to that of its Asian counterparts. As a tax haven, Labuan does not only boast a world-class international offshore financial centre, but a leading destination for fishing, significant World War II sites, five star hotel accommodation and delicious cuisine.

Labuan offers a broad spectrum of offshore business entities which have grown essential to international trade, wealth and asset management and tax reduction and planning. Labuan offshore business entities are taxed based on their trading (management, banking, licensing, trading and insurance) and non-trading activities (holding of investments in stock, securities, loans, shares, deposits and immovable property).

Labuan offshore companies and entities engaged in offshore trading activities pay taxes at 3% each calendar year (year of assessment) on chargeable profits or may opt to pay RM20,000 upon election. The chargeable profits of any Labuan offshore company are the net profits shown in the audited accounts and are taxed for the accounting period(s) terminating in the calendar year directly preceding that year of assessment (basis period). Return of profits for offshore companies are to be filed within 3 months of the beginning of the year of assessment

Labuan offshore trading companies without a basis period are automatically liable to tax of RM20,000 for the assessment period (calendar year). However, offshore companies are not taxed on non-trading activities for the assessment period of the basis period of that non-trading activity. All Labuan offshore companies must pay an annual license fee.

Labuan Offshore Business Entities:

• Labuan Offshore Companies
• Labuan Offshore Trusts
• Labuan Offshore Banks
• Labuan Investment Banking
• Labuan Insurance
• Labuan Limited Partnership
• Labuan Money Brokerage
• Labuan Money Factoring Company
• Labuan Leasing Company

Labuan Offshore Companies

Main Features:

• Labuan offshore companies are governed by the Offshore Companies Act 1990 (OCA)
• Offshore companies formed overseas can continue to Labuan as Labuan offshore companies
• The law provides for companies to be either companies limited by guarantee or by shares
• At least one director and resident secretary in the form of a trust officer must e appointed in Labuan
• Shares may be of different classes and rights
• Bearer shares are not allowed
• Labuan offshore companies have no minimum capital requirement
• Offshore trust companies registered under the OCA are to be used as the registered agents, office and resident secretary of offshore companies
• Offshore companies can be established in Labuan by both residents and non-residents of Malaysia
• Except where permitted by LOFSA, offshore companies must provide their services to residents outside of Malaysia
• Offshore banking, insurance, fund management and leasing must be conducted only if the relevant licenses have been issued
• Offshore shipping business activities are prohibited in Malaysia
• There are no exchange controls

Labuan Offshore Trusts

Main Features:

• Labuan trusts are governed by the Labuan Trust Companies Act 1990 (LTCA)
• Companies constituted under the Offshore Companies Act 1990 can be issued with licenses to do trust business
• An offshore trust in Labuan can also be formed as a managed trust company if it is completely operated by a trust company whose office is based in Labuan
• A trust formed in another jurisdiction may also register and function as managed trust company in Labuan
• In order to provide services as a trust company to other offshore companies, an offshore company must use the services of an already established trust company which serves as a registered agent, registered office and resident secretary for offshore companies
• Trust companies must set up an office from which it conducts business in Labuan
• At least two residents who are employees of the trust company must be approved by the Financial Services Authority and appointed as trust officers
• There is no requirement for a managed trust company to set up an office in Labuan
• A managed trust company must appoint 2 local trust officers and a manager in Labuan

Labuan Offshore Banks

Main Features:

• Offshore banking in Labuan involves receiving deposits, the provision of credit facilities, building credit, development finance, leasing Islamic banking, and offshore investment banking
• The Offshore Banking Act 1990 governs Labuan offshore banks
• Labuan offshore banks must only transact in foreign currency except if otherwise permitted
• A physical presence must be maintained in Labuan
• An applicant for an offshore bank must operate in according with internationally established standards, be the holder of good credit rating by recognised rating agencies, be a licensed and regulated financial institution or bank and hold a sound track record
• Along with the necessary application forms and documents, audited financial statements showing the institution’s financial standing for the past two years must be submitted
• A licence fee of RM80,000 must be paid annually

Labuan Offshore Investment Banking

Main Features:

• Offshore investment banks are governed by the Offshore Banking Act 1990
• Offshore investment banking in Labuan involves any form of operation that the banking authority may approve of as investment banking business, including the provision of credit facilities, transacting in foreign currencies, managing risk activities, buying and selling of derivative or derivative financial instruments and the provision of advisory and consultancy services to investors and corporations.
• A paid-up capital of Malaysian Ringgit (RM)10.0 million (unimpaired by losses) or its equivalent in any currency
• Branches are required to have networking funds equivalent to RM10.0 million
• An offshore investment bank must establish physical presence in Labuan and have sufficient office staff
• A licensed investment offshore bank may be permitted by the banking authority to transact with local residents and in Malaysian Ringgit
• Applications for offshore investment bank set up in Labuan can be made by an investment group or bank holding a license from the regulatory authority in the country of origin, institutions approved by the Bank Negara Malaysia and licensed under the Banking & Financial Institutions Act (BAFIA), any supervised and regulated licensed bank and financial institution, or person(s) with the experience and expertise in undertaking investment banking activities.
• An auditor must be appointed
• Audited annual accounts for the 3 years immediately prior to an application for undertaking offshore investment banking must be submitted

Labuan Insurance

• Main Groups of Insurance
• Offshore Insurance (general)
• Captive Insurance

Types of Insurance Licenses

• Direct Insurance (general, life, composite)
• Captive Insurance
• Underwriting manager
• Offshore reinsurance
• Insurance broker
• Insurance manager

Offshore Insurance

Main Features:

• Offshore insurance services are not provided to local residents
• The offshore Insurance Act 1990 governs Labuan offshore insurance
• Insurance activities are undertaken only in foreign currency
• The application forms must be accompanied with a business plan, certified copies of resolutions taken at the general meeting regarding the approval for license application, audited financial statements for the last three years, a notarized copy of the company’s Memorandum and Articles, the company’s name, address, details of the directors, including that of holders of voting shares of 10% and more and a declaration concerning the officers and directors given the responsibility to manage the insurance company
• The working funds must be kept in a bank locally
• Physical presence must be maintained in Labuan and at least one resident director must be appointed
• Licence fees are to be paid annually

The minimum paid-up capital or networking funds in RM for the different types of insurance companies are as follows:

• General Insurance Licence RM0.3 million minimum paid-up capital and RM0.3 million minimum solvency margin
• Life Insurance License RM7.5 million paid-up and RM7.5 million or 3% the most recent actuarial valuation of liabilities, whichever has larger value
• Composite License RM10.0 million paid-up capital and RM7.5 million or aggregate of 20% and 3% requirements in life and general insurance business, whichever has a larger value
• Single or Multiple Owner Captive Insurance License RM0.3 million paid-up capital and RM0.3 million minimum solvency margin
• Rent-A-Captive/Cell RM0.5 million and RM0.5 million or 20% of net premium incomes of the preceding year or 3% of the actuarial valuation of liabilities for life insurance, whichever has a larger value
• Broker, Underwriting and Insurance Manager RM0.3 million paid-up capital; no minimum solvency margin is set

Captive Insurance

Types of Captives:

• Group Captives
• Cell Captives
• Rent-a-Captives
• Pure/Single Captives
• Association Captives

Main Features:

• All captives are required to maintain a paid-up capital and solvency margin as stipulated for offshore or foreign companies, normally RM300, 000 (single/multiple owner captive) or RM500, 000 (cell captives, rent-a-captive or similar entity)
• License fees must be paid before January 15 annually
• All insured risks must exist outside Malaysia, except if otherwise permitted by the Authority
• Captives must maintain a surplus of assets over liabilities
• 4 copies of the captive’s audited financial statement at end of each financial year
• Captives may undertake direct insurance and or reinsurance business as provided for by LOFSA

Labuan Offshore Limited Partnership

Main Features:

• The Labuan Offshore Limited Partnerships Act 1997 governs offshore partnerships
• The law provides for a minimum of 2 partners and maximum of 20
• At least one partner must be a general partner and one must be a limited partner
• A partner may opt to be both general and limited
• Offshore professional partnerships are to be formed for the purpose of providing engineering, accounting, legal and actuarial science services, or any other area permitted by the Authority
• A corporate entity may not be a partner in a professional offshore partnership
• At least one of the partners of an offshore partnership must be a non-resident, trust company serving as nominee of a non-resident or trustee, or a registered offshore company
• The office of a registered trust company must be maintained as the partnership’s registered office where the necessary registers on the partnership’s statutes and partners are kept
• A maintenance fee as well as a registration renewal fees are payable on an annually.

Labuan Money Brokerage

Main Features:

• The paid-up capital is RM300, 000 (unimpaired by losses) or its equivalent in another currency
• Applicants for offshore money broking include registered offshore companies (OCA 1990), licensed domestic money brokers, institutions licensed under the Banking and Financial Institutions Act 1989
• A licensed offshore money broker is required to keep a registered office locally
• Transactions must only be done in foreign currencies
• An auditor must be appointed
• Business cannot be done with local residents except local authorized dealers
• An annual fee must be paid on or before January 15th

Labuan Money Factoring Company

Main Features:

• The capital must be sufficient for conducting day to day transactions
• Applicants for offshore factoring include registered offshore companies (OCA 1990), special purpose vehicles established primarily for inter-company factoring and factoring companies licensed under the Banking and Financial Institutions Act 1989
• A licensed offshore money broker is required to keep a registered office locally
• Transactions must only be done in foreign currencies
• An auditor must be appointed
• Business cannot be done with local residents except local authorized dealers
• An annual fee must be paid on or before January 15th

Labuan Leasing Company

Main Features:

• Applicants for offshore factoring include registered offshore companies (OCA 1990), special purpose vehicles established primarily for inter-company business activities and leasing
• An annual license fee must be paid on or before January 15th to LOFSA and a fee of RM20,000 is payable for each subsequent transaction with local residents; this fee is not applicable for offshore leasing transactions
• Books and accounts must be maintained in Labuan
• Audited annual balance sheets must be filed with LOFSA within three months after the end of the financial year
• The capital must be sufficient for day to day business transactions