LABUAN IBFC (Asia’s Premier International Financial Hub)

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A Labuan company:

1. May be a company limited by shares or by guarantee or an unlimited company.
2. Able to participate in business activities and enjoy attractive tax benefits provided under the Labuan Business Activity Tax Act 1990 (LBATA).
3. Able to out any business that is permitted in Malaysia in, from or through Labuan.
4. Would need to be licensed if it intends to undertake specific businesses as defined under the Labuan Financial Services and Securities (Amendment) Act 2022 (Act A1654) or the Labuan Islamic Financial Services and Securities (Amendment) Act 2022 (Act A1655), which may include the banking, insurance/insurance-related, fund management, leasing, factoring and company management businesses.

Residents and non-residents of Malaysia are permitted to establish Labuan companies. 

Business transactions of Labuan companies must be made in currencies other than the Malaysian Ringgit, except for the purpose of defraying administrative and statutory expenses as well as receiving fees and commissions.

Labuan companies can own controlling stakes in a Malaysian domestic company. 

Labuan Banking are at the forefront of banking, private wealth, funds and capital markets.

Labuan IBFC’s suite of banking services are available in conventional, Islamic and digital forms. The range of banking services include project and infrastructure funding, structured borrowings, trade and export financing, treasury services and financial advisory. A Labuan bank can be operated as a branch or subsidiary and can establish offices in other part of Malaysia other than in Labuan to facilitate their businesses.

Labuan banking is defined as:

• The business of receiving deposits on a current account, deposit account, savings account or any other account as may be specified by Labuan FSA
• Labuan investment banking business
• Labuan financial business
• Labuan Islamic banking business, or
• Such other business as Labuan FSA may specify, with the approval of the Minister of Finance, in any currency (including in Malaysian Ringgit where permitted under the Financial Services Act 2013 or such other relevant law in force).

The creation of a Labuan trust is generally for an individual or a settlor to give specific property to a third party to be held for the benefit of others, including charities.

The Labuan Trust Act 1996 (LTA) allows the creation of the following types of trust:

• Purpose trusts;
• Charitable trusts;
• Spendthrift or protective trusts;
• Labuan special trusts.

A Labuan foundation is a corporate body with a separate legal entity, established to manage its own property for any lawful purpose which may be charitable or non-charitable.

In the case of a Labuan Islamic foundation, its aims and operations shall be in compliance with Shariah principles. A charitable purpose means and includes any of the following description of purposes:

• The prevention and relief of poverty;
• The advancement of religion, profession, or education;
• The advancement of health including the prevention and relief of sickness, disease, or of human suffering;
• Social and community advancement including the care, support and protection of the aged, people with a disability, children, and young people;
• The advancement of culture, arts, and heritage;
• The advancement of amateur sports, which promote health by involving physical or mental exertion;
• The promotion of human rights, conflict resolution, and reconciliation;
• The advancement of environmental protection and improvement;
• The advancement of animal welfare; or
• The advancement of facilities for recreation or other leisure-time occupation in the interest of social welfare.

 A mutual fund or fund means a Labuan company, a corporation incorporated under the laws of any recognised country or jurisdiction, a partnership, a protected cell company, a foundation or a unit trust which:

• Collects and pools funds for the purpose of collective investment with the aim of spreading investment risk; and
• Issues interests in a mutual fund which entitles the holder to redeem his investments that is agreed upon by the parties and receives an amount computed by reference to the value of a proportionate interest in the whole or part of the net assets of the aforesaid types of entities, as the case may be, and includes an umbrella fund whose interests in a mutual fund or units are split into a number of different classes of funds or subfunds and whose participants are entitled to exchange rights in one part for rights in another.

Two types of funds are prescribed under the Labuan Financial Services and Securities (Amendment) Act 2022 (Act A1654), namely private funds and public funds.  

A Labuan insurance business is defined as an insurance business that is transacted in foreign currency and includes general, life, reinsurance, Labuan takaful and retakaful windows and captive insurance. 

A Labuan general insurance business is defined as an insurance business which is not life insurance but includes accident, medical, surgical and hospital expenses insurance. 

A Labuan life insurance business is defined as an insurance business connected with any policy by which payment of policy monies is insured on death or on the happening of any contingency dependent on the termination or continuation of human life and includes any incidental extension of cover and reinsurance of such business. 

 A Labuan reinsurance business is defined as an insurance business whereby the reinsurer assumes a part of the liability under an original contract of insurance of another insurer or reinsurer. A Labuan reinsurer may be conducting either a general or life reinsurance business. 

Labuan IBFC continues to provide a fit-for-digital business structures to facilitate various digital financial-related business (DFS) in the Centre.

These include digital-banking, insurtech business to digital intermediaries such as Robo-advisors, digital asset exchanges, crypto trading platforms, blockchain tokens as well as e-payment systems. Labuan entities are required to obtain Labuan FSA’s prior approval before undertaking proposed DFS-related activities.

Among others, in view of the virtual and non-face-to-face contact of DFS businesses, regulatory emphasis will be on the compliance to the AML/CFT and market conduct requirements. This is critical to ensure that all DFS activities in the Centre is not used to front any money laundering or terrorism financing schemes; whilst promoting professional and transparent services in dealings with clients. 

 Money broking is defined as the business of arranging transactions between buyers and sellers in money with brokers acting as an intermediary in consideration of brokerage fees paid or to be paid but does not include the buying or selling of foreign currencies by the broker as a principal in such markets.

Companies with money broking business may only transact business in foreign currency and not deal in Malaysian Ringgit except for the purpose of defraying administrative and statutory expenses. Labuan money brokers are prohibited from dealing with residents other than authorised dealers under the Exchange Control Act 1953. 

A credit token business is defined as any business where a token, being a cheque, card, voucher, stamp, booklet, coupon, form or other document or thing is given or issued to a person (referred to as "customer") by the person carrying on the business (referred to as "issuer"), whereby such issuer undertakes that:

1. On the production of the token, whether or not some other action is also required, the issuer will supply cash, goods or services on credit; or
2. Where, on the production of the token to a third party, whether or not any other action is also required, the third-party supplies cash, goods or services, the issuer will pay the third party for them, whether or not deducting any discount or commission, in return for payment to be made thereafter to the issuer by the customer.

And for the purposes of this definition, the use of a token to operate a machine provided by the issuer or by a third party shall be regarded as the production of the token to the person providing the machine.

With a complete suite of Islamic financial structures and solutions, effective regulatory standards, a facilitative business environment as well as a Shariah Supervisory Council (SSC), Labuan IBFC is well-positioned to cater to the needs of the global Islamic industry.

Underpinning these innovative structures is Labuan IBFC’s comprehensive infrastructure with dedicated legislations, Shariah governance and fiscal incentives for Shariah-compliant financial transactions providing a facilitative and flexible framework for industry players.

Operating as an Islamic financial entity in Labuan IBFC, means that Shariah compliance is endorsed by the Labuan Financial Services Authority’s SSC comprising leading global Shariah scholars and practitioners. Unlike other similar bodies in other jurisdictions, Labuan IBFC’s SSC takes on a supervisory role, not merely advisory, and hence SSC rulings are able to be used as reference in the court of law.

With this infrastructure, Labuan IBFC has become an innovative bed for Islamic financial products. It is home to the world’s first USD denominated exchangeable sukuk and reinforced Malaysia’s position as the global leader in sukuk issuance.