Labuan: your gateway to business success in Southeast Asia
Brief Jurisdiction Description
Labuan is a thriving business financial center located in the federal territory of Malaysia. It is a separate state consisting of 6 islands, the main island of which is also called Labuan.
Labuan is home to Labuan International Business and Financial Centre (hereinafter: – “IBFC“), a free economic zone. IBFC is one of the fastest-growing jurisdictions in the Asia-Pacific region, offering a unique business environment conducive to company growth and development.
The top reasons why Entrepreneurs choose Labuan
We have selected the top reasons why you should consider doing business in the Labuan Free Economic Zone:
- Favorable tax environment: low tax rates and incentives for certain types of businesses;
- Strategic location: Labuan is strategically located in the heart of Southeast Asia;
- Favorable business environment: a simple and streamlined regulatory system that facilitates starting and operating a business
- Well-developed infrastructure: IBFC has a well-developed infrastructure, including an international airport, a port, and a modern telecommunication network;
- Strong financial services industry: Labuan provides businesses with access to a range of financial products and services;
- Government policy: The government encourages businesses to invest in the Labuan Free Economic Zone;
- Quality of life: Labuan offers a high quality of life with a range of amenities and services, moreover, its board members are granted the right to live and work in Malaysia.
Who manages IBFC?
IBFC’s regulator is the Labuan Financial Services Authority (hereinafter: – “LFSA”). The LFSA acts as the central regulatory, supervisory, and enforcement body for international business and financial services in Labuan.
The Labuan FSA’s key role is to license and regulate licensed companies operating in Labuan IBFC and to ensure that all companies adhere to the advanced domestic and international standards adopted in the jurisdiction.
The IBFC points out that they are one of the most digital-friendly jurisdictions in Asia. There is no separate legislation governing virtual assets in Labuan. Virtual assets are indirectly regulated by general financial regulations, specifically the Labuan Financial Services and Securities Act 2010.
The LFSA grants the following types of crypto licenses:
- Money broking (forex license);
- Credit token business (ICO license);
- Exchange (license for cryptocurrency exchanges).
To operate legally, companies need to obtain one of the licenses from the LFSA. A popular license for companies providing virtual asset services is the Money broking license. For example, the well-known cryptocurrency exchange Huobi recently opened a branch office in Labuan by obtaining a forex license.
It is important to note that virtual asset companies in Labuan will not be allowed to promote their services within Malaysia, nor will residents of Malaysia.
Regulation of other financial services
With its forward-looking approach, IBFC is at the forefront of banking, private equity, funds, and capital markets.
The LFSA provides the opportunity to enter business in the following areas:
- Brokerage services;
- Commodity trading;
- Capital management.
Labuan has a well-developed banking structure. IBFC is home to more than 50 banks. Most of Labuan’s banks are owned by international banking groups, especially from the Asia-Pacific region. Labuan IBFC also serves digital financial services in the form of digital banking. A Labuan bank can operate as a branch or subsidiary and can open offices in another part of Malaysia.
To open a bank or other company in Labuan, one must comply with the requirements and regulations laid down by the LFSA for a particular type of business.
How to avoid taxes?
One of the main reasons why foreign investors seek to register a Labuan offshore company has to do with tax benefits. Labuan provides the following tax benefits:
- No indirect tax – Labuan offshore companies have “free port” status. Consequently, indirect taxes, such as service taxes and sales taxes, do not apply to legal entities;
- Stamp duty is not levied on all documents entered into by a Labuan legal entity in connection with its activities;
- Currency control – the organization is also not subject to currency control restrictions.
Labuan legal entities carrying out non-trading activities in Labuan are exempt from any taxes. A non-trading activity means an activity relating to the possession of securities, shares, company shares, loans, deposits, or any other asset located in Labuan.
Also, the following payments made by Labuan companies to non-residents are exempt from tax and are not subject to withholding tax:
- Technical services, advice, or assistance.
Labuan offers a unique combination of a strategic location, a favorable business environment, and a robust financial services industry, making it an attractive location for companies looking to expand their presence and operations in the Asia-Pacific region.
Labuan is suitable for those looking to access Asian markets, minimize taxes and protect their assets.
The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.
Author: Valeriy Katurha, lawyer at Manimama Legal&Growth Agency