Labuan: Offshore Business Sectors
Labuan was established as an international offshore financial centre in October 1990, but 2002 was probably the year in which the territory established itself irrevocably as a premier player.
LOFSA's annual report for 2011 noted that, supported by its strategic location and financial infrastructure, the business activity and financial service sectors in the Labuan IBFC continued to record positive growth, with strong growth seen in the banking, insurance and reinsurance, captives and leasing sectors.
A total of 651 new companies were incorporated in Labuan in 2011, representing an increase of 8.1% over 2010. By the end of the year, out of the total of 8,655 Labuan companies, 72% were from the Asia-Pacific and Far East region, followed by 13% from Europe and the 10% from the Americas.
The leasing sector was one of the most vibrant sectors in Labuan during the year, with a strong increase in the number of leasing companies to 227 and accumulated assets leased of USD27.6bn. The focus of the leasing companies in the highly specialized areas of aviation and oil and gas provided strong support for the growth and development of the oil and gas sector in Labuan.
The Labuan banking sector also reported a steady rise in total assets by 13% to USD38.3bn as at end-2011. Two new banks from Australia and Ghana obtained licences to operate, bringing the total number of Labuan banks to 57.
The insurance sector in the IBFC remained resilient despite various episodes of natural disasters within the region during the year. Total insurance assets increased by 16.1% to USD3.6bn and total earned premium income for the sector also grew by 45.1%.
Fulfilling its early promise, the Labuan IOFC has developed into an active international centre for Islamic finance, regionally and worldwide, supported by an infrastructure that provides the foundation for the promotion of Islamic financial services. Part of this infrastructure is the Shariah Advisory Council, which advises LOFSA on issues relating to Shariah-approved financial instruments in Labuan IOFC. This has paved the way for a more efficient and effective introduction of innovative and new Islamic financial instruments.
Total Islamic assets registered a growth rate of 15.4% to USD1.5bn in 2011, reflecting the strong interest in Islamic finance. Total Islamic bank financing increased significantly to USD294.6m as at end-2011, with strong demand from non-residents.
The position of Malaysia as an International Islamic Financial Centre (MIFC) has further enhanced Labuan’s effort to promote Shariah compliant trusts and foundations, as these products complemented the Islamic financial products and services that were already available onshore.
LOFSA, the Labuan Offshore Financial Services Authority, was established in 1996 as a single regulatory agency or a one-stop agency for the offshore centre. Companies can make use of Malaysia's extensive double tax treaty network, and as a result the island has become a preferred conduit for FDI to a number of ASEAN countries.
LOFSA identified several key strategic programmes to advance Labuan as an International Business and Financial Centre.
One such initiative is to elevate Labuan IBFC‘s status to being the “gold standard for holding company jurisdiction”.
LOFSA has also begun to streamline all aspects of the existing legal framework covering both conventional and Islamic businesses to create a more "facilitative, flexible and frictionless business environment".
Labuan companies can now elect to be taxed under the Income Tax Act 1967 or the Labuan Offshore Business Activity Tax Act 1990, to reinforce the business-friendliness and flexibility of Labuan IBFC.
As part of the strategy to further facilitate the use of Labuan as the platform for investment into Malaysia and the region, LOFSA has also simplified the procedures for Labuan companies to deal with residents and invest into a domestic company.
Effective 1 June 2009, Labuan holding companies are now accorded the extra flexibility to have a physical presence in Kuala Lumpur. Similarly, Labuan banking institutions and insurance companies that meet the predetermined criteria have also been allowed to have a physical presence onshore from 2010 and 2011, respectively.
This section of the lowtax site describes the most important types of offshore business activity carried out from Labuan.