In this section:
- Labuan Introduction
- Labuan Banking
- Labuan Trust Management
- Labuan Insurance
- Labuan Investment Fund Management
- Labuan Financial Exchange
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
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
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
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
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
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.
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Offshore banking can only be carried on in Labuan
by an offshore company or a foreign offshore company
incorporated or registered for that sole and exclusive
purpose, and by an office, branch or subsidiary
of a licensed Malaysian bank.
To apply for an offshore banking licence, an
application needs to be made to the Labuan Offshore
Financial Services Authority (LOFSA) providing
a guarantee and minimum capital funds of RM10
million. An annual fee of RM80,000 (at the time
of writing) is payable to the Central Bank no
later than 15 January. Accounts have to be audited
and filed with the Central Bank annually.
An offshore bank may conduct a wide spectrum
of financial activities, including the management
of investment portfolios, accepting foreign currency
deposits, borrowing or lending money to Malaysian
residents, making loans to foreigners to purchase
properties situated within Malaysia, granting
loans to non-residents, securitisation, leasing,
investment banking, Islamic banking and others.
In 1999, in response to problems caused by the
Asian crisis in 1998, Labuan liberalised its entry
criteria for offshore banks. Other changes included
permitting offshore banks to trade in ringgit
instruments in the secondary market which would
allow them greater access to ringgit business
as well as to promote money market operations
in Labuan. They are also allowed to purchase ringgit
instruments in the primary market using foreign
In August 2009, Petronas issued a landmark dual-tranche
USD4.5bn bond/sukuk, domiciled in Labuan and managed
by Bank Negara Malaysia.
The Malaysian national oil company’s issue
consists of a USD3bn 10-year fixed-interest USD
bond and USD1.5bn five-year sukuk (sharia-compliant
bonds). Foreign-currency issues out of the Labuan
International Business and Financial Centre (LIBFC)
have now been named “Emas”, in an
attempt to provide added exposure for the LIBFC
and Malaysia as a means of attracting funds.
It was announced that the Petronas issue was
very successful, having generated interest from
a wide investor base and being five times oversubscribed.
The sukuk was sold mainly to investors in Asia
and Europe, while the USD bond was also sold in
the US. The issue is expected to be listed on
the Labuan International Financial Exchange and
the Bursa Malaysia, and also on the Luxembourg
It was hoped that the issue’s success
would show that Malaysia could be utilized not
only for the origination of domestic ringgit bonds
and sukuk, but also for foreign-currency denominated
bonds and sukuk. The issuance of sukuk is becoming
of increasing importance worldwide.
The larger goals are now said to be to offer
a wider range of services in the LIBFC through
the amended Labuan Financial Services Authority
Act, and to become an Islamic financial centre
through the Labuan Islamic Financial Services
and Securities Act of 2010.
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Labuan Trust Management
A "Trust company" means a company
registered under the Labuan Financial Services
and Securities Act 2010 (LFSSA) to carry on business
as a trust company. Any company that is incorporated
or registered under Labuan Companies Act 1990
(LCA) may apply for a licence as a trust company.
A company may also apply to be licensed as a
managed trust company. This is a trust company
licensed under LFSSA, but is managed by a fully
operational trust company in Labuan. Besides companies
established under the LCA, a registered trust
company in other jurisdictions is also eligible
to register as a managed trust company in Labuan.
It is a requirement under the LCA that a Labuan
company must employ the services of a trust company.
A trust company is required (at the time of
writing) to have a minimum authorised and paid
up capital of RM500,000 and RM150,000 respectively,
and to deposit RM100,000 with the Accountant-General
as a security deposit. A nominal annual licence
fee is payable.
A Labuan trust company may act as a trustee,
agent, executor or administrator pursuant to its
memorandum, and may provide share registration
services, administer, manage or otherwise deal
with property as an agent or trustee, maintain
an office, agency or branch for another company,
provide management and accounting services, directors,
secretaries and registered offices of offshore
companies, and incorporate and register offshore
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The Labuan Financial Services and Securities
Act 2010 provides the legislation for licensing
and regulating persons carrying on offshore insurance
businesses such as captive insurance, direct insurance,
reinsurance and other insurance related activities
such as underwriting, insurance management and
The offshore insurance business covers all type
of insurance business other than domestic direct
insurance except for the insurance of high net
The Government is determined to boost the captive
insurance business. A legislative amendment in
April 1997 was made to lower the capital requirement
for the setting up of captive insurance companies
in Labuan from RM1m to RM300,000. Steps were also
taken to allow domestic insurance brokers to establish
offices in Labuan.
Offshore insurance business may be carried on
in Labuan by an offshore company, a foreign offshore
company and a branch of a licensed Malaysian insurer.
The application for an offshore insurance licence
is vetted by LOFSA and approved by the Minister
An annual licence fee is payable on or before
15 January as follows:
- General insurance RM 30,000;
- Life insurance RM 30,000;
- Life and general RM 60,000;
- Captive insurance RM 10,000;
- Master-rent-a-captive and subsidiary rent-a-captive
RM13,000 and RM3,000 each.
There are minimum working funds and solvency
requirements for offshore insurance business in
Labuan. Rent-a-captives have been introduced into
In July 2009, it emerged that the Labuan International
Business and Financial Centre (IBFC) was developing
guidelines on shariah-compliant insurance, and
it is now possible to set up takaful or retakaful
windows under the Labuan Islamic Financial Services
and Securities Act 2010.
The setting up of takaful or retakaful windows
do not require a separate license and there is
also no additional license fee involved. Application
made under the Labuan Islamic Financial Services
and Securities Act 2010 to set up takaful windows
or retakaful windows will be considered from Labuan
FSA by an applicant of existing licensees under
the Labuan Financial Services and Securities Act
2010 and is based on the following submissions:
- Certified true copy (CTC) of Board Resolution
pertaining to the proposed establishment of
takaful or retakaful window;
- Business plan;
- 3-years financial projections for the takaful
or retakaful activities; and
- Information on its own internal Shariah Advisory
Protected cell companies may also now be formed
in Labuan. A PCC is structured with core capital,
cellular capital, cellular assets and liabilities,
and core assets and liabilities. The various businesses
within each 'cell' are ring-fenced and insolvency
of one cell should not affect the solvency of
the whole entity or the performance of the other
cells. For any contract the PCC discloses which
cell is contracting or whether it is a 'core'
contract. 'Cellular' or 'non-cellular' shares
may be issued, depending on whether they represent
an equity interest in a specific business cell
or in the core assets. The entity keeps accounts
showing the corresponding patrimonial divisions
among the segregated cells and the core cell.
Marine and aviation risks, including goods in
international transit, can now be handled by Labuan-based
insurance companies, whereas before April 1, 2009,
the risks had to be insured through a local onshore
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Under the Labuan Financial Services and Securities
Act 2010 (which repealed and replaced the Labuan
Offshore Securities Industry Act 1998) the paid-up
capital of a fund management company must be at
least RM300,000 or its equivalent.
An applicant should meet the following minimum
- A licensed fund management company from a
recognised jurisdiction; or
- A Labuan company set-up by individual fund
managers who are licensed by the relevant home
Annual fees for a fund management company are
RM5,000 for a company with place of business in
Labuan and RM10,000 for a company without a place
of business in Labuan.
Presently, approved instruments of Islamic financing
are given additional stamp duty exemption of 20%.
That exemption was to expire on December 31, 2009,
but was extended to December 31, 2015 as a result
of the 2009 government budget.
The 2009 budget also extended and expanded tax
incentives for the issuance of Islamic securities.
Expenses incurred in such issuance approved by
the Securities Commission are currently allowed
as a deduction for income tax purposes.
Investment Management companies in Labuan, like
all offshore companies, have access to Malaysia's
range of double tax treaties;
for details of their tax treatment generally,
see Offshore Legal and Tax Regimes.
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Labuan Financial Exchange
The Labuan Offshore Securities Industry Act 1998
(since repealed and replaced by the Financial
Services and Securities Act 2010) laid down a
basis for the opening of a securities exchange
and for the establishment and supervision of investment
management companies. The full text of the Act
can be found here.
Amendments in the Labuan Offshore Security Industries
(Amendment) Act 2003 (LOSIA), which came into
effect in May 2003, included several updated provisions
relating to private funds and allowed fund managers
to manage and administer foreign funds in Labuan.
The Labuan International Financial Exchange (LFX)
was officially launched in October 2000. It is
an offshore exchange wholly owned by the Kuala
Lumpur Stock Exchange and trades in financial
instruments such as equities, investment funds,
debt instruments and insurance-related instruments.
It is seen as one of the the key components in
promoting Labuan as an offshore financial centre,
and in particular as a prospective centre for
Malaysia's capital controls do not affect LFX
as dealings are carried out in US dollars.
LFX has no restrictions on the type of financial
instruments and no pre-determined minimum quantity
for listing. Also, there is no requirement for
participants to have a physical presence in Labuan.
Trading is done on its electronic bulletin board
and trading agents place their interests to buy
or sell on the board and conduct their own negotiations.
Labuan was spurred on to launch the LFX exchange
by an announcement from neighbouring Brunei that
it was setting up an international offshore financial
centre of its own. However, it is in Islamic finance
that Labuan is marking out its track. Malaysia's
2002 US$600 million Global Islamic Trust Certificates
(Sukuk) was a world first. The five-year Sukuk
maturing in 2007 listed on the Luxembourg Stock
Exchange and Labuan International Financial Exchange
(LFX) attracted wide participation from investors
in Asia particularly in the Middle East, the United
States and Europe.
"Comparatively, our Sukuk Al-Ijarah Trust
Certificates were very popular," said LFX's
Datuk Noorazman El Aziz. "For the first time,
we have 27 new accounts from Middle East investors.
They are putting their money into the country
for five years.
"Sukuk is our benchmark. After the launch,
we had a lot of people asking us about it. It
is essentially a good alternative to the Yankee
or even Samurai bonds. We are talking about yields
here and Sukuk offers it."
On August 14, 2009, Bursa Malaysia announced
the listings of its inaugural sukuk together with
the conventional debt securities/bond by Petroliam
Nasional Berhad (PETRONAS) and Cagamas MBS Berhad
(Cagamas MBS). PETRONAS, via its special purpose
vehicles, listed its USD1.5bn sukuk and USD3bn
conventional bonds on Bursa Malaysia and the LFX.
The securities, issued in US dollars, have durations
of five and 10 years respectively. PETRONAS’s
maiden global sukuk was structured based on the
globally accepted Shari’ah principle of
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