The Labuan Offshore Financial Services Authority (LOFSA) is a one-stop regulatory body that spearheads and coordinates the development and promotion of Labuan International Business and Financial Centre (IBFC).
It streamlines government machinery for supervising the industry, undertakes research and development work, and improves operational efficiency, thus creating a conducive business environment for the IBFC. In addition, LOFSA has also developed Islamic finance as one of the core areas and Labuan IBFC is now recognised as a leading offshore financial servicesoffshore centre for conventional and Islamic financial activities.
The incorporation and registration of companies to conduct business in Labuan can be done in LOFSA. LOFSA oversees and supervises offshore industries such as banking, insurance, securities, and trust and fund management.
The Labuan International Financial Exchange (LFX) is a web-based exchange and is an offshore financial exchange established to complement the offshore financial services available in Labuan. It is a one-stop financial exchange that offers full services from the submission of application to approval, listing, trading and settlement of the instrument listed.
Offshore business activities undertaken by Labuan offshore companies are segregated into trading and non-trading activities, both under conventional and Shariah principles. Offshore trading activities include banking, insurance, fund management, leasing, money broking and other trade related activities. Offshore non-trading activities refer to activities relating to holding of investments in securities, stocks, shares, loans, deposits and immovable properties by an offshore company on its own behalf.
The Labuan IBFC is not subject to the exchange control rules and regulations of Malaysia as the Labuan offshore company is declared as a non-resident for exchange control purposed under the Exchange Control Act of Malaysia. The nature of offshore business in Labuan is predominantly foreign currency-based and conducted with non-residents. However, certain business activities are allowed with residents such as banking, insurance, leasing and in Ringgit Malaysia such as in the reinsurance market.
4.2 Incentives for Offshore Financial Service
(i) Competitive Tax
* An offshore company carrying on an offshore trading activity can elect to pay tax each year at
the rate of 3% of its net audited profits or a fixed tax of RM20,000 under the Labuan
Offshore Business Activity Tax Act 1990 (LOBATA); and
* Alternatively, an offshore company can also opt to pay tax under the Income Tax Act 1967, in the event that they do not elect to be taxed under the LOBATA. This would not only give LOCs more flexibility to structure their business transactions efficiently, but also create a more favourable tax environment in Labuan IBFC for investors.
* An offshore company can pay also Business Zakat in lieu of tax.
* Offshore company conducting non-trading activities are not subject to tax.
(ii) Abatement of Tax for Professional Services
Any person or his employee or a company rendering qualifying professional services to an offshore company in Labuan is exempted from income tax of up to 65% of the statutory income. This includes legal, accounting, financial and secretarial services.
(iii) Abatement of Tax for Employment
* Non-citizens employed in a managerial capacity in an offshore company in Labuan enjoy an
income tax exemption of up to 50% of gross employment income.
* Non-citizens trust officers working in a Labuan trust company enjoy income tax exemption of
up to 50% of gross employment.
(iv) Exemption from Income Tax
The following exemptions are available for offshore companies under the Income Tax Act 1967:
* Dividends paid to a resident or a non-resident person by a Labuan offshore company.
* Dividends received from a Malaysian Domestic Company which are paid out of dividends
received from a Labuan offshore company.
* 100% tax exemption on Director's fees paid to a non-citizen Director
* 50% tax exemption on Labuan and housing allowances paid to Malaysian citizens working in an
offshore company
Offshore company are exempted from withholding tax for the following:
* Interest paid to a resident person or a non-resident who is not engaged in the business of
banking, finance or insurance
* Interest paid to a non-resident person or another offshore company
* Lease rental paid to non-resident
* Technical or management fee paid to a non-resident or another offshore company
* Royalty to a non-resident person or another offshore company
* Distributions made by an offshore trust to non-resident beneficiaries
(v) Stamp Duty Exemption
Offshore business transactions by an offshore company (including M&A of an offshore company and transfer of shares in an offshore company) are exempted from payment of stamp duty.
