Malaysia: 25 Years On: Labuan IBFC's Evolution As Asia's Leading Midshore Jurisdiction

Last Updated: 14 June 2016
Article by Labuan IBFC Inc.

Sixteen years into the new millennium of 2000, Asia has cemented its place as the world's premier go-to destination for growth and opening of markets, and the land of untold development opportunities.

Attracted by robust domestic consumption, a growing middle class, massive urbanisation, youthful and still-growing populations and rising incomes, inbound wealth flows have been vast.

In mere foreign direct investment terms (FDI), more global capital has homed in on Asia for its tremendous economic potential, than any other region. In 2014 alone, the region received FDI worth US$465 billion surpassing that to Europe (US$289 billion) and North America (US$146 billion).

As a result of its influence on the global economic stage, there has been a wealth boom, both for corporates and individuals.

According to the RBC Wealth Management and Capgemini's World Wealth Report 2015, North America maintained its position as the world wealthiest region in 2014 with US$16.2 trillion, but Asia Pacific registered the fastest growth of 11.4% to reach US$15.8 trillion, as compared to 9.1% and 4.6% in North America and Europe, respectively.

The rapid growth of high-net-worth individuals (HNWIs) in the Asia Pacific region has overtaken North America to become the region with the largest HNWI population with 4.69 million individuals (as compared to 4.68 million) With these massive capital and investment flows, significant shifts have occurred, not only in terms of how these assets are managed, but also how they are accounted for, preserved and expanded.

As a result, there has been an explosion in demand from the owners of this capital due to market volatility, and variable tax and legal regimes in their countries of domicile.

The traditional solution has been the accepted concept of the offshore financial centre, where a range of financial and economic activities are offered in a bu44siness-friendly tax and regulatory environment.

But while such centres have been attractive from a simplistic and distant macro standpoint, there have been precious few options available, when viewed in a specific Asian-centric prism.

Enter the Labuan International Business and Financial Centre (Labuan IBFC) as today's leading midshore jurisdiction in Asia.

Labuan IBFC

Labuan International Business and Financial Centre (Labuan IBFC) has over the last 25 years grown in tandem with Asia to become the region's leading midshore jurisdiction. Labuan IBFC's comprehensive solutions strike a perfect balance between client confidentiality and stringent compliance with international best standards and practices among legal and fiscal frameworks.

Its business-friendly environment, anchored by a simple tax system, is well-supported by a robust, modern and internationally-recognised legal framework that is enforced by its regulator, the Labuan Financial Services Authority (Labuan FSA).

Strategically located in the heart of Asia Pacific, Labuan IBFC is well positioned to tap into one of the fastest growing regions in the world, presenting the perfect opportunity for businesses seeking to connect with Asia's economies or even as a wealth management domicile for Asian families.

In Malaysia, for Asia

Clearly, then, Labuan IBFC offers unique and special propositions for fast-expanding companies, whether expanding into, outbound of, or inter ASEAN.

Its unambiguous fiscal framework provides an ideal ecosystem for global companies or multi-jurisdictional families to house their corporate dealings as well as wealth management transactions.

Take the simple tax structure for example, which applies to registered entities carrying on a Labuan business activity under the Labuan Business Activity Tax Act 1990.

Benefits such as a 3% corporation tax or a flat rate of RM20,000 for trading companies is on offer.

Operationally, costs are among the lowest in the region, while the absence of exchange controls and readily available experienced and professional service providers augment Labuan IBFC's proposition.

Meanwhile, access to Malaysia's extensive network of double taxation agreements has been, and continues to be an added advantage for Labuan business entities.

As it currently stands, Labuan IBFC benefits from the double tax treaties Malaysia has already inked with over 70 countries, including Canada, China, France, New Zealand, Russia, Singapore, Switzerland, Thailand, United Arab Emirates and the United States of America.

And as the landscape of international taxation changes with introduction of drivers to transparency via the exchange of information between competent authorities in which Malaysia is committed to, Labuan IBFC offers itself as a jurisdiction through which cost efficient substance creation may be effected.

Global Regulatory Standards

Beyond being a well-regulated jurisdiction, Labuan IBFC, being part of Malaysia is also in full compliance with all international protocols, on exchange of information and other relevant legislation.

It has maintained its presence on the Organisation for Economic and Co-operation Development's (OECD) white list of jurisdictions, and met the criteria set by the international economic organisation as a category 1 jurisdiction that has "substantially implemented the internationally agreed tax standard".

This assures investors that Labuan IBFC has substantially implemented internationally-agreed tax standards as provided under the Global Forum on Tax Transparency and Exchange of Information. Labuan IBFC is also a FATCA-compliant jurisdiction.

On this front, it is important to note that as a jurisdiction within Malaysia, multilateral agreements entered into by Malaysia, will be applied in Labuan, including Labuan IBFC.

Unique and Compelling

A quarter-century of serving Asian corporations and individuals has allowed Labuan IBFC to hone its core offerings in five areas where it has clear and unique advantages. In fact Labuan IBFC is now able to provide a wide spectrum of financial structures and solutions for both corporates as well as high net worth individuals, in both the conventional and Islamic space.

Complete and integrated solutions are available in a variety of sectors such as banking, capital markets, shipping, leasing and insurance. The jurisdiction also facilitates the formation of protected cell companies and partnerships, and constantly cultivates the growth of its wealth management offering.

In fact, Labuan IBFC is the only international business and financial centre in Asia which offers private foundations and special purpose trusts to serve the wealth management needs of the region.

Malaysia's position as the world's largest Islamic bond market is a perfect foundation for all Shariah-based financial structures.

Islamic Financial Services

The thriving Islamic finance ecosystem that Malaysia has, coupled with Labuan IBFC's conducive legal and regulatory environment for Shariah-compliant businesses, paved the way for Labuan IBFC to expand its Islamic finance market.

The introduction of the Labuan Islamic Financial Services and Securities Act 2010 – the world's first omnibus legislation governing all Shariah-compliant businesses in an international business and financial centre – provides a greater degree of comfort and certainty to businesses and investors as it covers every aspect of Shariah-compliant financial services, with the establishment of its own Shariah Supervisory Council.

The Shariah Supervisory Council reviews the compatibility of proposed financial instruments to Shariah requirements, as well as advises Labuan FSA on the development of Islamic jurisprudence principles.

Most recently, Labuan FSA issued guidelines on the establishment of Labuan international waqf foundations, which came into effect on 1 March 2015. Hailed as the first of its kind, a Labuan international waqf foundation is an Islamic foundation that is established to hold properties endowed to the foundation via the Islamic principle of waqf, which with the objective of managing waqf properties for identified beneficiaries and/or charitable purposes.

Other developments include the issuance of the first Japanese corporate sukuk out of Labuan IBFC and the flexibility to allow Labuan insurance and takaful companies to co-locate their offices onshore. The jurisdiction added another feather on its cap when it won the Editor's Award for Best Islamic Finance Offering at the Wealth Briefing Asia Awards 2014 in Singapore.

Wealth Management Solutions

The growth of HNWIs in Asia Pacific has spurred the expansion of the jurisdiction's wealth management solutions, including foundations, special purpose trusts and private trust companies.

In particular, the introduction of a civil law structure, namely the private foundation, is a novel concept in this region (as common law structures such as trusts are more prevalent in Asia), which has seen the fastest growth.

The private foundation is an ideal vehicle for HNWIs wanting to retain control over their assets and businesses while being accorded premium legal protection in common law countries like Malaysia, Singapore and Hong Kong. Besides providing optimum structural flexibility and fiscal efficiency, it also often used as a key element in legacy planning and succession management.

Choice of Legal Framework, Dispute Settlement and Listing

Additionally, with all Labuan entities being permitted the flexibility of contracting in any legal framework they choose, entry into the ASEAN market via Labuan IBFC is therefore a compelling one.

Should contracting parties prefer, arbitration can be a means towards dispute resolution, and Labuan IBFC does not favour one arbitration centre over another.

In addition, where the relevant listing criteria have been met, Labuan companies are recognised listing vehicles on the Hong Kong Stock Exchange, the Singapore Stock Exchange as well as the National Exchange of Australia.

These entry points into other established markets represent alternatives and interesting ways for raising growth capital: yet more reason in favour of a Labuan business registration, evidencing the flexibility of the jurisdiction for intra-Asian trade and business.

Complementary, Not Competing

Labuan IBFC's proposition as an attractive midshore centre is not merely focused on its strategic location; but, Labuan IBFC can be seen as a gathering of laws, regulations and guidelines which can be utilised by any party looking at cross-jurisdictional transactions, be it for a corporate entity or an individual.

Solutions and structures domiciled in Labuan IBFC may be used by any party in any jurisdiction; this uniqueness allows it to complement other established financial centres servicing the growing economies in ASEAN, such as Singapore or Hong Kong while providing the ASEAN

Economic Community its own international financial centre, located right in the middle of ASEAN.

Without a doubt, Labuan IBFC's sterling track record over the last 25 years puts it in good stead to facilitate the development and growth of the Asian and ASEAN Economic Community.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions