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.