GOING OR GONE REGIONAL? STRUCTURING YOUR BUSINESS EXPANSION VIA LABUAN INTERNATIONAL BUSINESS AND FINANCIAL CENTRE (LIBFC) 20 September 2016
WELCOME REMARKS YBHG DATUK WIRA JALILAH BABA PRESIDENT, MALAYSIAN INTERNATIONAL CHAMBER OF COMMERCE AND INDUSTRY (MICCI)
OPENING REMARKS DANIAL MAH ABDULLAH CEO, LABUAN IBFC INC.
AN INTRODUCTION TO LABUAN IBFC ASIA PACIFIC’S MIDSHORE INTERNATIONAL BUSINESS AND FINANCIAL CENTRE
Where is Labuan? Off the coast of Sabah, East Malaysia Federal Territory About 100,000 population Common time zone with major cities Where business meets leisure 6
What is Labuan IBFC? • International business and financial centre • A tax-efficient jurisdiction to facilitate businesses, trading, investments and etc., through financial services and legal structures • Well-balanced legal and regulatory framework Our Vision To be Asia Pacific’s leading midshore international business and financial centre Striking an ideal balance between client confidentiality and international best standards 7
Connecting Asia’s Economies 70% of Labuan Companies are Asian-based (as at 2014) 8
Internationally Recognised Group of International Finance Centre Supervisors (GIFCS) Member since 1999 International Organisation of Securities Commissions (IOSCO) Member since 2003 Group of International Insurance Centre Supervisors (GIICS) Member since 1999 International Association of Insurance Supervisors (IAIS) Member since 1998 Islamic Financial Services Board (IFSB) Member since 1998 International Islamic Financial Market (IIFM) Member since 2002 Asia/Pacific Group on Money Laundering (APG) Member since 2000 Labuan IBFC Adheres to OECD’s International Standards and Best Practices 9
Comprehensive Legislation Labuan Financial Services and Securities Act 2010 Labuan Business Activity Tax Act 1990 Labuan Islamic Financial Services and Securities Act Labuan Financial Services Authority Act 1996 2010 Labuan Foundations Act 2010 Labuan Trusts Act 1996 Labuan Limited Partnerships and Limited Liability Labuan Companies Act 1990 Partnerships Act 2010 10
An Ecosystem of Solutions Services Structures • Banking • Holding company • Insurance – Risk Management • Trading company • Corporate secretarial • Protected cell companies • Legal services • Captive Insurance • Administrative activities • Company limited by shares and guarantee • Trusteeship • Limited partnership • Accounting • Limited liability partnership • Trusts, including purpose trusts • Foundations Available in conventional and Shariah-compliant forms Marketing offices may be located in Kuala Lumpur or Iskandar Malaysia (north of Singapore) 11
Business Activities Companies Banking Insurance Leasing Trust Cos. (12,470) (54) (43) (209) (374) • Investment • Wholesale banking • Life/general • Aviation • Company holding incorporation • Investment banking • Broking • Shipping • Trading • Company • Loans/deposit • Captives • Heavy administration machinery • Financial guarantees • Re-insurance • Corporate secretarial • Trade finance • Trustee services Wealth Commodity Management Trading (more than 300) (43) • Business succession • Oil and gas • Estate management • Agriculture • Legacy planning • Minerals Source: Statistics from Labuan FSA’s Annual Report 2015
Unique Tax Systems Investment 0% holding 3% Flexibility RM 20,000 Election for Irrevocable Income Tax Act election 1967 13
Labuan IBFC - Fiscal Incentives Withholding tax exemption on dividends, interest, royalties, service fees, lease payments 50% exemption on gross employment income of non-Malaysian professional, managerial staff 100% exemption on director fee paid to non-Malaysian director Stamp duty exemption No exchange control Access to most of Malaysia’s 80 double taxation agreements 14
Double Taxation Agreements Network ALBANIA ARGENTINA AUSTRALIA AUSTRIA BAHRAIN BANGLADESH BELGIUM BOSNIA BRUNEI CANADA CHILE CHINA HERZEGOVINA CROATIA CZECH DENMARK EGYPT FIJI FINLAND FRANCE GERMANY HONG KONG HUNGARY INDIA INDONESIA REPUBLIC IRAN IRELAND ITALY JAPAN JORDAN KAZAKHSTAN KOREA KUWAIT KYRGYZ LAOS LEBANON LUXEMBOURG PHILIPPINES MALTA MAURITIUS MONGOLIA MOROCCO MYANMAR NAMIBIA NETHERLANDS NEW NORWAY PAKISTAN PAPUA NEW ZEALAND GUINEA POLAND QATAR ROMANIA RUSSIA SAN SAUDI SEYCHELLES SINGAPORE SPAIN SRI LANKA SUDAN SOUTH ARABIA MARINO AFRICA SWEDEN SWITZERLAND SYRIA THAILAND TURKEY TURKMENISTAN UAE UK USA UZBEKISTAN VENEZUELA VIETNAM
Why Labuan IBFC? • Developed legal framework providing a wide array of products and services • Tax efficiency and flexibility; e.g. Labuan or onshore tax option • Malaysia is ranked 18 th / 189 - World Bank's Ease of Doing Business Report 2015 • Cost effective, One third the cost of Singapore/Hong Kong • Professional expertise and services • Re domiciliation to or from Labuan IBFC of companies and structures allowed • Ability to create economic substance on Labuan island or Malaysia, onshore • Same time zone as all key Asian cities, including Singapore, Hong Kong • Labuan Companies accepted as a listing vehicle on: National Stock Exchange of Australia, Hong Kong Stock Exchange and Singapore Stock Exchange 16
25 Years and Growing… • Reputation and Track Record • Connecting Asia’s Economies 17
GOING OR GONE REGIONAL? STRUCTURING YOUR BUSINESS EXPANSION VIA LABUAN INTERNATIONAL BUSINESS AND FINANCIAL CENTRE (LIBFC) CHEE PEI PEI DELOITTE TAX SERVICES SDN BHD
Agenda Overview of Labuan Taxation System Labuan IBFC in Cross Border Dealings Local and International Tax Developments 19
Overview of Labuan Taxation System LABUAN TAX SYSTEM 20
Labuan Tax System Corporate Tax : Under the purview of the Labuan Business Activity Act 1990 (“LBATA”) Definitions: • Labuan Company – means a Labuan company incorporated under the Labuan Companies Act 1990, and includes a foreign Labuan company registered under that Act. • Labuan Business Activity - means a Labuan trading or a Labuan non-trading activity carried on in, from or through Labuan in a currency other than Malaysian currency, by a Labuan entity with non-resident or with another Labuan entity (with certain conditions). 21
Labuan Tax System (Cont’d) Capital gains included in net All chargeable Claim for Zakat profits profits derived paid for a year from Labuan of assessment Business Activity Labuan Tax System 3% tax or RM20,000 upon election 22
Labuan Tax System (Cont’d) Labuan Business Activity Tax Act 1990 (LBATA) Labuan Trading Activity Labuan Non-Trading Activity 3% of audited net profit RM20,000 Not chargeable to tax "Labuan trading activity" includes banking, insurance, trading, management, licensing, shipping operations or any other activity which is not a Labuan non- trading activity. "Labuan non-trading activity" means an activity relating to the holding of investments in securities, stock, shares, loans, deposits or any other properties by a Labuan entity on its own behalf. Exceptions: - Dealings with residents - Dealings in Ringgit Malaysia 23
Labuan Tax System (Cont’d) Labuan Trading Activity Both Labuan Labuan Non-Labuan Trading and Non-Trading Business Non-Trading Activity Activity Activity • 3% of net profits per • Taxed as • Not subject to • Taxed under audited accounts; or Labuan tax ITA • RM20,000 upon Trading election; or Activity • Irrevocable to be taxed under Income Tax Act, 1967 (“ITA”) 24
Double Taxation Agreements (DTAs) • There are currently 73 effective DTAs in force which Malaysia has entered into with other countries. (Note) • 14 countries specifically exclude Labuan from DTA:- • Australia, Chile, Germany*, India*, Indonesia, Japan, Korea, Luxembourg, Netherlands, Seychelles, South Africa, Spain, Sweden, United Kingdom * Labuan company is included in DTA if it elects to be taxed under the Income Tax Act, 1967. Note: Status as at 26 August 2016 from IRB’s website. 25
Double Taxation Agreements (DTAs) (Cont’d) Example: Thailand Types of income Non-treaty rates Reduced DTA rates for payment made to MY Dividends 10% 10% Interest 15% 10%/15% Royalties 15% 15% Capital gains 15% 15% Example: Vietnam Types of income Non-treaty rates Reduced DTA rates for payment made to MY Dividends 0 0 Interest 0/5% 0/5% Royalties 10% 10% Capital gains No withholding tax No withholding tax 26
Double Taxation Agreements (DTAs) (Cont’d) Example: Brunei Types of income Non-treaty rates Reduced DTA rates for payment made to MY Dividends 0 0 Interest 15% 0/10% Royalties 10% 10% Capital gains No withholding tax No withholding tax Example: Laos Types of income Non-treaty rates Reduced DTA rates for payment made to MY Dividends 10% 5%/10% Interest 10% 0/10% Royalties 5% 5% Capital gains No withholding tax No withholding tax 27
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