This document discusses Labuan international banking and tax perspectives. It begins with four pre-test questions about Labuan bank products/services, the tax law governing Labuan bank income, taxation of the banking industry in Labuan, and advantages of Labuan banking. It then provides details on banking products/services, taxation framework with 3% tax on profits, tax exemptions, and compliance with international standards like OECD, FATCA. It concludes that Labuan aims to strengthen regional/international linkages and internationalize Islamic finance through leveraging business structures and raising funds in accordance with Shariah principles.
2. PRE-TEST QUESTIONS
1) What are the products and services offered by
Labuan banks?
2) What is the tax law that impose tax on income of
Labuan bank?
3) How is tax imposed on the banking industry in
Labuan IBFC?
4) What are the advantages of Labuan banking
industry in Labuan IBFC?
3. PRE-TEST QUESTIONS
1) What are the products and services offered by
Labuan banks?
2) What is the tax law that impose tax on income of
Labuan bank?
3) How is tax imposed on the banking industry in
Labuan IBFC?
4) What are the advantages of Labuan banking
industry in Labuan IBFC?
4. PRE-TEST QUESTIONS
1) What are the products and services offered by
Labuan banks?
2) What is the tax law that impose tax on income of
Labuan bank?
3) How is tax imposed on the banking industry in
Labuan IBFC?
4) What are the advantages of Labuan banking
industry in Labuan IBFC?
5. PRE-TEST QUESTIONS
1) What are the products and services offered by
Labuan banks?
2) What is the tax law that impose tax on income of
Labuan bank?
3) How is tax imposed on the banking industry in
Labuan IBFC?
4) What are the advantages of Labuan banking
industry in Labuan IBFC?
6. LABUAN BANKING BUSINESS – PRODUCT AND
SERVICES OFFERED (CONVENTIONAL AND ISLAMIC)
a) Definition
“ Labuan banking business” means –
(a) the business of receiving deposits on current account, deposit
account, savings account or any other account as may be
specified by the Authority;
(b) Labuan investment banking business;
(c) Labuan financial business;
(d) Labuan Islamic banking business;
(e) such other business as the Authority, with the approval of the
Minister, may specify,
in any currency (including ringgit where permitted by the Exchange
Control Act 1953 or such other relevant law in force)
7. LABUAN BANKING BUSINESS – PRODUCT AND
SERVICES OFFERED (CONVENTIONAL AND ISLAMIC)
(Cont.)
“Labuan financial business” means –
(a) building credit business;
(b) credit token business;
(c) development finance business;
(d) leasing business;
(e) factoring business;
(f) money-broking business;
(g) Labuan Islamic financial business; or
(h) such other business as the Authority, with the approval of the
Minister, may specify,
in any currency (including ringgit where permitted by the Exchange
Control Act 1953 or such other relevant law in force)
8. LABUAN BANKING BUSINESS – PRODUCT AND
SERVICES OFFERED (CONVENTIONAL AND ISLAMIC)
(Cont.)
“Labuan investment banking business” means –
(a) the business of providing credit facilities;
(b) the business of providing consultancy and advisory services
relating to corporate and investment matters, including dealing in
securities, or making and managing investments on behalf of any
person;
(c) the business of undertaking foreign exchange transactions,
interest rate swaps, dealings in derivative instruments or
derivative financial instruments or any other similar risk
management activities;
(d) Labuan Islamic investment banking business;
(e) Labuan financial business; or
(f) such other business as the Authority, with the approval of the
Minister, may specify,
in any currency (including ringgit where permitted by the Exchange
Control Act 1953 or such other relevant law in force)
9. LABUAN BANKING BUSINESS – PRODUCT AND
SERVICES OFFERED (CONVENTIONAL AND ISLAMIC)
(Cont.)
b)Who can do Labuan Banking Business?
i. Labuan company or a foreign Labuan
company; or
ii. Malaysian bank; and
Holds a valid license to carry on such business.
c) To whom can be provided (Who are the
customers?)
i. Resident
ii. Non-resident
10. COMMON PRODUCTS AND SERVICES
OFFERED IN LABUAN IBFC
Corporate Finance Project Financing
Standby Letters of Capital Markets
Credit
Bank Guarantees
LABUAN
Aircraft Finance Trade Facilities
BANKS
Shipping Finance Investment Banking
Big Ticket Leasing Private Banking
Advisory/Treasury Islamic Finance
11. COMPETITIVE ADVANTAGES OF
INTERNATIONAL BANKING IN LABUAN IBFC
1) No exchange control
- Free to deal in any foreign currency except M’sia
currency
- M’sia currency allowed for defraying expenses and
payment of professional fees
2) Tax Incentives
- Low tax
- No withholding tax
- Interest/Dividends received from Labuan Banks tax-
exempt
- No stamp duties on instruments related to Labuan
business activities
3) Can offer products and services to Malaysian residents in
Non Ringgit or in M’sian currency (where permitted)
12. TAXATION FRAMEWORK
a) The Labuan Business Activities Tax Act 1990 applies - income
derived by a Labuan bank from Labuan business activities.
b) Definition of Labuan business activity (Section 2, LBATA)
“Labuan business activity” means:
Labuan trading; or
a Labuan non-trading activity.
In, from or through Labuan in a currency other than M’sian currency, by
a Labuan entity with non-resident or with another Labuan entity:
Provided that –
(a) in relation to business under Parts VI and VII of the Labuan
Financial Services and Securities Act 2010 & Parts VI and VII
of the Labuan Islamic Financial Services and Securities Act
2010 [Act] - activity may be carried on with residents, in Non-
Ringgit or in M’sian currency, where permitted..
13. TAXATION FRAMEWORK
• Taxation under the Labuan Business Activity Tax Act
(LBATA).
3% on audited net profits, or
Labuan trading activities
flat rate of RM20,000
Labuan non-trading activities 0% tax
• Labuan companies can elect to be taxed under Income
Tax Act 1967.
• No stamp duties on:-
• Instruments executed by a Labuan Entity in
connection with Labuan business activity
• Constituent documents and M & A of an LC
• Instruments of transfer of shares between Labuan
Companies
14. TAXATION FRAMEWORK ……Contd
• Exemptions:
– Dividend paid out of exempt income or income from
Labuan business activities
– Interest / profit in lieu of interest (in general) & Royalty
– Distributions made to beneficiaries by a Labuan trust
– Technical or management fees & Lease rental paid to
Non-residents & other Labuan Entities
• 50% exemption of the gross employment income of non-
citizen in managerial capacity
• 100% tax exemption on Director’s fees for non-citizen &
non-resident Director of Labuan entity
• 65% exemption on Statutory Income of Service Providers
• 50% exemption on Labuan allowance for Malaysian
working in Labuan entity
15. DOUBLE TAX AGREEMENT
To date Malaysia has signed 74 DTAs
Objectives of DTA
• Enhance cross-border trade and flow of capital
• Grant relief from double taxation, eg reduced
withholding tax rates
• Exchange of information – tax evasion
Basic Principles of DTA
• Only tax residents can seek benefits under DTA
• Rights to tax
• Provide various definitions eg. “Permanent
Establishment”
16. COMPLIANCE WITH INTERNATIONAL
STANDARDS
a)Organization for Economic Co-operation and
Development (OECD)
DTA Model
Standard setting body on taxation
b) Effective Exchange of Information (Article 26)
Global Forum on Transparency and Effective
Exchange of Information
17. COMPLIANCE WITH INTERNATIONAL
STANDARDS ….Contd
c) Transfer Pricing
- Dealings with related parties
d) Thin Capitalization Rules
- Power to Disregard Certain Transactions eg
Restriction on interest expense
e) Tax Information Exchange Agreements
- Article 26 – Exchange of Information
18. COMPLIANCE WITH INTERNATIONAL
STANDARDS ….Contd
(f) Foreign Account Tax Compliance Act (FATCA)
i. What is FATCA?
• US government introduced the FATCA provisions and
included it in the Hiring Incentives to Restore
Employment (“HIRE”) Act, which was signed into law on
March 18, 2010
• Impose extensive new compliance obligations eg
withholding tax
ii. What is the purpose of FATCA?
• To prevent a perceived tax abuse by U.S. persons
through the use of off-shore financial accounts
19. COMPLIANCE WITH INTERNATIONAL
STANDARDS ….Contd
iii. What are the penalties for non-compliance?
• Imposes a 30% withholding tax on payments made to
foreign financial institutions (“FFIs”) that do not register
with the IRS
• FATCA applies to U.S. source income, bank deposit
interest and gross sales proceeds
iv. To whom does the FATCA apply?
• Foreign entities with investments in the U.S. and not
just those with U.S. account holders
• Treaty or portfolio interest exemption relief would
normally apply
20. Conclusion
Strengthen Regional & International Financial
Linkages
Further develop role of Labuan banks to support
international trade and investment
Enhancing the competitiveness of International Banking
in Labuan IBFC
Internationalization of Islamic finance
Leverage on Labuan business structures and
institutions to raise funds in multi-currencies in
accordance with Shariah principles
The regulatory and supervisory regime
Enhance the standards for Labuan IBFC
22. POST-TEST QUESTIONS
1) What are the products and services offered by
Labuan banks?
2) What is the tax law that impose tax on income
of Labuan bank?
3) How is the tax impose on the banking industry
in Labuan IBFC?
4) What are the advantages of Labuan banking
industry in Labuan IBFC?