FINANCE
OFFSHORE FINANCIAL SERVICES
 
Labuan Offshore Financial Service Authority (LOFSA)
The Labuan Offshore Financial Services Authority (LOFSA) is a one-stop regulatory body that spearheads and coordinates the development and promotion of Labuan as an International Offshore Financial Centre (IOFC).

It streamlines government machinery for supervising the offshore financial services industry, undertakes research and development work, and improves operational efficiency, thus creating a conducive business environment for the IOFC. In addition, LOFSA has also developed Islamic finance as one of the core areas and Labuan IOFC is now recognised as a leading offshore centre for conventional and Islamic financial activities.

Offshore business activities undertaken by Labuan offshore companies can be segregated into trading and non-trading activities. Offshore trading activities include banking, insurance, fund management, 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 IOFC is not subject to the exchange control rules and regulations of Malaysia as the nature of offshore business in Labuan is basically foreign currency-based and conducted with non-residents.

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 is also under the purview of LOFSA.

 
Incentives for Offshore Financial Service
a. Minimum Tax
An offshore company carrying on an offshore trading activity can opt to pay tax each year at the rate of 3% of its net audited profits or a fixed tax of RM20,000.
An offshore company conducting non-trading activities is subject to zero tax.
 
b. 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.
 
c. 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 employement.
 
d. Exemptions 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 Companies 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 unless the interest accrues to a banking, finance company or insurance business by a non-resident.
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.
 
e. 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.
 
Source :
http://www.mida.gov.my/