The Labuan International Business and Financial Centre (Labuan IBFC) expects to attract another 1,000 new companies this year to set up their base in the offshore financial centre, which is now positioning itself as a mid-shore financial centre.
Labuan IBFC Inc Sdn Bhd CEO Danial Mah Abdullah said currently there are about 13,000 companies — both domestic and international — that chose Labuan as their preferred destination to invest in.
“Last year, we saw about a 7% to 8% increase in the number of new companies established in Labuan and we are continuously experiencing growth. We expect a similar growth rate of 8% this year also,” he told The Malaysian Reserve (TMR).
Having upgraded from an offshore financial centre to its mid-shore status, Danial stressed that Labuan IBFC did not have to woo investors with attractive tax structures as it was not a tax haven.
He said Labuan IBFC wanted to step away from being seen as an offshore centre ruled by the financial industry dictating strategies based on short-term profits.
As a mid-shore centre, Labuan IBFC will not only listen to the industry and their views, but will take them into account when developing a strategy that will be beneficial to investors, financial players and the centre.
“We offer companies and private investors a comprehensive mid-shore solution, striking the ideal balance between client confidentiality and compliance with international best standards and practices,” said Danial.
“We want Labuan IBFC to be known as a mid-shore financial centre strategically located in the heart of the Asia Pacific, which adds to its attractiveness to financial operators,” he pointed out.
Labuan IBFC’s business-friendly environment anchored by a simple and attractive tax system is well-supported by a robust, modern and internationally recognised legal framework enforced by its regulator, Labuan Financial Services Authority.
“We have over time tightened rules, upgraded banking guidelines and become a little more stringent to comply with international law and regulations, as we want to move away from the word ‘offshore’,” added Danial.
He said the requirement for transparency and need to con- form to initiatives — such as the Common Reporting Standard (CRS) and Base Erosion Shifting — will be the new normal for all financial centres.
With the implementation of the new requirements, companies will need to show more tangible substance and presence in their operating domiciles.
Along with many countries practising Automatic Exchange of Information (AEOI), Malaysia has taken an active stance towards adopting the CRS framework.
In December 2016, two income tax orders were gazetted, AEOI and the Convention on Mutual Administrative Assistance in Tax Matters.
The gazette orders apply to Malaysia as a whole and effectively implemented AEOI and CRS in Labuan IBFC.
“Labuan IBFC’s location and accessibility makes it ideal for Asian-based companies to facilitate cross-border transactions and investments — including re-domiciling their businesses,” he said.
Mid-shore financial centres are those whose tax laws make them attractive as places in which to establish corporate structures, trusts and other vehicles, while also offering the advantages of being in an onshore location.
An effective mid-shore jurisdiction has infrastructure and human resources in a broad range of areas, and benefits from having long embraced information exchange and effective tax treaties that reduce or eliminate withholding taxes.
“We have a lot of international companies and multinational companies leasing office space in Labuan to manage their financial operations, and we are confident that this will continue,” Danial told TMR on the sidelines of a forum entitled, “The Future of Tax Planning and Wealth Management: Transparency and Substance for All?” in Kuala Lumpur last week.
Labuan IBFC saw a steady demand for rentals of office space, with the total number of leasing companies increasing to 386 and total assets amounting to US$52.5 billion (RM233.1 billion). The number of commodity trading companies grew by 16.3% to 50 companies and a total of 39 captive insurance companies were established in Labuan IBFC up to October 2016, said Danial.
The positive growth is not only due to the increase in number of company incorporations, but also in the growing number of intermediaries in Labuan IBFC, he added.
The number of trust companies doubled from 24 to 46 in just five years in 2016, while other intermediaries such as money brokers, insurance brokers and investment banks have also grown in tandem.