LABUAN INTERNATIONAL BANKING - TAX PERSPECTIVES
21 May 2012, Labuan
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?
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?
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?
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?
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)
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)
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)
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; orii. Malaysian bank; and
Holds a valid license to carry on such business.
c) To whom can be provided (Who are the customers?)
i. Residentii. Non-resident
COMMON PRODUCTS AND SERVICES OFFERED IN LABUAN IBFC
Corporate Finance
Shipping Finance
Aircraft Finance
Standby Letters of Credit
Advisory/Treasury Islamic Finance
Big Ticket Leasing Private Banking
Investment Banking
Trade Facilities
Bank Guarantees
Capital Markets
Project Financing
LABUAN BANKS
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 activities3) Can offer products and services to Malaysian residents in
Non Ringgit or in M’sian currency (where permitted)
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..
TAXATION FRAMEWORK
• Taxation under the Labuan Business Activity Tax Act (LBATA).
• 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
Labuan trading activities 3% on audited net profits, or flat rate of RM20,000
Labuan non-trading activities 0% tax
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
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”
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
COMPLIANCE WITH INTERNATIONAL STANDARDS
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
COMPLIANCE WITH INTERNATIONAL STANDARDS ….Contd
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
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
COMPLIANCE WITH INTERNATIONAL STANDARDS ….Contd
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
?QUESTIONS?Is the key to
SEEKING KNOWLEDGE
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?
Thank youThank you
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