Labuan Set To Only Grow Stronger And Further In The Digital Finance Space

Labuan’s reputation as a financial centre dates back to 1990 when the Labuan International Business and Financial Center (Labuan IBFC) was created. It became Malaysia’s only offshore financial hub with the aim of strengthening the country’s economy as well as its surrounding area.

Since its inception, the financial hub has implemented several measures designed to attract more companies. These measures include a preferential tax regime, minimal foreign exchange controls, the absence of capital gains and withholding taxes, the availability of multilingual and skilled local workforce and competitive operational costs.

Over the years, Labuan has emerged as a potential hub for wealth management, home to several service providers and structures allowing High Net Worth individuals (HNWIs) to protect and grow their wealth.

There are several vehicles HNWIs can use and one such vehicle is the Labuan Foundation which can be used by Family Offices, among others.

The Labuan Foundation is made up of corporate bodies that exist as legal entities, set up to manage their own property for any lawful charitable or non-charitable purpose. There also exist Labuan Islamic foundations, whose operations must be in compliance with Shariah principles.

Typically, Labuan Foundations are used for asset protection, charitable purposes, business succession, wealth management and other activities.

“I would not want to put Labuan in the same category as Singapore or Hong Kong, they are very different jurisdictions with their own strengths. However, there are certainly areas where Labuan excels at,” Ken Vui Chau, Managing Director for Alpadis Group Labuan tells BusinessToday.

“Another area that I think Labuan can excel at is Philanthropic Structuring. While Asia is expected to have a third of the world’s billionaire population by 2023, there is still room to grow in terms of charitable giving according to the 2020 “Doing Good Index” by the Centre for Asian Philanthropy and Society,” he says. 

Additionally, Cecilia Chan, Executive Director of Broctagon Prime Markets says, “It would be difficult to compete with Hong Kong and Singapore. Both are established financial hubs recognised globally, so there is some catching up to do. However, Labuan definitely has the potential to go very far, as it is extremely attractive in terms of low startup cost and flexible tax treatment,”

“Labuan has adopted a very positive and welcoming attitude to new entities in the region. We can see the positive outlook thriving and the authorities have created a favourable environment for financial activities to grow quickly and the local economy to mature,” she adds.

Increasing Demand

Labuan is home to over 6,000 operating entities who have established themselves thanks to its business-friendly environment and proximity to the rest of Asia.

Ken Vui Chau, Managing Director for Alpadis Group Labuan

“The authorities here are very much looking to the future and are promoting digital financial services with the recently launched digital banking framework by LFSA in Dec 2020. This adds further to a list of a variety of financial products which the jurisdiction is already offering,” Ken says.

He further points out that digital-related business is a key growth area for Labuan International Business and Financial Centre (Labuan IBFC) as they are taking steps to further cultivate this segment for the jurisdiction to cater for the digital Asian future. 

In the first half of 2020, the Labuan IBFC has approved 46 Digital Financial Services operators – a record number for the territory.

The LFSA has also licensed up to 57 banks, including the likes of HSBC and JP Morgan.

Broctagon’s Cecilia says there is a lot of interest from the fintech industry pursuing the same direction and is expecting the sentiment to only grow in the months and years to come.

Benefits and Privileges

“There are many benefits for companies operating in Labuan. I mentioned earlier the preferential tax regime and business-friendly regulations. I would also add that the legal framework for Labuan IBFC allows for a wide range of companies and entities to be formed in order to cater to a variety of regional and international needs,” Ken says,

Entities that can be created include companies limited by shares or by guarantee, protected cell companies, limited liability partnerships, private and charitable foundations, special purpose trusts, private trust companies and more.

Broctagon, on the other hand, found the set-up process to be simple and the company anticipates more of our group business activities going through the labuan entity as they gain synergy with Labuan FSA and expand their scope of regulated activities to become a trusted go-to source for multi-asset liquidity in the region.

Broctagon acquired its Money Broking licence in a relatively short time span and the process was seamless.

According to Cecilia, the Labuan FSA has a very receptive attitude towards the provision of digital financial services, allowing players to remain competitive by providing a large variety of assets to meet the needs of clients in the growing financial markets.

Helping Labuan Achieve Its Milestones

“The Group offers a range of services from our offices in Switzerland, Singapore, Thailand, Hong Kong, Kuala Lumpur and Labuan. From a corporate services perspective, we help with the incorporation and establishment of companies, accounting, and financial reporting, corporate secretarial and Know Your Customer (KYC) services, among others.

“As a result, we have assisted a number of companies in Labuan and are able to leverage on our expertise in this jurisdiction to help them grow,” Ken says, 

The Alpadis Group also guides potential clients to apply for licenses and setting up operations in Labuan.

Additionally, Broctagon which has cemented a well-established reputation within the fintech industry says their involvement in Labuan will be noticed by likeminded fintech companies and startups, who may now consider setting up in Labuan.

“This is what drives fintech development in Labuan, the flow of innovative startups and the talent and ideas that brings,” Cecilia highlights.

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