Siti Nafsiah A. Shaffie highlights the importance of the recent amendments to the Labuan Companies Act for Labuan as an up and coming IFC.
The island of Labuan was declared as an International Offshore Financial Centre (IOFC) on 1st October 1990 by the government of Malaysia. In January 2008, a holistic re-branding and re-positioning exercise was conducted to reflect and reposition Labuan as one of asia's most connected, convenient and cost efficient jurisdiction’s in compliment with it’s luxuriate international status. Eventually in the first quarter of 2010, a robust and comprehensive changes were made to Labuan’s legal framework with the highlights of four new laws with four others radically amended on 11 February 2010 to transform Labuan IBFC business scene. In the interim Labuan also ranks alongside other domiciles on the OECD ‘white list’ of locations that have signed exchange of tax information agreements with at least 12 of its treaty partners.
Among the radically amended laws is the Labuan Companies Act, 1990. Originally known as the Offshore Companies Act, 1990, the Act principally governed and provides for incoporation, registration and administration of a Labuan and foreign Labuan companies in Labuan. Through the rebranding exercises the Offshore Companies Act, 1990 has been liberalised and revamped holistically to incorporate major changes within the Act. Consequently, the Act has been renamed Labuan Companies Act, 1990 (LCA) and the word ‘Offshore’ has been either deleted from or replaced with the word ‘Labuan’ in the newly amended Act with effect from 11th January 2010.
The Labuan Companies Act, 1990 (LCA) is the main legislation governing Labuan Companies. It has been designed to enhance the ease of operating business in Labuan while complying with stringent international standards which are implemented by other jurisdictions. The tax regime is still the same which is either a flat rate of MYR20, 000 or three per cent from net audited account despite the amendment to the Act.
THE KEY AMENDMENTS TO THE LABUAN COMPANIES ACT, 1990
Some of the key amendments are set out below:
Labuan companies are permitted;
In addition, a Labuan Company that deals with residents shall notify Labuan FSA about the transaction with the residents. However, there is no requirement to do so if the dealing is with the residents involves licensed activity pursuant to Labuan Financial Services and Securities Act, 1990 and the Labuan Islamic Financial Services and Securities Act, 2010. Nonetheless, section 7(6) of the Labuan Companies Act, 1990 has laid several exceptions pertaining the notification to Labuan FSA if a Labuan company is dealing with residents.
Pursuant to the Act, a Labuan company may be incorporated as a PCC or may convert into a PCC for the purpose of conducting the following business activities:
For this type of amalgamation, it is not necessary for a new Labuan company to be created. Where the amalgamation involves a holding company, that company must continue as the amalgamated company. For the wholly-owned subsidiaries of the same corporation, any of the subsidiaries can be the amalgamated company.
Section 118B of the LCA enables a Labuan company to amalgamate with a foreign Labuan company or a corporation provided that the Labuan Company continues as the amalgamated company.
An entity which holds a licence under the Labuan Financial Services and Securities Act 2010 or the Labuan Islamic Financial Services and Securities Act 2010 is not permitted to be involved in any of the three forms of amalgamations under the LCA.
Under the said section 151, every incorporation or establishment of a Labuan Company is required to pay such annual fees as maybe prescribed, on or before the expiration of a period of six months from the annual fee payment date, failure which, an additional amount of 50 per cent from the prescribed annual fee will be imposed.
In the event where a Labuan Company fails to pay the annual fee together with the additional amount imposed within one month from the date of the expiration of the period of six month, a written notice will be send to the company secretary specifying that the name of the Labuan Company to be struck off if payment is not receive within one month from the date of the notice or such extension period as allowed.
The Authority may strike the name of the Labuan company off the register once the period of one month from the date of the notice has lapsed.
The recent amendment to the LCA 1990 clearly shows that Labuan IBFC can attract many new potential investors and clients, and at the same time compete with other established jurisdictions such as Bahamas, Panama and Jersey. The evidence of these changes can be shown by the increasing number of new companies incorporated in Labuan IBFC. For the year 2011, in total there are 651 new companies were incorporated in Labuan IBFC. These represents an increase of 8.1 per cent from 2010, making the total number of companies operating in the Labuan IBFC to 8,655 companies.
[i] For more information about Labuan Borneo Trustees Limited and our services, please visit our website at www.labuanborneotrustees.com
Siti Nafsiah A. Shaffie, Ship Manager, Labuan Borneo Trustees Limited