Labuan IBFC: Asia’s Premier International Financial Hub

Labuan Malaysia Financial Park Complex

As an innovative and ever-evolving jurisdiction, Labuan International Business and Financial Centre (Labuan IBFC) was established more than 30 years ago to complement the activities of the domestic financial market in Kuala Lumpur, as well as to spur the development of economic activities in Labuan - a federal territory in Malaysia.

Labuan IBFC offers global investors and businesses the benefits of being in a well-regulated and supervised jurisdiction supported by a business-friendly legal framework. Labuan IBFC operates within clear and comprehensive legal provisions and industry guidelines, which are enforced by its sole regulatory authority.

The jurisdiction adheres to international standards of compliance and taxation best practices and maintains access to Malaysia’s double taxation agreements with over 70 countries. It also offers fiscal neutrality and certainty while following guidelines set by the Organisation for Economic Co-operation and Development (OECD), the Asia/Pacific Group on Money Laundering (APG) and the Financial Action Task Force (FATF), among others.   

The jurisdiction is cost-effective for substance creation, providing legal neutrality in dispute settlement. It is also currency neutral, allowing businesses to deal in any currency. A Labuan entity is also deemed as non-resident under Malaysian foreign exchange administration rules and thus is subject to a more liberal exchange control environment.

As Asia’s premier international financial hub, Labuan IBFC offers a wide range of business structures and investment solutions to facilitate cross-border transactions and international business dealings carried out by global investors and businesses. Key service areas include banking, insurance, wealth management, businesses related to the capital markets, leasing, money broking, and commodity trading. The jurisdiction’s suite of solutions is available in conventional, Shariah-compliant, and digital forms.

The last two years have witnessed a positive interest in companies using Labuan IBFC as a platform to carry out fundraising exercises within Asia and beyond. The Labuan IBFC fund regime is comprehensive. There are various fund vehicles available, ranging from cost-effective flexible private equity funds to sophisticated passportable international funds.

Labuan funds are usually managed by prominent fund managers globally, with investments and investment-related decisions made in Labuan itself. Governed under Part III of the Labuan Financial Services and Securities (Amended) Act 2022 or Part IV of the Labuan Islamic Financial Services and Securities (Amendment) Act 2022, Labuan funds can be structured as a company, partnership, protected cell company, foundation, unit trust or a corporation incorporated under the laws of any recognised country or jurisdiction that is a member of the IOSCO.

The incorporation of an open or closed-ended investment company is the most common way of establishing a fund vehicle in Labuan IBFC. Open-ended investment companies will be more suited to traditional funds with regular subscriptions and redemption possibilities, while closed-ended investment companies are a better option to establish a listed fund vehicle.

Evening view from the Marina in front of Billion Waterfront Hotel, Labuan

Another structure to consider is incorporating a Labuan company, which can be designated as a restricted scope company. This special purpose vehicle can benefit from the jurisdiction’s cost-effective substance creation and shorter time to market.

Investment trusts also allow a fund manager to appoint a trustee through a trust deed and to establish an investment trust fund. Although the fund managers run the trust for gains and profit, trustees are assigned to ensure that the fund manager runs the trust according to the fund’s investment goals and objectives. These trustees have a duty of care toward any beneficiaries and must act in their best interests.

Frequently established by wealthy families, individuals and non-profit organisations for a variety of purposes, including wealth creation and accumulation, succession, planning, asset protection, enhanced confidentiality, asset consolidation and management, pooled family investment planning as well as anti-forced heirship planning, foundations can also be used as a vehicle, whereby having a professional service provider as part of the foundation’s council provides better governance for investment. The appointed trustee is then responsible to hold and administer the fund and act in accordance with the terms of the charter and other articles. This bolsters investor confidence as funds are well managed.

Limited partnerships are another form of fund vehicle that is available for consideration. Labuan IBFC offers a partnership which is the Labuan Limited Partnership (LP). A Labuan LP is a business entity comprising two or more partners who operate and manage a business together. The Labuan LP is categorised into two partnerships, with a general and a limited partner. Partners may be corporations except for firms that are set up for professional practice, in which case it must consist of natural persons only and supplemented with professional indemnity insurance coverage provided by an insurer approved by the regulator.

Last but not least, are Protected Cell Companies or PCCs. A Labuan PCC is a limited liability company with a legal entity that can form “cells”. The cells may comprise a core for holding non-cell assets or general assets; and or any number of cells with the intention of segregating and protecting the assets of each respective cell. Labuan PCCs may also be incorporated as a Labuan company or converted from an existing Labuan company. A PCC can hold assets or investments divided into several classes to cater to the different objectives of different individual investors, while at the same time preserving the independence of each cell. Additionally, a PCC allows fund managers to legally segregate assets and liabilities to each cell while operating under a common management of a fund manager. This is also suitable for umbrella funds. Each cell may have its own investment objectives and rules.

Last year, the jurisdiction marked the launch of the Labuan IBFC Strategic Roadmap 2022-2026 by emphasizing these five thrusts: spurring market innovation and vibrancy, promoting market facilitation and visibility, strengthening Labuan IBFC’s complementary roles with Malaysia, effecting relevant and proportionate regulations as well as ensuring pre-emptive supervision and enforcement. This demonstrates that Labuan IBFC is moving onwards and upwards after more than three decades of remarkable growth.

For more information, log on to www.labuanibfc.com or contact us at info@libfc.com. Alternatively, follow us @LabuanIBFC on LinkedIn and Facebook.