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Table of
Statutes
This
is a non-exhaustive list of the main Malaysian statutes affecting
Labuan, and its offshore and non-resident business. Click
on a statute for a fuller description of the statute or the
legal regime it forms part of.
Anti-Money
Laundering Act 2001
Anti-Money Laundering (Invocation of Part IV (No.2)) Order
2003
The Malaysian Companies Act 1965
Mutual Assistance in Criminal
Matters Act 2002
The Offshore Companies Act 1990
The Labuan Trust Companies Act 1990
The Offshore Banking Act 1990
The Offshore Insurance Act 1990
The Labuan Offshore Business Activity
Tax Act 1990
The Labuan Offshore Trusts Act 1996
The Labuan Offshore Limited
Partnerships Act 1997
The Labuan Offshore Security Industry
Act 1997
Labuan Offshore Security Industries
(Amendment) Act 2003
In
October, 2005, Bank Negara Malaysia Deputy Governor, Datuk
Zamani Abdul Ghani, told the Labuan Offshore Industry Dinner
2005 that LOFSA would continue to monitor and enhance incentives
given to the investment community in order to ensure that
the Malaysian island's reputation as a well regulated and
investor-friendly offshore jurisdiction advances.
"Though
Labuan IOFC is now considered one of the most established
financial centres in the Asia-Pacific region and one of the
few integrated IOFCs with best international practices and
standards supported by an independent legislative framework,
our efforts to further increase its appeal will not stop,"
he said.
"Though
Lofsa is the sole independent authority responsible for the
administration of the offshore industry in Labuan, it will
continue to have periodic discussions with other domestic
regulatory agencies on how to further make Labuan IOFC more
attractive," he added.
Zamani
said that an International Advisory Panel (IAP) comprising
experts from the private and public sector had been formed
to present domestic and international perspectives and to
advise Lofsa.
He
added that the Offshore Companies Act 1990 was - at that time
- in the final stage of being amended, while the Labuan Offshore
Trusts Act 1996 was being reviewed to be in line with global
changes in trusts business.
In
April, 2006, LOFSA subscribed to World-Check, a leading provider
of structured intelligence on high and heightened risk individuals
and entities, to screen applications for licences. The move
will allow LOFSA to conduct verification checks based on the
World-Check database, which contains information on high or
heightened risks, such as terrorists, fraudsters, money launderers,
Politically Exposed Persons (PEPs), arms dealers and sanctioned
entities, amongst many other categories.
World-Check
also gathers information on its targets' networks and associates
to ensure comprehensive coverage.
In
May 2006, it was announced that Malaysia was planning to carry
out a "holistic" review of the tax regime governing
the Labuan international offshore financial centre.
“We’d
like to see it (a new tax structure) come out as soon as possible
because it would enhance LOFSA's’s competitiveness and
attractiveness, in particular with other jurisdictions,”
Tan Sri Dr Zeti Akhtar Aziz, chairman of the Labuan Offshore
Financial Services Authority (LOFSA's) said at the time.
LOFSA
then revealed plans to unveil a new strategy in the first
half of 2007 to attract more international investors.
Speaking
at the Labuan-IOFC Investment Route to Asia conference in
Kuala Lumpar in December 2006, LOFSA's director-general said
that the authority was looking at ways in which Labuan's tax
structure could be improved, with a particular focus on the
jurisdiction's double taxation avoidance treaty network.
He
also indicated that LOFSA was trying to identify niche markets,
such as Islamic finance, which Labuan could specialise in.
This
end was advanced on March 2007, when the Dubai Financial Services
Authority (DFSA) entered into a mutual recognition agreement
to facilitate cross border distribution of Islamic investment
products with the Securities Commission of Malaysia (SC).
Trust Law
Labuan
trusts are regulated under the Labuan Offshore Trusts Act
1996 ("the Act"). The Act was gazetted and commenced
operation on 31 October 1996. An offshore trust which is validly
created in accordance with the Act, whether in Labuan or abroad,
may be registered with the Labuan Offshore Financial Services
Authority. A registered offshore trust is subject to the provisions
of the Act.
An
"offshore trust" is defined in the Act as a trust
which complies with all the following criteria:
- It is settled
by a person who is neither a citizen or permanent resident
of Malaysia, at the time of the creation of the trust;
- It does
not own any real estate in Malaysia;
- The beneficiaries
are all persons who are neither citizens nor permanent
residents of Malaysia;
- At least
one of the trustees is a company registered under the
Labuan Trust Companies Act 1990 to carry on business as
a trust company.
Some
of the key features of the Act are as follows:
- A Labuan
offshore trust is recognised and enforceable in accordance
with its terms by the Malaysian courts situated at Labuan.
The Act provides for the establishment of charitable and
purpose trusts as well as spendthrift or protective trusts.
- An offshore
trust must be created by a will or other instrument in
writing for it to be valid.
- The governing
law of a Labuan offshore trust need not be Malaysian law.
If an offshore trust is validly created, the courts will
not vary it or set it aside, nor recognise the validity
of any claim against the trust property, pursuant to the
law or an order of a court of another jurisdiction in
respect of:
- the
personal and proprietary consequences of marriage
or the termination of marriage;
- succession
rights, whether testate or intestate; including the
fixed shares of spouses or relatives;
- any
claims or court orders with regard to matters referred
to in paragraph a. or b. in reference to the personal
laws of the settlor or the beneficiaries; or
- the
claims of creditors in an insolvency (see, however,
below).
- If it is
proved beyond reasonable doubt that a Labuan offshore
trust has been created or registered in Labuan or property
disposed of to such a trust:
- with
the principal intent to defraud a creditor of the
settlor; and
- at the
time such creation, registration or disposition took
place, it had the effect of rendering the settlor
insolvent or without property by which a creditor's
claim, if successful, could have been satisfied; then
- the
creditor's claim may be satisfied out of the property
which but for the creation, registration of the trust
or disposition of property would have been available
to satisfy the creditor's claim.
- The liability
extends only to the interest which the settlor had in
the property prior to the creation, registration or disposition
and any accumulation to the property, if any, subsequent
thereto. Moreover, it is important to note that the onus
of proof (being "beyond reasonable doubt") is
on the creditor.
An
offshore trust created or registered in Labuan and a disposition
of property to such a trust shall not be fraudulent as against
a creditor of the settlor if:
- its creation
or registration, or the disposition takes places after
the expiration of two years from the date that the creditor's
cause of action arose; or
- its creation
or registration, or the disposition, takes place before
the expiration of two years from the date the creditor's
cause of action arose and that creditor failed to commence
such action before the expiration of one year from the
date of such creation, registration or disposition.
A
settlor will not have imputed to him an intent to defraud
a creditor solely by reason that the settlor has created or
registered an offshore trust or has disposed of property to
such trust within two years from the day that creditor's cause
of action accrued.
An
offshore trust shall, unless otherwise stated in the terms
of the trust, continue to exist for a period not exceeding
100 years. A foreign trust may redomicile to Labuan and, if
so, may be registered in Labuan. An offshore trust may migrate
from Labuan.
The
trustee of an offshore trust is under an obligation not to
disclose to any person any document or information as to:
- his deliberations
as to how he should exercise or has exercised his functions
as trustee;
- the reasons
for any decision made in the exercise of those functions;
- any material
upon which such a decision was or might have been based.
any part of the accounts of the trust; or
- any letter
of wishes given by the settlor or beneficiary.
Moreover,
the Act requires that every trustee and every other person
shall at all times regard and deal with all documents and
information relating to a trust as secret and confidential;
and that no trustee nor other person shall at any time be
required to produce to or before any court, tribunal, board,
committee of inquiry or any other authority or to divulge
to any such authority any matter or thing coming to his notice
or being in his possession for any reason, where such matter
or thing relates to a trust.
Banking Law
The
Offshore Banking Act 1990 provides a regulatory framework
covering the operations of an offshore bank in Labuan.
The
Act allows for the application of an offshore banking
licence for the setting up of a branch or subsidiary.
Among the documents required to accompany the application
are constituent documents, audited balance sheet, statement
on the details of the proposed establishment and particulars
of directors and share-holders, and a guarantee and/or
undertaking.
As
confidentiality is the hallmark of an offshore financial
centre, a major responsibility of an offshore bank is
the maintenance of strict secrecy over the affairs of
its customers.
Under
the Offshore Banking Act 1990, an officer or director
of an offshore bank is prohibited from giving, reproducing
or disclosing any information or document relating to
the affairs or account of its customers to any person,
unless authorised in writing by the customer or his
personal representative.
In
its dealings with customers, an offshore bank is prohibited
from accepting cash deposits and from opening an account
for a customer whose identity is not known to it. The
offshore banks are expected to observe a strong self-regulatory
code of conduct which places much emphasis on "knowing
your customer".
An
applicant setting up a subsidiary has to provide capital
funds of at least RM10 million (about US$4 million)
or its equivalent in any other currency. For a branch,
where solvency is the responsibility of the home monetary
authority, there is no requirement to provide for minimum
net working funds, so long as the head office maintains
capital funds of not less than the equivalent of at
least RM10 million.
Applicants
for a banking license should meet the following minimum
criteria:
- Must
be a bank or financial institution;
- Must
possess sound track record;
- Must
be accorded a good credit rating by acceptable rating
agencies;
- Must
be supervised by a competent regulatory authority;
and
- Must
conform to generally accepted standards of international
banking practices or BIS, as the case may be.
The
applicant is required to submit an application in a prescribed
Form L. The submission should include but not be restricted
to the following:
- the
nature of business of the applicant;
- the
composition of Board of Directors and senior management;
- audited
financial statements for the last two years;
- a three-year
business plan. The business plan should provide detailed
outline of the operations and strategy of the applicant
with regard to its Labuan entity; and
- any
other information which is relevant to the application.
The minimum requirements for issuance of licence are:
- Letter
of awareness from competent regulatory authority which
supervises the applicant;
- Letter
of guarantee or undertaking or both from the parent
company to be furnished to LOFSA; and
- Annual
licence fee of RM60,000.
Upon
issuance of the licence, the offshore bank is required
to comply with the following:
- Statutory
requirements under the OBA;
- Maintain
a physical presence in Labuan;
- Comply
with prudential and reporting requirements issued
by LOFSA;
- Carry
on business in any currency other than the Malaysian
currency except as permitted by the relevant authorities;
and
- Any
other requirement issued by LOFSA from time to time.
Anti-Money
Laundering Legislation:
The
full text of the Anti-Money Laundering Act of 2001 can
be found here.
During
2003, attention was given to the international initiative
against money laundering, with the introduction of the
Anti-Money Laundering (Invocation of Part IV (No.2)) Order
2003. The provision relates to the reporting obligations
of institutions licensed or registered to carry on, among
others, offshore banking, insurance and trust company
business.
BACK TO TOP
 Insurance
Law
The
Offshore Insurance Act 1990 (OIA) governs the licensing
and regulation of offshore insurance and offshore insurance-related
activities in the Labuan IOFC. The OIA provides for the
establishment of a complete spectrum of insurance activities,
namely:
- captive
insurance;
- direct
insurance - life/general/both;
- offshore
reinsurance;
- insurance
manager;
- underwriting
manager; and
- insurance
broker.
The
application submitted by the applicant for a licence to
carry on offshore insurance business should contain the
following information:
- the type
of offshore insurance business the applicant proposes
to carry out under the licence;
- business
plans of the proposed company;
- authenticated
copy of the proposed Memorandum of Association and Article
of Association of the applicant company;
- certified
extracts of the resolutions of the Board and the general
meeting, if any, authorising the applicant to apply
for a licence;
- certified
copy of the certificate of incorporation or registration;
- the
applicant may submit evidence of incorporation after
receiving the LOFSA's approval. However, the licence
will be issued only upon sighting the certificate
of incorporation.
- a copy
of the applicant's audited annual accounts for the preceding
three years;
- applicant's
corporate profile, which includes:
- the
name, place and date of establishment of the applicant;
- the
names, addresses, qualifications and experience
of the directors and officers responsible for the
overall management of the affairs of the applicant;
and
- the
name and address of each member who holds 10% or
more of the voting shares of the applicant.
- declaration
by the applicant on probity of its directors and officers
who are responsible for the management of the offshore
insurer.
The
paid-up capital and solvency requirements were as follows
at the time of writing:
| Type
of Licence |
Min.
Paid-Up Capital |
Solvency
Requirement |
| Captive |
RM
0.3m |
RM
0.3m |
| General |
RM
7.5m |
RM
7.5m or 20% of premium income |
| Life |
RM
7.5m |
RM
7.5m or 3% of liabilities |
| Composite |
RM
7.5m |
RM
7.5m or the sum of 20% of general premiums and 3%
of life liabilities |
| Insurance |
RM
10m |
RM
10m |
The
applicant must submit a banker's certificate as evidence
that the working funds are maintained in the account of
the applicant with a bank in Labuan; and may apply for flexibility
to pay up less than 100% of the working funds required,
subject to the provision of adequate guarantee, acceptable
to LOFSA for the difference in amount.
The applicant must establish its management in Labuan with
at least one director resident in Labuan or has appointed
or will appoint a licensed offshore underwriting manager
in Labuan; may set up a marketing office in Kuala Lumpur
to facilitate meetings and business dealing with clients.
The number of staff at the marketing office should not exceed
four, comprising of two officers at a junior level, a secretary
and a driver; and the controller, director and chief executive
officer must be a fit and proper person.
All licensees are required to pay to LOFSA annual licence
fees on or before January 15 of each year. The levels at
the time of writing were:
- general/life
insurer : RM 30,000
- composite
insurer : RM 60,000
- captive
insurer : RM 10,000
- insurance
manager, underwriting manager : RM 5,000
and insurance broker
Offshore
insurers are required to submit within six months after
close of each financial year-end:
- 4 copies
each of their audited annual balance sheet, profit and
loss account, revenue account and, in the case of life
insurance business, also an actuarial valuation report;
- a foreign
offshore insurers established as a branch in Labuan
is also required to submit the latest audited annual
balance sheet of its parent company; and in the case
of other insurance-related entities, they are only required
to submit 4 copies each of their audited annual balance
sheet and profit and loss account.
Offshore
insurance managers and offshore underwriting managers are
required to submit within 30 days from the close of a financial
year, a list of all offshore insurers for whom such licensed
offshore insurance managers provide administration services
or such licensed offshore underwriting managers provide
underwriting services.
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