Labuan Table of Statutes
This is a non-exhaustive list of the main Malaysian statutes
affecting Labuan, and its offshore and non-resident business.
The statutes are listed in alphabetical order – click
on the statute for a fuller description of the statute, the
legal regime it forms part of, or in some cases the text of
Anti-Money Laundering Act 2001
Anti-Money Laundering (Invocation of Part IV (No.2)) Order
The Malaysian Companies Act 1965
Mutual Assistance in Criminal Matters
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,"
"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
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
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
In February 2010, new laws which, it is hoped, will substantially
improve Labuan’s competitive edge in international financial
markets came into effect.
A total of four new acts, together with radical amendments
to a further four existing laws, will completely change the
way in which Labuan carries on its financial services business.
With the enactment of the new laws, the Labuan Offshore Financial
Services Authority has been re-named the Labuan Financial
Services Authority (Labuan FSA).
Dato Azizan Abdul Rahman, the Director-General of Labuan
FSA said: “These far-reaching changes cover all financial
activities in Labuan International Business and Financial
Centre – from banking, insurance, leasing and company
incorporation right through to the creation of Islamic financial
products and services. Apart from that, the changes have taken
into consideration all aspects so that we are ahead of accepted
international standards and practices.”
In particular, an additional clause to the Labuan Offshore
Business Activity Tax Act will enable the island to adopt
the internationally-agreed Organization for Economic Cooperation
and Development standard for the exchange of information for
tax purposes in double taxation agreements (DTAs).
It provides power to the Director General of Inland Revenue
to call for information from any person as he may require
for the purpose of compliance with any DTAs entered into by
the government of Malaysia. It allows the disclosure of any
information on a DTA to any authorised agent of the government
with whom Malaysia’s government has made such an agreement,
and upon a request from a tax authority of any government
of any country outside Malaysia.
Furthermore, any person may request for an advance ruling
from the Director General of Inland Revenue on the application
of any provision of the Tax Act to a particular type of arrangement.
Subject to certain qualifications, a ruling issued under this
proposed section is binding on the person who requested for
such ruling and on the Director General of Inland Revenue.
The new laws allow for the creation of Labuan foundations,
limited liability partnerships, protected cell companies (insurance
and mutual funds), shipping operations, Labuan special trusts
and financial planning activities. These complement the existing
available range of products and services and aim to provide
investors with a wider choice of financial products to maximise
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Labuan 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
An "offshore trust" is defined
in the Act as a trust which complies with all the following
- 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
- 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;
- the claims of creditors in an insolvency (see,
- 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;
- 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
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
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Labuan 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
An applicant setting up a subsidiary has to provide capital
funds of at least RM10 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
- Must be a bank or financial institution;
- Must possess sound track record;
- Must be accorded a good credit rating by acceptable rating
- Must be supervised by a competent regulatory authority;
- 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 RM80,000 (at the time of writing).
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
- Carry on business in any currency other than the Malaysian
currency except as permitted by the relevant authorities;
- Any other requirement issued by LOFSA from time to time.
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.
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Labuan 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
- 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
- the applicant may submit evidence of incorporation
after receiving the LOFSA's approval. However, the
licence will be issued only upon sighting the certificate
- 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
- the names, addresses, qualifications and experience
of the directors and officers responsible for the
overall management of the affairs of the applicant;
- 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.
Comprehensive nformation on the paid-up capital and solvency
requirements is available here.
The requirements were as follows at the time of writing:
Type of Licence
Min. Paid-Up Capital
RM 7.5m or 20% of premium income
RM 7.5m or 3% of liabilities
RM 7.5m or the sum of 20% of
general premiums and 3% of life liabilities
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
- Master-rent-a-captive and subsidiary rent-a-captive
RM13,000 and RM3,000 each.
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
- 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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