Labuan International Commodity Trading Company
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On 26 June 2013, the Labuan Financial Services Authority (“Labuan FSA”) re-issued the Guidelines on establishment of Labuan International Commodity Trading Company (“LITC”) under the Global Incentives for Trading (“GIFT”) programme setting out the parameters relating to the establishment and operation of the LITC.

The GIFT programme is a framework of incentives for traders of specified commodities to use Malaysia as their international trading base to undertake international commodity trading business in Labuan IBFC.

A. Specified Commodities under GIFT Programme
  1. The Labuan international commodity trading business under the GIFT programme is the trading of physical and related derivative instruments of –
    1. .1   Petroleum and petroleum-related products including liquefied natural gas (LNG);
    2. .2   Agriculture products;
    3. .3   Refined raw materials;
    4. .4   Chemicals; and
    5. .5   Base minerals,
    in any currency other than Ringgit Malaysia.
  2. Under this programme, a LITC must be established and licensed by the Labuan FSA under the Labuan Financial Services and Securities Act 2010 (“LFSSA”)
  3. LITC is to deal only with non-residents in any currency other than Ringgit Malaysia. However, LITC that trades commodities as specified under paragraph 1.1 above and coal is permitted to deal with residents in any currency other than Ringgit Malaysia. “resident” here means -
    • in relation to a natural person, a citizen or permanent resident of Malaysia; or
    • in relation to any other person, a person who has established a place of business, and is operating, in Malaysia
  4. LITC is allowed to establish its operational office(s) anywhere in Malaysia. LITCs are encouraged to utilise Malaysia’s support functions which may include but not limited to:-
    • Strategic management
    • Banking, finance and treasury management
    • Risk management
    • Market research and product portfolio development
    • Logistics management
    • Global procurement; or
    • Marketing and sales planning

B. Qualifying Criteria
  1. A LITC is required to meet the following criteria after five (5) years from the date of license (“Criteria”):
    • Minimum annual turnover of USD100 million;
    • Minimum annual business spending of RM3 million payable to Malaysian residents; and
    • To employ at least three (3) professional traders with a minimum salary of RM15,000 per month each and being resident of Malaysia in a calendar year for a year of assessment under the Income Tax Act 1967
  2. Hence, for the first five (5) years from the date of license, a LITC is exempted from complying with the Criteria.
  3. Any non-compliance with the Criteria shall be subject to general penalty under the LFSSA.

C. Tax Attractivenes
  • LITCs will be subject to a corporate tax rate of 3% of chargeable profits as reflected in the audited accounts, under the Labuan Business Activity Tax Act 1990 as per the relevant exemption order.

D. Other Incentives Applicable for LITC
  • 100% tax exemption on director fees paid to non-Malaysian director of the LITC
  • 50% tax exemption on gross employment income of Non-Malaysian professional, managerial staff including traders with the LITC
  • Tax exemption on dividends received by or from the LITC
  • Tax exemption on royalties received from the LITC
  • Tax exemption on interest received by resident or non-resident from the LITC
  • Stamp duty exemption on all instruments for Labuan business activities, M&A of the LITC and transfer of shares

E. Operational Requirements of the LITC
  1. Must have sufficient capital / working funds to commensurate or in accordance with its operations and activities
  2. Maintains a registered office in Labuan, which is the office of its Labuan trust company
  3. Allowed to establish its operational office(s) anywhere in Malaysia but is required to provide the details (address and number of staff of its operational office) to Labuan FSA upon commencement of business
  4. Indicate clearly on its letterhead, stationery and other documents including signage containing its name that it is licensed as a “Labuan International Commodity Trading Company” under LFSSA, together with its license number
  5. Must ensure that the business is conducted with proper corporate governance and risk management framework is in place
  6. To submit to Labuan FSA the following:
    • A copy of its audited financial statements within six (6) months after the close of each financial year; and
    • Annual Update Submission Form issued by Labuan FSA not later than 15 February of each calendar year
  7. The LITC is expected to comply with other requirements of the Labuan Companies Act 1990 (LCA), LFSSA and the relevant laws where the LITC operates, whichever applicable

F. Fees

License processing fee (once-off) RM1,000
Annual license fee RM40,000

The annual license fee is payable when the license is approved by Labuan FSA and remains valid until 31 December of the year of approval. This annual license fee can be included as part of the qualifying expenses under the Criteria.

Subsequent annual license fee is payable on or before 15 January of each calendar year

G. Application for License

Any person intending to undertake Labuan international commodity trading business under the GIFT initiative may submit an application to Labuan FSA for Licence to Carry on Labuan Financial Business under LFSSA together with the abovementioned processing fee.

Upon receiving approval from the Labuan FSA, the applicant is required to establish a Labuan company incorporated or registered under LCA.

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