Leasing Via Labuan International Business Financial Centre (“IBFC”)
Print ready version

On 1 August 2013, the Labuan Financial Services Authority (“Labuan FSA”) issued the Guidelines on establishment and operations of Labuan Leasing Business (“the Guidelines”). The Guidelines supersedes the Guidelines for Carrying on Offshore Leasing Business in Labuan issued in March 2003 by the Labuan FSA.

The Guidelines are applicable to all Labuan companies carrying out leasing business and Islamic leasing business in Labuan IBFC. The governing legislations of leasing activities in Labuan are the Labuan Financial Services and Securities Act 2010 (“LFSSA”) and the Labuan Islamic Financial Services and Securities Act 2010.

All approvals made by the Labuan FSA relating to Labuan leasing business before the commencement of the Guidelines shall remain valid unless revoked until the expiry of the lease transaction.

“Labuan leasing” means the business of letting or sub-letting property on hire for the purpose of the use of such property by the hirer, regardless whether the letting is with or without an option to purchase the property, including charters of ships. For the purpose of this definition, “property” includes any plant, machinery, equipment or other chattel attached or to be attached to the earth. “Charter of ships” means bareboat charters only and does not include transportation of passengers or cargo by sea or the charter of ships on a voyage or time charter.

    A. Favourable Labuan Tax Structure
  • Tax on Labuan trading activities (including leasing) upon election annually :-
    *3% of net profits as per audited accounts; OR
    *RM20,000/-

    Note:
    Leasing activities fall within the definition of Labuan Business Activity and leasing company are taxable at an option of either 3% on net audited profits or a flat tax of RM20,000/-

  • Withholding tax exemption on payments made to non-residents :-
    *Dividend
    *Interest
    *Technical fee
    *Royalty (lease rental)

  • No stamp duty on all instruments relating to offshore business activities including share transfer
  • No import duty / sales tax
  • No foreign exchange controls
  • No capital gain tax / inheritance tax
  • Double Tax Agreements between Malaysia and over 70 countries
  • 50% tax abatement for expatriate professionals and managers employed under Labuan companies
  • 100% exemption for director’s fees received by non-citizen directors of Labuan companies
    B. Examples of Labuan Leasing Structure
    1) Benefits:
  • The Labuan Leasing Co is taxed at RM20,000/- or 3% of net audited profits
  • No withholding tax on lease rental received from Malaysian Customers
  • No withholding tax on lease rental payable by Labuan Leasing Co to Foreign Co
  • Access to benefits under Malaysia’s DTAs to reduce withholding tax on lease rental received by Labuan Leasing Co from Foreign Customers
  • Liberal exchange control environment in Labuan

  • 2) Benefits:
  • The Labuan Leasing Co is taxed at RM20,000/- or 3% of net audited profits
  • No withholding tax on lease rental received from Malaysian Customers
  • No withholding tax on interest payment payable by Labuan Leasing Co to Foreign Financier
  • Access to benefits under Malaysia’s DTAs to reduce withholding tax on lease rental received by Labuan Leasing Co from Foreign Customers
  • Liberal exchange control environment in Labuan
C. Fees for LabuanLeasing Company in Labuan IBFC

The annual leasing licence fee is only applicable when a Labuan leasing company embarks into a leasing transaction with Malaysian resident, although its initial leasing transactions are conducted with non-Malaysian resident entities. The subsequent leasing transaction fee would also be applicable for any subsequent transaction with Malaysian resident. The annual licence fee is payable to Labuan FSA upon approval to undertake leasing transaction with Malaysian resident and remains valid until 31 December of the year of approval. All licensees are required to pay to Labuan FSA subsequently the following annual licence fees on or before 15th January of each calendar year:-



  • Lease transaction with Malaysian resident
    * RM60,000/- Annually
    * RM20,000/- One off (Each subsequent lease transaction)
    * Processing Fee is RM1,000/- per application

  • Transaction with Non-Malaysian resident / other Labuan company -
    * Nil (but still have to submit application to Labuan FSA for each transaction)
    * Processing Fee is RM1,000/- per application
    D. Operational Requirements
  • Maintain bank account(s) under its name preferably in Labuan IBFC and Malaysia to facilitate the leasing operation including lease remittances / lease rental;
  • Lease agreement is duly stamped and endorsed by the Collector of Stamp Duties at the Stamp Duty Office, Inland Revenue Board of Malaysia;
  • Transact business only in foreign currency and not dealing in Malaysian Ringgit except for the purpose of defraying administrative and statutory expenses;
  • Notify Labuan FSA of any changes to its constituent documents and business plan within 30 days of the changes being effected;
  • Obtain an approval from Labuan FSA on new appointment or change on its directorship and shareholding;
  • Notify Labuan FSA on the termination / extension of any leasing transaction within 30 days upon the termination / extension;
  • Obtain prior approval from Labuan FSA for any change of lease asset for leasing transaction with Malaysian residents;
  • Ensure all leasing transactions and agreements are done through Labuan and adequate and proper records and books of accounts be maintained in Labuan;
  • Conduct its business with due diligence and sound principles and comply with the laws and regulations where it services its clients;
  • Ensure all its leased assets are adequately insured;
  • Ensure that the directors and officers responsible for the management of the company are fit and proper persons pursuant to section 4 of LFSSA and the Guidelines on Fit and Proper Person issued by Labuan FSA;
  • Ensure that all leasing transactions with its related party comply with the transfer pricing rules issued by the related party’s relevant authorities;
  • Comply with any other requirements to be issued by Labuan FSA from time to time;
  • Subsequent leasing transactions with Malaysian residents are subject to Labuan FSA’s prior approval and payment of subsequent transaction fee;
  • Subsequent leasing transactions with non-residents only require notification to Labuan FSA within 30 days after the execution of the lease agreements. Certified true copy of the final lease agreement between the lessor and the lessee, duly stamped and endorsed by the collector at Stamp Duty Office of the Inland Revenue Board of Malaysia must be submitted to the Labuan FSA;
  • Any change in the lessee will be considered as subsequent leasing transaction and requires prior approval from Labuan FSA for transaction with Malaysian residents and notification for transaction with non-residents.
    E. Reporting Requirements
  • Appoint an approved external auditor to undertake an audit in respect of its accounts and business operations;
  • Submit to the Supervision and Enforcement Department of Labuan FSA within six (6) months after the close of each financial year, a copy of its audited financial statements; and
  • Provide statistics and information as may be required by Labuan FSA in relation to prudential information, general business conduct and volume and direction of business in Labuan.
    F. Others
  • Labuan leasing companies that carry on charters of ships under the Guidelines are encouraged to register their ships under the Malaysia International Ship Registry or Malaysia Ship Registry as provided in the Merchant Shipping Ordinance 1952.
  • Labuan leasing companies are also encouraged to primarily secure the insurance coverage for their leased assets / properties from Labuan-based insurance companies and takaful operators prior to securing the services of other insurance players elsewhere.
  • The Guidelines shall exclude and not applicable for the underlying leasing transaction which are done for the purpose of facilitating the issuance of Sukuk Al-Ijarah.
    G. How to set up a leasing structure in Labuan
  1. Application For Leasing Licence Requirements
    Proposed leasing transactions via Labuan companies with resident and non-residents are subject to the Labuan FSA’s approval. An applicant is required to submit application of which the submission should include the following:

    A business plan detailing the operations of the applicant with regard to its Labuan entity and the nature of the leasing transactions, including whether they would be conducted with residents or non-residents;
    • Group corporate shareholding structure;
    • Diagram of leasing transaction;
    • Composition of its Board of Directors and senior management. Prior written approval from Labuan FSA must be obtained for any appointment of director, person in control or Chief Executive Officer, who must be a fit and proper person; and
    • Any other information required in the prescribed Form.tt may be

    Labuan FSA takes at least twenty-one (21) days to process the leasing licence applications, provided that all information and documents required by the Authority are complete and in order.

  2. Incorporation of Labuan company Upon obtaining the approval-in-principle from Labuan FSA, we will proceed to establish the Labuan company.
  3. Payment of annual licence fees (for transaction with Malaysian resident) and complying with conditions precedent of Labuan FSA The prescribed annual licence fees must be paid to Labuan FSA and all conditions precedent imposed by Labuan FSA must be met before the Labuan company may commence its leasing activities.
H. Annual Obligations
Annual Licence Fee Payable on or before 15 January of each calendar year for transaction with Malaysian resident (also refer to item C)
Annual Return A Labuan Company is required to lodge an annual return once in each calendar year not later than thirty (30) days prior to the anniversary of the date of its incorporation
Annual Government Fee A Labuan Company shall pay an annual fee of such amount as may be prescribed on or before its anniversary date of incorporation
Adoption of accounts To adopt accounts within 9 months from its financial year. However, please note that under item E above, a leasing Labuan company must submit its audited financial statements to Labuan FSA within six (6) months after the close of each financial year
Annual Tax Filing A Labuan Company carrying on a Labuan business activity shall be charged to tax in accordance with the Labuan Business Activity Tax Act 1990 (“LBATA”) for each year of assessment in respect of that Labuan business activity.

Annual tax return needs to be filed with the Malaysian Director General of Inland Revenue by 31 March of that year of assessment. Normally, an extension of time for filing is allowed by the Inland Revenue.

Click Here To Contact Us For Further Discussion

The information in this document is not advice of any kind but general information only and should not be relied on as legal advice. Kensington Trust Group recommends seeking professional advice on legal or tax issues affecting you before relying on it. While Kensington Trust Group tries to ensure that the content of this document is accurate, adequate or complete, it does not represent or warrant, express or implied, its accuracy, correctness, completeness or use of any of the information. Kensington Trust Group does not assume legal liability for any loss suffered as a result of or in relation to the use of this document. To the extent permitted by law, Kensington Trust Group excludes any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this document.