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Labuan continues to grow as offshore financial center

July 5, 2012

The Labuan Financial Services Authority (FSA) has released its 2011 Annual Report which shows continued growth in the key business sectors of the Labuan International Business and Financial Centre (IBFC).

In that Annual Report, it was noted that, supported by its strategic location and financial infrastructure, the business activity and financial service sectors in the Labuan IBFC continued to record positive growth, with strong growth seen in the banking, insurance and reinsurance, captives and leasing sectors.

At the same time, it was pointed out that the regulatory and supervisory framework has been continuously strengthened by the FSA so as to promote the integrity and resilience of the Labuan financial sector.

A total of 651 new companies were incorporated in Labuan in 2011, representing an increase of 8.1% over 2010. By the end of the year, out of the total of 8,655 Labuan companies, 72% were from the Asia-Pacific and Far East region, followed by 13% from Europe and the 10% from the Americas.

The leasing sector was one of the most vibrant sectors in Labuan during the year, with a strong increase in the number of leasing companies to 227 and accumulated assets leased of USD 27.6 bn. The focus of the leasing companies in the highly specialized areas of aviation and oil and gas provided strong support for the growth and development of the oil and gas sector in Labuan.

The Labuan banking sector also reported a steady rise in total assets by 13% to USD38.3bn as at end-2011. Two new banks from Australia and Ghana obtained licences to operate, bringing the total number of Labuan banks to 57.

The insurance sector in the IBFC remained resilient despite various episodes of natural disasters within the region during the year. Total insurance assets increased by 16.1% to USD3.6bn and total earned premium income for the sector also grew by 45.1%.

In addition, total Islamic assets registered a growth rate of 15.4% to USD1.5bn, reflecting the strong interest in Islamic finance. Total Islamic bank financing increased significantly to USD294.6m as at end-2011, with strong demand from non-residents.

Since the introduction of the Labuan Global Incentives for Trading (GIFT) programme in September 2011, five trading licences had been issued, enabling Labuan International Trading Commodity (LICT) companies to benefit from incentives under the programme.

The key incentives offered through the LICT under the GIFT programme include a flat corporate tax rate of 3% of chargeable income, a 100% exemption on directors fees paid to non-Malaysian directors, and a 50% exemption on gross employment income for non-Malaysian professional traders and managers of LITC companies. There is also an exemption of stamp duties on documentation for such business activities, a tax exemption on dividends received by or paid from LITC companies, and all of the other fiscal incentives that are attached to operating a Labuan entity.

As part of its internal organizational programme, the FSA continued to enhance its capacity and capability to regulate and supervise the IBFC, particularly in ensuring that key risk areas are addressed promptly. Moving forward, the FSA confirmed that it will implement plans to realize the strategic potential of the IBFC to serve the needs of domestic and regional businesses, complemented by a continuous strengthening of its regulatory and supervisory framework to meet international standards and best practices.

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