Labuan is a prime jurisdiction for establishing leasing companies. In a recent trend, Malaysian entities are increasingly opting for Labuan as their leasing company's home ground. The unique appeal lies in the Labuan leasing framework's permissibility to engage with local Malaysian entities and individuals, fostering a dynamic and inclusive business environment.
Labuan Leasing companies enjoy a host of benefits, including favourable tax incentives and a regulatory landscape that actively supports their establishment. The Labuan Financial Services Authority (Labuan FSA) has orchestrated innovative leasing structures, strategically designed to empower businesses in significantly reducing their operating costs. This visionary approach positions Labuan as the destination of choice for those seeking a conducive and cost-effective environment to kickstart and nurture their leasing enterprises.
What is a Labuan leasing business?
Labuan leasing is the business of letting or subletting property on hire for utilisation by the lessee, regardless of whether the letting is with or without an option to purchase.
The property includes the following:-
- Plant, machinery, and equipment
- Chattel - attached or to be attached to the earth
- Charters of ships - limited to bareboat charters, excluding the transportation of passengers, cargo by sea, or chartering of ships on a voyage or time charter basis.
What sets Labuan leasing apart is it provides a versatile platform for businesses to thrive. A Labuan leasing business could be conducted through conventional means or in accordance with Shariah principles.
Benefits of Labuan leasing business' tax structure
- Labuan leasing company is taxed at 3% on net profits.
- NO withholding tax on lease rentals disbursed by Labuan Leasing Company to Foreign Company or Foreign Financier.
- Leverage Malaysia's double tax agreement to reduce withholding tax on lease rentals received from foreign customers.
- Lease rentals paid by Malaysian customers are qualified for a 75% deduction.
- Liberal exchange control environment in Labuan.
Why Choose Labuan
Strategic location to tap into the Asia Pacific market
Shared time zone with major Asian cities for seamless interaction
Excellent infrastructure and regulations within the Labuan IBFC
OECD whitelist jurisdiction status
Recognised by prominent exchanges for entity listing (such as Hong Kong, Singapore, Malaysia, Australia, and Dubai Exchanges)
100% foreign ownership with a minimum requirement of 1 shareholder and 2 directors
Low corporate tax rate of 3%
Absence of withholding tax, stamp duty, GST, import duty, sales or service tax, capital gains tax, inheritance tax
Void of tax on dividends to shareholders
Void of tax on director fees for foreign directors
Licensing & Operational Requirements of a Labuan Leasing Business
- Have sufficient and positive capital or working funds that are commensurate with the Labuan leasing business*. Labuan FSA may exercise its discretion to require a Labuan leasing company to inject additional capital, considering its business profile as well as the nature, scale, complexity, and diversity of its business activities.
- Considerations shall include but not limited to the volume of the business, value of the assets leased, leasing arrangement, i.e. operating or finance lease.
- Establish and maintain an operational office in Labuan with an adequate number of full-time employees. The operational office should be used for business purposes only and must be appropriately furnished with office equipment. A group with more than one Labuan leasing company may share the same office space.
- Incur adequate annual business spending in Malaysia including Labuan in undertaking the Labuan leasing business.
- The core income-generating activities are expected to be carried out from the Labuan office. Typically, the activities may include identifying and acquiring of assets to be leased, negotiating leasing terms, soliciting lessees, management of leased assets, and financing the acquisition of assets.
- Ensure directors and officers responsible for the management are fit and proper.
- Establish internal policies and controls for operations, compliances, corporate governance, and risk management and regularly review them to ensure that they remain appropriate, relevant and prudent.
- Adequately insure all leased assets. In this regard, Labuan leasing companies are 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. For this purpose, the requirement of paragraph 12 would need to be observed prior to entering into such an insurance arrangement.
- Maintain adequate and proper records and books of accounts in Labuan, adhering to Labuan FSA’s Directive on Accounts and Record-keeping Requirements for Labuan Entities. Its name and company number must be clearly indicated on its letterhead, stationery and other documents.
- Maintain bank account(s) under the company’s name, preferably in Labuan and/or Malaysia, facilitating leasing operations and lease remittances/lease rental payment transactions.
- Ensure the lease agreement is stamped and endorsed by the Collector of Stamp Duties at the Stamp Duty Office of Inland Revenue Board of Malaysia, Labuan branch.
- Ensure that all leasing transactions with any of its related parties are conducted on an arm’s length basis and are subjected to the transfer pricing rules and guidelines issued by relevant authorities.
- Comply with applicable laws, rules and regulations relevant to the leasing business, including relevant guidelines issued by Labuan FSA and regulatory requirements of the jurisdictions where Labuan leasing business is authorised to operate in (where applicable).
- Obtain necessary approvals from relevant authorities in the markets it intends to operate before commencing, providing a copy of the approvals to Labuan FSA.
- New and subsequent leasing transactions.
- New appointment or change of directors and shareholders.
- Any change in lessee or leased assets.
- Establishment of office outside Labuan and establishment or acquisition of a subsidiary.
- Consultation on eligibility and procedural guidance tailored to your profile.
- Profiling, due diligence and guidance on documentation preparation.
- Preparation of Business Plan, Financial Forecast and Operation Manuals.
- Submission and supervision of the application process until approval.
- Acting as your liaison and contact point with LFSA, arranging for interviews (if any).
- Tracking the license approval and handling all queries from LFSA.
- Advisory services on the appropriate company structure post-approval.
- Assistance in setting up onshore and offshore bank accounts.
- Assistance in establishing operational and marketing or co-located offices.
- Staff provision and office space rental.
- Internal audit and compliance advisory.
About FAA Advisory Limited
Comprising a team of seasoned professionals well-versed in Labuan's business landscape, FAA Advisory Limited extends a comprehensive suite of services covering corporate services, private wealth management, and licensing compliance administration, all tailored to meet the unique needs of our clients.
At FAA Advisory Limited, our expertise lies in delivering Labuan insights that facilitate business expansion, simplifying intricate processes, and offering valuable information to guide you through various facets of your journey.
Choose FAA Advisory as your trusted partner in navigating the dynamic business landscape of Asia. With our commitment, we are your gateway to success in Labuan and beyond.
Email: advisory@finarkasia.com | Phone number: +6010-931 6678