Labuan Digital Financial Services
With the recent explosion of technology-driven innovations within the financial services industry around the world along with the gaining interest in cryptocurrency (Bitcoin, Ethereum and the various alternative coins), Labuan Financial Services Authority (LFSA) launched the Digital Financial Services category to differentiate the FinTech and Blockchain industry players from the conventional, traditional financial players in Labuan itself. This is clearly a move closer to embrace innovative digital financial services which is the trend moving forward.
Why Labuan for Digital Financial Services?
The Labuan jurisdiction has approved 46 Digital Financial Services entities as at 30 June 2020 which includes 3 digital banks, 2 securities exchange and 19 crypto exchanges. According to the recent 2021 Labuan Annual Report, there are 30 newly approved Digital Financial Services entities in the year 2020.
14 Key Benefits of Registering Digital Financial Services Business in Labuan
- Recognised as a mid-shore and as a ‘white list’ jurisdiction
- Well-regulated and supervised jurisdiction under the purview of the Ministry of Finance, Malaysia
- Common Law jurisdiction
- Committed to digital innovation with clear strategic direction up to 2023
- Adheres to international standards of compliance in tax transparency and participation in common reporting standards (CRS) establishing substance
- Fiscal neutrality
- Currency neutrality where operations can be in any foreign currencies of choice supported by bankers
- Cost-efficient enabling environment with English speaking talent and professional expertise and services available from Malaysia and Singapore
- Ideal central location for substance creation for global businesses looking to penetrate Asia or Asian entities aiming to go global and similar time zone
- Ease of accessibility from anywhere in Asia with over many flights serviced by Malaysian national airline and low-cost budget airlines such as AirAsia
- Wide range of ready business structures and solutions to support fintech companies and establishments to kick start operations
- Clear and comprehensive legal provisions, guidelines and practice notes enforced by Labuan Authority
- Access to 72 Malaysia’s Double Tax Agreements (DTAs)
- Shariah-compliant FinTech options
Types of Labuan Digital Financial Services Offered
The innovative digital financial services that are now offered in and through Labuan include:
- Labuan Cryptocurrency or digital currency exchanges and platforms
- Labuan Digital Banks and Labuan Digital Investment Banks
- Labuan Robo-Advisory Services
- Labuan FinTech Funds
- Labuan InsurTech
- Labuan Digital Token Issuance, Initial Coin Offering (ICO) via Credit Token License
- Labuan Security Token (STO) for Fund Raising
All Labuan entities undertaking innovative digital financial services are regulated by the Labuan Authority with the highest standard of market practice to instil confidence within the financial services industry, its players and various stakeholders and to promote longevity of businesses, creating a whole ecosystem.
8 Basic Operational Expectations for Labuan Digital Financial Services Entities
1. Adhere to high standard of professionalism in client dealings and various stakeholders
2. Adequate set of internal guides, manuals, polices and controls
3. Appoint auditor to carry out audits of the company’s financials and proper accounting records to be kept in the Labuan office
4. Ensure each person in control and all officers are fit and proper
5. Maintenance of sufficient unimpaired losses capital
6. Meet substance requirements with employment of minimum full time employees (FTEs) and minimum expenditure
7. Internal business audit assessments
8. Regular compliance and reporting to Labuan FSA, Inland Revenue and relevant authorities
7 Key Regulatory Expectations for Labuan Digital Financial Services Entities
1. Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT)
2. Business Continuity plan
3. Corporate Governance
4. Cyber risk management, security, resilience and governance
5. Disaster recovery plan
6. Exit plan strategy
7. Market Conduct Requirements
Tax Framework for Labuan Digital Financial Services Entities
5 Key Tax Benefits are:
- Low tax of 3% on net audited profits
- No capital gains tax, stamp duty, sales tax, taxes on royalties
- Zero Witholding Tax on Interest, Management, Royalty and Technical Fee
- 100% exemption of director’s fee received by non-Malaysian citizens acting in the capacity of a Director of a Labuan entity until year of assessment 2025
- Access to 72 Malaysia’s Double Tax Agreements (DTAs)
Labuan Business ‘One Platform’ provides a one-stop application solution for Labuan Digital Financial Services Entities Set Up which includes:
- Advisory, crafting of Business Plan, Operation System manuals, AMLA/KYC manuals and all other documents required by the relevant authorities
- Due diligence, preparation of all necessary documents for the application form submission to approval follow-up including arranging an interview with Labuan FSA (if any) and compliance officer qualifying
- Submission and supervise the application process
- Act as your liaison and contact point with Labuan FSA for all correspondence and arrange an interview (if any)
- Track the license approval and attend all queries from Labuan FSA
- Advisory on the right company structure after approval
- Business Continuity Plan write up, implementation and on-going reporting
- Compliance Operation System set up including reporting guidance
- Bank account set up onshore and offshore
- Operation office set up @ Labuan
- Marketing office set up @ anywhere in Malaysia
- Company Buy-Outs, Mergers and Acquisition and Succession Planning
Why our Trust Company for Your Labuan Digital Financial Services Entity Set Up?
We are a full-fledged licensed Labuan Trust Company (Trust License No. LT 0034) with a highly experienced team of dedicated professionals handle all license applications. We provide complete “one-stop” solutions in pre-assess, meet, planning, structuring, establishment and corporate service for your Labuan Digital Financial Services Entity set up, ensuring you get a bespoke service that meets your digital business needs as well as onwards operation.
Feel free to contact us at +6012-2889809 or send us an inquiry to [email protected] to check on your eligibility to apply for the Labuan Digital Financial Services entity. Labuan Business ‘One Platform’ is designed to elevate your Labuan operations efficiently!
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Labuan Jurisdiction welcomes anyone who is interested to set up a Compliant Cryptocurrency Exchange to operate in an offshore environment. They can enjoy lower tax and owned 100% without local Malaysian interference. For those who are in the Crypto Exchange business, they can Legalize their Cryptocurrency Exchange to operate in Labuan under the supervision and regulation of Labuan Financial Services Authority.
Companies are encouraged to have competent and up-to-date KYC (know-your-client) and compliance system for onboarding and maintenance of clients and ICO (initial coin offering) companies are recommended to plug-in to comply with Malaysia Anti-Money Laundering regulations and law to enable your business to stay long and prosperous. For Labuan Crypto Exchange intends to launch the ICO at the same, it is permitted. For more information, please refer to Labuan Company For ICO License.