The Labuan Offshore Financial Services Authority (LOFSA) is the regulatory body set up to spearhead and coordinate efforts to promote and develop Labuan as an International Offshore Financial Centre (IOFC).
LOFSA is expected to streamline the government machinery in supervising the offshore financial services industry and undertake research and development works as well as to draw up plans for further growth and efficiency of the Labuan IOFC.
LOFSA administers major offshore operations in the area of banking, insurance, securities, trust and fund management, and incorporation/registration of companies.
To date more than 1600 offshore companies had setup procedures in Labuan. These include trust companies, offshore banks and insurance and insurance related companies.
Incentives offered under this legislation include the following:-
An offshore company carrying on an offshore trading activity can choose to pay a tax at the rate of 3% of its net audited profits or a fixed sum of RM20,000 a year;
An offshore company carrying with an offshore non-trading activity for the basis period for a year of assessment is not subject to tax for that year of assessment. An just offshore company which has no basis period for a 12 months of evaluation is taxed a set rate of RM20,000 for the year of evaluation.
Abatement of Tax for Professional Services
Income derived by a person or his employee or a company from qualifying professional services rendered to an offshore company in Labuan is exempt from tax up to an amount equivalent to 65% of the statutory income from that source. This exemption is applicable from the Year of Assessment 1992 to the entire year of Evaluation 2000. Qualifying professional service means legal, accounting, financial or secretarial service and includes the services provided with a trust company as defined in the Labuan Trust Companies Act 1990.
Abatement of Taxes for Business Relating to or Letting of a Qualified Asset
Income of a person derived from the carrying on of the business which relates to a qualifying asset or the letting of a qualifying asset in Labuan, is exempt from taxes up to a quantity equal to 50% of the adjusted income from that source. This exemption applies where the person has undertaken the construction project of the qualifying asset himself or has purchased that qualifying asset from the person who undertook the construction project of that asset.
This exemption does apply for a period of five consecutive years of assessment, commencing from the year of assessment in which the adjusted income first arises from that source, that is, the total exemption given to both the person who constructed and the individual who purchased the qualifying asset will not exceed five many years of assessment.
The incentive is available if the construction project of the qualifying asset has commenced before 1 October 1996 or Pioneer Status/Pioneer Certificate or Investment Tax Allowance has been granted under the Promotion of Investments Act 1986 in respect of the business which pertains to or the making of the qualifying asset.
Abatement of Tax for Employment
Income derived by a noncitizen individual from an employment exercised in a managerial capacity in an offshore company in Labuan is exempt from tax up to an amount equivalent to 50% of the gross income from that employment. This exemption applies from the Year of Assessment 1992 to the entire year of Evaluation 2000.
Exemptions from Tax
The following exemptions are available under the Income Tax Act 1967 effective from the Year of Assessment 1991:
(a) Dividend received by an offshore company from a Malaysian resident company is not at the mercy of income tax and no refund or set-off is given according of taxes deducted from such dividend.
(b) Dividend paid by an just offshore company out of income produced from an offshore business activity or away of exempt income is not subject to income tax in the hands of the recipient. Such dividend will be paid gross without any tax deducted at source.
(c) Distribution made by an just offshore trust is not at the mercy of tax in the hands of the beneficiary.
(d) Royalty paid by an offshore company to a non-resident person or another just offshore company is not subject to income tax and hence is not at the mercy of withholding tax.
(e) Interest paid by an offshore company to a nonresident person or another offshore company is not subject to income tax. However, where in fact the interest accrues to a banking, finance company or insurance business carried on by the nonresident person in Malaysia, that interest will be at the mercy of income tax as part of business income.
(f) Interest paid by an offshore company to a resident person, other than a person carrying on a banking, finance company or insurance business in Malaysia, is not subject to income taxes.
(g) Technical or management fee paid by an just offshore company to a non-resident or another offshore company is not at the mercy of income tax.