Labuan Offshore Banking

Offshore banking can only be carried on in Labuan by an offshore company or a foreign offshore company incorporated or registered for that sole and exclusive purpose, and by an office, branch or subsidiary of a licensed Malaysian bank.

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To apply for an offshore banking licence, an application needs to be made to the Labuan Offshore Financial Services Authority (LOFSA) providing a guarantee and minimum capital funds of RM10 million. An annual fee of RM80,000 (at the time of writing) is payable to the Central Bank no later than 15 January. Accounts have to be audited and filed with the Central Bank annually.

An offshore bank may conduct a wide spectrum of financial activities, including the management of investment portfolios, accepting foreign currency deposits, borrowing or lending money to Malaysian residents, making loans to foreigners to purchase properties situated within Malaysia, granting loans to non-residents, securitisation, leasing, investment banking, Islamic banking and others.

In 1999, in response to problems caused by the Asian crisis in 1998, Labuan liberalised its entry criteria for offshore banks. Other changes included permitting offshore banks to trade in ringgit instruments in the secondary market which would allow them greater access to ringgit business as well as to promote money market operations in Labuan. They are also allowed to purchase ringgit instruments in the primary market using foreign currency.

In August 2009, Petronas issued a landmark dual-tranche USD4.5bn bond/sukuk, domiciled in Labuan and managed by Bank Negara Malaysia.

The Malaysian national oil company’s issue consists of a USD3bn 10-year fixed-interest USD bond and USD1.5bn five-year sukuk (sharia-compliant bonds). Foreign-currency issues out of the Labuan International Business and Financial Centre (LIBFC) have now been named “Emas”, in an attempt to provide added exposure for the LIBFC and Malaysia as a means of attracting funds.

It was announced that the Petronas issue was very successful, having generated interest from a wide investor base and being five times oversubscribed. The sukuk was sold mainly to investors in Asia and Europe, while the USD bond was also sold in the US. The issue is expected to be listed on the Labuan International Financial Exchange and the Bursa Malaysia, and also on the Luxembourg Stock Exchange.

It was hoped that the issue’s success would show that Malaysia could be utilized not only for the origination of domestic ringgit bonds and sukuk, but also for foreign-currency denominated bonds and sukuk. The issuance of sukuk is becoming of increasing importance worldwide.

The larger goals are now said to be to offer a wider range of services in the LIBFC through an amended Labuan Financial Services Authority Act, and to become an Islamic financial centre through a Labuan Islamic Financial Services and Securities Act. Both laws are currently before parliament.

Labuan Trust Management

A trust company must be incorporated or registered under the Malaysian Companies Act before it can be licensed to carry on a trust business in Labuan. As the offices of the trust company are privy to confidential information, there are very strong secrecy provisions in the Labuan Trust Companies Act prohibiting disclosure of information unless requisitioned by a court.

A trust company is required (at the time of writing) to have a minimum authorised and paid up capital of RM500,000 and RM150,000 respectively, and to deposit RM100,000 with the Accountant-General as a security deposit. A nominal annual licence fee is payable.

A Labuan trust company may act as a trustee, agent, executor or administrator pursuant to its memorandum, and may provide share registration services, administer, manage or otherwise deal with property as an agent or trustee, maintain an office, agency or branch for another company, provide management and accounting services, directors, secretaries and registered offices of offshore companies, and incorporate and register offshore companies.


Request information on opening an Offshore Labuan Bank Account

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