INGENIEUR
may also access the majority of Malaysia ’ s DTA network .
Where a Labuan company elects to be taxed under the ITA , this election may , in some cases , facilitate access to the benefits offered under some of the DTAs . The provision of the Labuan Acts , in addition to the Organisation for Economic Co-operation and Development ’ s recognition that Malaysia complies with the international standards for transparency and exchange of information between countries have strengthened Labuan IBFC ’ s position as a major regional and global international business and financial centre .
FOCUS AREAS a . INCORPORATION OF COMPANIES
Holding Companies A Labuan holding company that derives its investment income from a non-trading activity is not subject to tax under LBATA . These tax positions are enshrined in the LBATA and readily accessible . Payments of dividends , interest , service fees and royalties by the Labuan company to non-residents are also exempt from Malaysian withholding tax .
Trading Companies Labuan trading companies may mitigate the risk of creating a taxable business presence in other countries through the Permanent Establishment Article of Malaysia ’ s DTAs . A Labuan trading company can enjoy minimum tax under LBATA and is also able to enjoy certain tax exemptions ( e . g . no withholding tax on dividends / interest / royalty payments from Labuan entity to foreign company ), among other benefits .
Shipping Companies Labuan shipping operations must either be carried out of or in Labuan , or outside of Malaysian waters . There are a number of tax benefits for a ship owner operating out of Labuan IBFC ; in particular , the Labuan shipping company can enjoy tax efficiencies under the LBATA . Further , under Malaysia ’ s DTAs and limited shipping agreements , a Labuan registered vessel may benefit from paying reduced or even no tax in the jurisdictions it visits . b . RISK MANAGEMENT
Captives A Labuan captive insurance business is defined as a Labuan insurance business where the insured party is a related corporation or associate corporation of the Labuan insurer . Third-party risks may also be insured provided it is approved by Labuan FSA . A captive insurer may act as either a direct insurer or a reinsurer . The captive insurer may also underwrite property and casualty businesses as well as contingency coverage . Where a captive insurer wishes to underwrite life insurance , a separate company must be established . Captive insurers can access the reinsurance market at wholesale rates .
Insurance And Reinsurance A Labuan insurance business is a business transacted in a foreign country ( i . e . not in Malaysia ) and in a foreign currency . Labuan insurers may offer reinsurance support to domestic Malaysian businesses pending approval from Labuan FSA . Labuan insurance and reinsurance businesses offer coverage for a wide range of products ; i . e . life , general and reinsurance .
Takaful And Retakaful Malaysia is a pioneer in Islamic finance and is globally recognised as a key centre for takaful and retakaful businesses . The principal models commonly in use are : ( a ) The Wakalah ( agency ) model ; and ( b ) The Mudharabah ( profit sharing ) model . Other Shariah-compliant models may also be adopted as and when it is approved by the takaful / retakaful operator ’ s Shariah Supervisory Advisory Board .
Labuan IBFC allows various types of insurance and captive insurance opportunities to be conducted via a Labuan company or a protected cell company ( PCC ). Under the PCC , the assets of each cell are statutorily protected from the creditors of another cell . For those engaged in takaful and retakaful , the PCC can be structured to adhere to Shariah principles .
c . ISLAMIC FINANCE
Solutions such as private foundations , waqf foundations , Islamic trusts and private trust companies as well as an entire raft of Islamic
78 VOL 83 JULY-SEPTEMBER 2020