The Labuan Financial Services Authority (“FSA”) introduced revised guidelines for Labuan companies engaged in leasing business (including Islamic leasing business) in Labuan International Business and Financial Centre (Labuan IBFC) starting from 1 January 2019. These guidelines provide essential directions for conducting leasing business activities.

Leasing business involves the leasing or sub-leasing of property for use by the hirer. The property can encompass a wide range of assets such as plant, machinery, aircraft, ships (on a bare-boat basis), or other movable or immovable chattels.

Any individual or entity intending to engage in leasing business within Labuan IBFC must seek approval from Labuan FSA.

Kensington Trust Labuan Limited, a licensed trust company in Labuan, is available to assist with license applications, establishment, and administration of Labuan entities.

To ensure smooth operations, leasing businesses must maintain sufficient and positive capital or working funds in line with their business operations. Factors like business volume, asset value, and leasing arrangements (operating or finance lease) should be considered. Directors and officers must meet the "fit and proper person" criteria, and the business must have robust internal policies for operations, compliance, corporate governance, and risk management. Additionally, adequate insurance for leased assets, proper record-keeping, and compliance with relevant laws and regulations are essential.

As of 1st January 2019, Labuan Leasing Co is taxed at 3% of net audited profits. Notably, lease rentals received from Malaysian customers have no withholding tax (“WT”), and lease rentals paid by Malaysian customers to Labuan Leasing Co are 75% deductible. The Labuan IBFC offers a liberal exchange control environment.

Labuan leasing companies must adhere to certain compliance requirements. Prior approval from Labuan FSA is required for new and subsequent leasing transactions, changes in shareholders exceeding 10%, and appointment of directors. Any changes in business location, constituent documents, or leasing transactions should be notified to Labuan FSA within 30 days. Additionally, annual audited financial statements and other required information must be submitted within six months from the end of the financial year.

Labuan FSA imposes fees for Labuan leasing business, which vary based on the transaction type. These include a non-refundable processing fee of USD 350 (once-off), an annual license fee of USD 20,000, and a fee of USD 6,000 for each subsequent approved lease transaction.

The taxation framework for Labuan entities is governed by the Labuan Business Activity Tax Act 1990 (“LBATA”). Labuan trading and non-trading activities are subject to specific regulations and tax rates. The substance requirement, effective from 1st January 2019, mandates substantial activity in Labuan, encompassing physical presence, key leasing activities, annual business spending, and employment criteria.

Labuan entities are permitted to conduct transactions with residents of Malaysia in Ringgit Malaysia. The deductions allowed for payments made by residents to Labuan entities vary based on the type of payment, ranging from 3% to 100%.

Labuan leasing companies enjoy a range of advantages, including a 3% tax rate on net audited profits, zero withholding tax on specific payments to non-residents, no foreign exchange controls, no import duty or sales tax, and strategic positioning in the Asia Pacific region with advantageous time zones. Additionally, Labuan IBFC boasts Double Tax Agreements with over 70 countries and offers 100% exemption for director’s fees received by non-citizen directors of Labuan companies.