Labuan Money Brokering License

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The Labuan Financial Services Authority (“FSA”) introduced comprehensive guidelines for money broking business within the Labuan International Business and Financial Centre (Labuan IBFC) starting from 1 January 2018.

Money broking business entails the facilitation of transactions between buyers and sellers in the currencies market, acting as intermediaries and earning brokerage fees. However, it's important to note that this definition excludes the buying and selling of Ringgit or foreign currencies as a principal in these markets.

Labuan money broking business is tailored to cater to institutional investors and high-net-worth individuals. Licensees are expected to:

• Facilitate mutually acceptable transactions between counterparties in financial products within the money or foreign exchange market.
• Receive payment in the form of brokerage or commission fees.
• Act solely as a mediator, strictly avoiding acting as a principal in transactions.

Individuals or institutions with money broking expertise and a strong track record, including substantial experience, can apply. This includes regulated money brokers from other jurisdictions with appropriate consent from their home supervisory authority. Additionally, licensed institutions, including approved money brokers under Malaysia’s Financial Services Act 2013, with prior approval from Bank Negara Malaysia, are eligible to apply.

To operate, a Labuan money broking company must adhere to certain operational requirements:

• Maintain a minimum paid-up capital unimpaired by losses of RM500,000 or its equivalent in any foreign currency.
• Have an operational office in Labuan dedicated to business purposes.
• Ensure that directors, principal officers, and persons in control are ‘fit and proper’ individuals.
• Establish comprehensive internal policies and controls for operations, compliance, corporate governance, and risk management.
• Appoint an approved auditor in Labuan.
• Have internal policies in place to combat money laundering and the financing of terrorism.
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The taxation system in Labuan IBFC is governed by the Labuan Business Activity Tax Act 1990 (“LBATA”). Labuan entities engaged in a Labuan business activity benefit from favorable tax regulations. Compliance with substance requirements is essential, involving a minimum number of full-time employees in Labuan and a specified annual operating expenditure.

Upon being granted a money broking license, an annual license fee of USD1,500 is applicable. Additionally, a Marketing Office fee of USD2,500 and subsequent annual license fees are due by 15 January each year.

Becoming a Labuan Money Broker offers several advantages:

• Zero withholding tax on payments of dividends and interest to non-residents.
• Exemption from import duty and sales tax.
• Freedom from foreign exchange controls.
• No capital gains tax or inheritance tax.
• Access to Double Tax Agreements with over 70 countries.
• A 100% exemption for director’s fees received by non-citizen directors of Labuan companies.