The Global Incentives for Trading (“GIFT”) programme was devised to prompt enterprises to select Malaysia as a prime international trading hub for specified categories of commodities, to be conducted in, from, or through Labuan.

On the 17th of April, 2020, the Labuan Financial Services Authority (“Labuan FSA”) released updated Guidelines focusing on the establishment of Labuan International Commodity Trading Company (“LITC”) within the framework of the GIFT programme, outlining the essential parameters for its establishment and operations.

Any individual or entity aspiring to engage in Labuan international commodity trading under the GIFT programme can initiate the process by submitting an application to Labuan FSA. Upon receiving approval, the applicant is then mandated to establish a LITC.

The GIFT programme offers a set of compelling incentives for traders involved in trading diverse physical products and their related derivatives. Utilizing Malaysia as their international trading base to conduct international commodity trading business in Labuan IBFC, eligible commodities include petroleum and petroleum-related products (including liquefied natural gas), minerals, agriculture products, refined raw materials, chemicals, base minerals, and coal. To qualify, LITCs are expected to perform various functions in Malaysia, including but not limited to strategic management, risk management, market research, logistics management, and global procurement.

LITCs must maintain a level of capital or working funds commensurate with their operations and activities. Establishing an operational office, complying with Substance in Labuan, incorporating robust corporate governance and risk management frameworks, and appointing fit and proper Principal Officers, Directors, and Officers are vital requirements. Any new changes concerning the business plan, Principal Officer, Directorship, and Shareholding need prior approval from Labuan FSA. Additionally, appointing an approved auditor in Labuan is mandatory.

Upon being granted a license and commencing business, LITCs must comply with specific conditions, including achieving a minimum annual turnover of USD 50 million, incurring a minimum annual business spending of RM 3 million payable to Malaysian residents in Malaysian Ringgit, and employing at least three professional traders fulfilling defined criteria.

Post-licensing, LITCs must diligently submit an annual update form by the 15th of January each year, along with audited financial statements within six (6) months after the close of each financial year. The fees to Labuan FSA comprise a one-time license processing fee of USD 350 and an annual license fee of USD 13,000.

The Labuan Business Activity Tax Act 1990 (“LBATA”) is the governing statute overseeing tax imposition, assessment, and collection for Labuan business activities conducted within, from, or through Labuan. This taxation system differentiates between Labuan trading and non-trading activities, subjecting non-trading activities to the provisions of the Malaysian Income Tax Act, 1967 (ITA). "Labuan business activity" encompasses Labuan trading or non-trading activities conducted within, from, or through Labuan, excluding activities constituting an offense under any written law.

As of 1st January 2019, Labuan entities, to comply with LBATA, are obligated to maintain an adequate number of full-time employees in Labuan and meet specified annual operating expenditure requirements. Non-compliance with these regulations may result in a tax charge of twenty-four percent (24%) on chargeable profits for the respective year of assessment. LITCs, to adhere to Substance Requirements, must employ a certain number of full-time employees and meet stipulated annual operating expenditure in Labuan.

LITC companies have the authorization to conduct transactions with residents of Malaysia in Ringgit Malaysia from the 1st of January, 2019, enhancing their operational engagement with the local market.

The GIFT programme extends several enticing benefits, including a corporate tax rate of 3% on audited chargeable profits, stamp duty exemptions on all instruments for Labuan business activities, tax exemption on dividends received by or from the LITC, lower operational costs in Malaysia compared to other commodities hubs, and access to world-class storage facilities in Malaysia.