Labuan Private Fund

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The guidelines for establishing Labuan mutual funds, including Islamic mutual funds, were introduced by the Labuan Financial Services Authority (“Labuan FSA”) on 1 January 2014.

Mutual fund activities involve:

1. Collecting and pooling funds to spread investment risk collectively.
2. Issuing interests in a mutual fund, allowing holders to redeem their investments based on the value of a proportionate interest in the fund's net assets.

Labuan Private Fund allows for a maximum of 50 investors. The first-time investment by each investor should be at least RM 250,000 (or equivalent in Non-Ringgit). Alternatively, an unlimited number of investors are allowed with a first-time investment of not less than RM 500,000 (or equivalent in Non-Ringgit). It is not offered to the general public. A licensed fund manager is not required, and no prior approval from Labuan FSA is needed. However, a notification to Labuan FSA is necessary before launching the fund, done by submitting the fund offering documents.

Labuan mutual funds can be structured as:

• Companies: Involving ordinary and preference shareholders.
• Limited Partnerships: Comprising general partners and limited partners.
• Unit Trusts: Consisting of trustees and unitholders.

The information memorandum of a Labuan private fund should ensure full and transparent disclosure, covering general information, investment strategy, financial results, redemption policy, and material changes.

The Labuan Business Activity Tax Act 1990 (“LBATA”) governs taxation for Labuan business activities. The tax rate is 24% for entities failing to comply with the substance requirement. This requirement entails having an adequate number of full-time employees and a specified amount of annual operating expenditure in Labuan.

Offering securities, including Labuan Private Fund, directly to Malaysian residents is regulated by the Capital Markets and Services Act 2007. Seeking approval from the Securities Commission of Malaysia before making such offerings is advisable.

Labuan mutual funds offer several advantages, including a flexible structure, multi-class fund support, hassle-free setup, a simple tax structure, zero withholding tax on payments to non-residents, no foreign exchange controls, and no capital gains or inheritance tax. This, combined with strategic geographical location and numerous Double Tax Agreements, makes Labuan an attractive investment destination.

As the business activity of a Fund is generally involved in either Pure Equity Holding or Non-Pure Equity Holding, the Substance Requirements are as follows:

Pure Equity Holding     

To comply with management and control requirement in Labuan, the entity is to hold at least a minimum of one board meeting in Labuan for each calendar year and incur a minimum annual operating expenditure of RM20,000 per annum in Labuan.

Non-Pure Equity Holding

To comply with minimum of one (1) full time employee in Labuan and a minimum annual operating expenditure of RM20,000 per annum in Labuan.