New regulation to be a boon for Labuan’s economy

Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2018, which requires a Labuan entity to have adequate full-time employees on the island as well as adequate amount of operating expenditure, will be a boon for the Labuan economy.

Labuan Financial Services Authority (Labuan FSA) director-general Danial Mah Abdullah expressed this positive view on the regulation, which came into effect on Jan 1.

The regulation, he said, would ensure the Labuan International Business and Financial Centre (Labuan IBFC) and the industry players were in compliance with the substance requirements imposed by the Organisation for Economic Co-operation and Development (OECD) on all jurisdictions worldwide.

“The regulation will be an economic boost to Labuan. We have been around for 28 years and for the companies to enjoy Labuan’s incentives, logically they must be in Labuan,” he told a press conference after the presentation of Labuan IBFC’s inaugural Market Report 2018 at a hotel here today.

Under the regulation, a Labuan entity carrying on a Labuan business activity must establish an office in Labuan with a minimum of two to four full-time employees depending on the type of entity and an annual operating expenditure in Labuan in the range of RM50,000 to RM3 million depending on the type of business.

Danial said the jurisdiction wanted to ensure Labuan benefited economically from the new requirements, and if there was full compliance, it would create employment for more than 5,000 people on the island from some 2,000 companies.

“To me, getting 5,000 employees on the island is not an issue, as the companies can hire school leavers and graduates from Universiti Malaysia Sabah Labuan International Campus (UMSKAL) or retrenched oil and gas employees, which in turn helps reduce the unemployment rate on the island.

“Of course, there will be a lot of adjusting problems, but at the end of the day, things will fall into place,” he said.

He said there were a lot of enquiries in the first month of implementation, but things had gradually improved with a number of job interviews for new employees conducted and search for office space begun.

The inaugural Market Report 2018 unveiled by the Labuan IBFC today highlighted the centre’s continued growth with non-resident businesses driving the expansion in business conducted via the centre.

New company incorporation registered double-digit growth of 12.5 per cent or 1,059 incorporations, mainly from the Far East region, with the most from Japan, China and South Korea.

Increased company incorporation boosted the growth of trust and corporate service providers, with a total of 58 trust companies, including the granting of six new licenses — an increase of 11.5 percent year on year providing value-added services to Labuan corporate entities and expanding the reach of Labuan IBFC across Asia.

“Labuan banks have so far complied with the regulation with some of them having 20 and 80 employees. The regulation is not actually an issue but rather, it is putting things into law,” he said.

Danial said in the first three months after the implementation, the number of registered companies remained unchanged, “and we expect new companies like those in the financial technology sector to come in.”

“We strongly believe the companies want the substance requirements as they want to be regulated,” he said.

Labuan FSA chairman Datuk Oh Chong Peng said there might some companies deregistered following the new ruling.

“We cannot really forecast accurately, as we know we have some new ruling that may impact the IBFC. Possibly there are companies that will be deregistered. We will wait and see, but it is very possible,” he said.

He said Labuan IBFC had created a fair amount of economic activities on the island.

“It is very possible that some non-licensed companies will find it not worthwhile to have the substance requirements for their type of business so, they may just be deregistered.

“But we are positive on the changes. Hopefully, there may be companies, especially the Asia-based companies, that will come in for licensing — those registered in the blacklisted jurisdictions,” he added.

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