Labuan Financial Services Authority
Money Broking License – Forex
Tax Changes – Effective 1st Jan 2019
It is easy to start your own Forex or Money Broking business in the Labuan jurisdiction with 100% foreign ownership! Labuan Authority has recently issued new guidelines on money broking business in Labuan with effective 1st Jan 2019.
Although Labuan FSA (the Regulator) has issued a circular on Legislative changes relating to Labuan IBFC in January 2019, there have been certain issues which they have yet to clarify as of today (i.e. the substance requirement on “trading” and “non-trading” Labuan entities).
Basically, the tax changes introduced are in line with Malaysia’s commitment to comply with the international standards of the Organisation for Economic Co-operation and Development (OECD) specifically the Base Erosion and Profit Shifting (BEPS) in relation to harmful tax practices.
(A) Finance Act 2018
The key changes to the respective provisions in the Labuan Business Activity Tax Act 1990 (LBATA) are as listed in the table below:
Amended Section Areas:
(a) Section 2(1) Definition of “Labuan business activity” has been amended and the restriction on transactions conducted with residents as well as in Ringgit Malaysia has been removed.
2B(1)(b) Labuan entities undertaking Labuan business activities are subject to substantive conditions namely adequate full-time employees and adequate amount of annual operating expenditure which will be prescribed by the Minister of Finance by the way of regulation.
(c) Section 4 Income from intellectual property assets held by a Labuan entity is taxed under the Income Tax Act (ITA) 1967.
(d) Section 7 The election for tax at the fixed rate of MYR 20,000 is abolished.
(B) Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2018
Arising from the amendment to Section 2B(1)(b) of LBATA 1990, a new regulation as mentioned above was published on official Gazette on 31 December 2018 and is effective from 1 January 2019. This regulation prescribes the substance requirements to be complied by Labuan entities and to be eligible for the preferential tax treatment under LBATA 1990. The regulation imposes the requirements for compliance with adequate full-time employees and adequate amount of annual operating expenditure.
(C) Income Tax (Deductions Not Allowed for Payment Made to Labuan Company by Resident) Rules 2018
In addition to point (B) above, Section 39 of the ITA 1967 was amended to restrict allowable expenses incurred on transactions between a Malaysian resident and a Labuan entity. The type of payments are prescribed in the regulations issued pursuant to Section 154(1)(b) of ITA 1967. The regulations as mentioned above were published on Official Gazette on 31 December 2018 and is effective from 1 January 2019.
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