Image credit: ASEAN Briefing
LABUAN (Aug 23): Almost all, or over 90% of the more than 5, 000 Labuan holding companies operating in the Labuan International Business and Financial Centre (Labuan IBFC), have complied with the Organisation for Economic Co-operation and Development’s (OECD) economic substance requirement.
Labuan Financial Services Authority (Labuan FSA) director-general Nik Mohamed Din Nik Musa said the substance requirement is deemed fair for financial industry players and the authorities.
“Since the OECD’s economic substance requirement is enforced three years ago (2019), the number of companies complying with it is rising with almost all of them having complied.
“The intention of the substance requirement is to ensure that actual business activities are operating within the Labuan IBFC, which is on the island of Labuan, so there must be substance.
“Labuan cannot exist merely as a booking centre, there have to be real activities with manpower, expertise and capital expenditure to be done in Labuan, and this had been stated clearly in the OECD’s substance requirement,” he told Bernama after a corruption-free pledge ceremony at a leading hotel here on Tuesday (Aug 23).
Nik Mohamed Din said Malaysia is among the first countries in the world to ensure the substance requirement is fully complied with among the Labuan IBFC industry players.
“This substance requirement is fair for the industry players to enjoy the tax incentive of 3% when doing business activities, thus generating revenue in Labuan.
“The industry players who failed to comply with the substance requirement will have to pay 24% tax when doing business activities within the Labuan IBFC, so we always encourage industry players to have an office with employees in Labuan from the day they set up a company here,” he said.
Nik Mohamed Din said the economic contribution (not only from tax collection but also expenditure) from the IBFC from 2019-2022 amounted to RM5 billion.
According to the economic substance regulations, it is now mandatory for a Labuan holding company to hire at least two full-time Labuan employees and have an annual operating expenditure of RM100,000.
A full-time employee is defined as an employee who is employed by the Labuan entity to serve the entity in Labuan.
The employee must sign an employment contract or appear in the organisational chart of the Labuan office, and the operating expenditure can be pro-rated from the date of commencement of the business.
Source: https://www.theedgemarkets.com/article/almost-all-over-5000-companies-labuan-ibfc-have-complied-oecd-substance-requirement