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The asset leasing industry in Labuan, which reached nearly USD1 trillion its overall global annual volume in 2017, has been undergoing numerous tax and regulatory changes. In the Asian region, in particular, the industry is expected to grow between 10% and 18% in the next five years. Levelling of the “international playing field” and the shrinking of regulatory arbitrage, Labuan International Business and Financial Centre (Labuan IBFC) has position as a Asian-based cost-efficient, substance-enabling midshore jurisdiction.
The Changes to Labuan Leasing Business and Operation Background A key driver to the introduction of the revised Guidelines effective from 2018 is to ensure Labuan IBFC remains relevant and complies with the Organization for Economic Co-operation and Development (OECD)’s ring harmful Base Erosion Profit Shifting (BEPS), particularly to Action 5 Report of BEPS that looks at counteax practices.
Requirement for Operational Office Under the policy, it is a mandatory requirement for a Labuan leasing company to establish physical business presence in Labuan island.
However, it is possible for related companies – for example: Holding company of the leasing companies, a subsidiary established by the same holding company or a subsidiary or a branch of the leasing company – to share the same office in Labuan.
The Need for Substantial Activities It must be noted that the core income generating activities, i.e. key leasing activities, are expected to be carried out from the Labuan office. Among examples of these activities are acquiring assets, negotiating terms, soliciting leases, management of leased assets, signing of leasing agreements, decision making, conducting Board meeting or having strategic business discussions.
It is possible for outsourcing arrangements with prior approval from Labuan.
Adequate Number of Full-time Employees It is necessary to have adequate number of full time employees dedicated to the business operations. Employees are expected to possess the required qualification, skills or experience in the relevant fields related to their role in the business.
Annual Business Spending The leasing business is required to incur expenses in Malaysia including in Labuan to support the operations of the business. These include spending on office rental, defraying payments and statutory fee payments.
Annual licence fee and subsequent transaction fee Annual licence fee and subsequent transaction fee are now applicable for both resident and non-resident dealings.
New Definition of Assets that to be Leased The term ‘asset’ now refers to: – Big ticket items: High value assets used for oil and gas, aviation, shipping and other sectors. For example, oil rigs; private and commercial aircrafts; tugboats and others. – Specialized assets: Assets that are intended for pecuniary or specific purpose. For example, state-of-the- art technology that is not available in Malaysia or short-supply assets such as submarine or aviation simulators; hyperbaric diving chamber; seabed sonar mapping devices and others.
Stamping of Leasing Agreement The lease agreement is to be stamped and endorsed by the Collector of Stamp Duties at the Labuan branch of Stamp Duty Office of Inland Revenue Board of Malaysia.
On the whole, it is expected that the changes to the Guidelines not only serve to ensure the jurisdiction adheres to international standards of taxation, it will also ensure that all leasing operations in Labuan IBFC meet the substantive needs for substance as dictated by global multilateral organizations such as the OECD.
Need Assistance Please contact info@intershores.hk or by whatsapp at (852) 6499 4686 if you want to establish a Labuan leasing business.
If you want to know more, please do not hesitate to contact us:
Whatsapp : (852) 6499 4686 Phone : (852) 2186 6936 Email : info@intershores.hk
Disclaimer: Whilst reasonable care has been taken in provision of information above, it does not constitute legal or other professional advice. INTERSHORES does not accept any responsibility, legal or otherwise, for any error omission and accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, readers are advised to take appropriate professional advice before committing themselves to any involvement in jurisdictions, vehicles or practice. |
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