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Labuan Gives Tax Incentives For Oil And Gas Trading

Wednesday, November 2, 2011

At the launch of the Global Incentives for Trading (GIFT) programme and the newly-formed Labuan International Trading Commodity Company (LITC), the Director-General of Labuan Financial Services Authority (FSA) Encik Ahmad Hizzad Baharuddin announced that a range of incentives have been initiated to attract oil and gas traders to Malaysia.

The new scheme will be operated by the LITC out of Labuan International Business and Financial Centre (IBFC), and is intended to diversify further the products and services of Malaysian’s financial services sector.

Ahmad Hizzad said that, over the years, the oil, gas and energy sector has contributed significantly to the growth of the country and now accounts for about 20% of the Malaysia’s gross national product. The government has earmarked the sector as one of the country’s key economic growth areas.

In addition, he pointed out that, “while Malaysia has thriving up-stream activities in the oil and gas sector, more activities could be initiated at the various levels in the business value chain, particularly in the trading of petroleum and its related products. … This offers a huge potential for Malaysia to tap into the oil trading market, as it would not only generate revenue for the country, but would also increase the pool of expertise and talent, and improve the transfer of technology.”

At this initial stage, one of the main objectives of the GIFT programme, Ahmad Hizzad disclosed, is to attract major international oil trading companies, such that they would consider locating part of their operations in Malaysia. In attracting these international companies, the programme offers a set of incentives through the establishment of the LITC.

The key incentives offered through the LICT under the GIFT programme include a flat corporate tax rate of 3% of chargeable income, a 100% exemption on directors fees paid to non-Malaysian directors, and a 50% exemption on gross employment income for non-Malaysian professional traders and managers of LITC companies.

There is also an exemption of stamp duties on documentation for such business activities, a tax exemption on dividends received by or paid from LITC companies, and all of the other fiscal incentives that are attached to operating a Labuan entity.

Ahmad Hizzad also emphasized that the attractiveness of using the Labuan IBFC as a base for oil trading business in Malaysia extends beyond fiscal incentives. The IBFC hosts to over 400 international financial institutions comprising 61 banks, 169 insurance and insurance-related companies, 176 leasing companies, amongst others, and is an ideal location as it provides the oil and gas trading companies with a comprehensive range of financial products and services, both under conventional and Shariah-based principles.

The Labuan FSA, he said, is pleased to note that the banks and insurance companies in Malaysia, including Labuan, are already gearing up towards providing the specialized financial services in their oil trading desks that will needed by the trading companies.