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Labuan Issues Guidelines For International Commodity Trading Companies

Tuesday, January 22, 2013

The Labuan Financial Services Authority (LFSA) has issued guidelines applicable to all Labuan international trading companies (LITCs) licensed to conduct international commodity trading business in the Labuan International Business and Financial Center (LIBFC) under the Global Incentives For Trading (GIFT) program.

The guidelines, which went into effect on January 1, 2013, and supersede those previously-issued on October 31, 2011, cover a Labuan international commodity trading business involved in the trading of physical and related derivative instruments of petroleum and petroleum-related products including liquefied natural gas (LNG), agriculture products, refined raw materials, chemicals and base minerals. An LITC can deal only with non-residents in any currency other than Malaysian ringgit.

In addition, within five years after the date it obtained its license, an LITC must have a minimum annual turnover of USD100m; minimum annual business spending of MYR3m (USD995,000) payable to Malaysian residents; and at least three professional Malaysian-resident traders employed with a minimum salary of MYR15,000 per month each.

Under the GIFT program, a general LITC is subject to a corporate tax rate of 3%, but an LITC set up purely as an LNG trading company is entitled to a 100% income tax exemption on chargeable profit for the first three years of its operation, provided the company is licensed before December 31, 2014.

The LITC is required to maintain a registered office in Labuan, which is the office of its Labuan trust company. However, the LITC is allowed to establish its operational office(s) anywhere in Malaysia, while being required to provide the details of that office to the LFSA upon commencement of business. It must also ensure that its business is conducted with a proper corporate governance and risk management framework in place.

Other tax incentives applicable for an LITC include a 100% exemption on fees paid to non-Malaysian directors of the LITC; a 50% exemption on gross employment income of non-Malaysian professional and managerial staff, including traders with the LITC; an exemption on dividends received by or from the LITC; an exemption on royalties received from the LITC; an exemption on interest received by residents or non-residents from the LITC; and a stamp duty exemption on all instruments for Labuan business activities and the transfer of shares.