Presentation labuan international banking tax perspectives

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  • 1. LABUAN INTERNATIONAL BANKING - TAX PERSPECTIVES 21 May 2012, Labuan
  • 2. PRE-TEST QUESTIONS1) What are the products and services offered by Labuan banks?2) What is the tax law that impose tax on income of Labuan bank?3) How is tax imposed on the banking industry in Labuan IBFC?4) What are the advantages of Labuan banking industry in Labuan IBFC?
  • 3. PRE-TEST QUESTIONS1) What are the products and services offered by Labuan banks?2) What is the tax law that impose tax on income of Labuan bank?3) How is tax imposed on the banking industry in Labuan IBFC?4) What are the advantages of Labuan banking industry in Labuan IBFC?
  • 4. PRE-TEST QUESTIONS1) What are the products and services offered by Labuan banks?2) What is the tax law that impose tax on income of Labuan bank?3) How is tax imposed on the banking industry in Labuan IBFC?4) What are the advantages of Labuan banking industry in Labuan IBFC?
  • 5. PRE-TEST QUESTIONS1) What are the products and services offered by Labuan banks?2) What is the tax law that impose tax on income of Labuan bank?3) How is tax imposed on the banking industry in Labuan IBFC?4) What are the advantages of Labuan banking industry in Labuan IBFC?
  • 6. LABUAN BANKING BUSINESS – PRODUCT ANDSERVICES OFFERED (CONVENTIONAL AND ISLAMIC)a) Definition “ Labuan banking business” means – (a) the business of receiving deposits on current account, deposit account, savings account or any other account as may be specified by the Authority; (b) Labuan investment banking business; (c) Labuan financial business; (d) Labuan Islamic banking business; (e) such other business as the Authority, with the approval of the Minister, may specify, in any currency (including ringgit where permitted by the Exchange Control Act 1953 or such other relevant law in force)
  • 7. LABUAN BANKING BUSINESS – PRODUCT ANDSERVICES OFFERED (CONVENTIONAL AND ISLAMIC) (Cont.) “Labuan financial business” means – (a) building credit business; (b) credit token business; (c) development finance business; (d) leasing business; (e) factoring business; (f) money-broking business; (g) Labuan Islamic financial business; or (h) such other business as the Authority, with the approval of the Minister, may specify,in any currency (including ringgit where permitted by the ExchangeControl Act 1953 or such other relevant law in force)
  • 8. LABUAN BANKING BUSINESS – PRODUCT AND SERVICES OFFERED (CONVENTIONAL AND ISLAMIC) (Cont.) “Labuan investment banking business” means – (a) the business of providing credit facilities; (b) the business of providing consultancy and advisory services relating to corporate and investment matters, including dealing in securities, or making and managing investments on behalf of any person; (c) the business of undertaking foreign exchange transactions, interest rate swaps, dealings in derivative instruments or derivative financial instruments or any other similar risk management activities; (d) Labuan Islamic investment banking business; (e) Labuan financial business; or (f) such other business as the Authority, with the approval of the Minister, may specify,in any currency (including ringgit where permitted by the ExchangeControl Act 1953 or such other relevant law in force)
  • 9. LABUAN BANKING BUSINESS – PRODUCT ANDSERVICES OFFERED (CONVENTIONAL AND ISLAMIC) (Cont.)b)Who can do Labuan Banking Business? i. Labuan company or a foreign Labuan company; or ii. Malaysian bank; andHolds a valid license to carry on such business.c) To whom can be provided (Who are the customers?) i. Resident ii. Non-resident
  • 10. COMMON PRODUCTS AND SERVICES OFFERED IN LABUAN IBFC Corporate Finance Project FinancingStandby Letters of Capital Markets Credit Bank Guarantees LABUANAircraft Finance Trade Facilities BANKSShipping Finance Investment Banking Big Ticket Leasing Private Banking Advisory/Treasury Islamic Finance
  • 11. COMPETITIVE ADVANTAGES OF INTERNATIONAL BANKING IN LABUAN IBFC1) No exchange control - Free to deal in any foreign currency except M’sia currency - M’sia currency allowed for defraying expenses and payment of professional fees2) Tax Incentives - Low tax - No withholding tax - Interest/Dividends received from Labuan Banks tax- exempt - No stamp duties on instruments related to Labuan business activities3) Can offer products and services to Malaysian residents in Non Ringgit or in M’sian currency (where permitted)
  • 12. TAXATION FRAMEWORKa) The Labuan Business Activities Tax Act 1990 applies - income derived by a Labuan bank from Labuan business activities.b) Definition of Labuan business activity (Section 2, LBATA)  “Labuan business activity” means:  Labuan trading; or  a Labuan non-trading activity. In, from or through Labuan in a currency other than M’sian currency, by a Labuan entity with non-resident or with another Labuan entity:Provided that – (a) in relation to business under Parts VI and VII of the Labuan Financial Services and Securities Act 2010 & Parts VI and VII of the Labuan Islamic Financial Services and Securities Act 2010 [Act] - activity may be carried on with residents, in Non- Ringgit or in M’sian currency, where permitted..
  • 13. TAXATION FRAMEWORK• Taxation under the Labuan Business Activity Tax Act (LBATA). 3% on audited net profits, or Labuan trading activities flat rate of RM20,000 Labuan non-trading activities 0% tax• Labuan companies can elect to be taxed under Income Tax Act 1967.• No stamp duties on:- • Instruments executed by a Labuan Entity in connection with Labuan business activity • Constituent documents and M & A of an LC • Instruments of transfer of shares between Labuan Companies
  • 14. TAXATION FRAMEWORK ……Contd• Exemptions: – Dividend paid out of exempt income or income from Labuan business activities – Interest / profit in lieu of interest (in general) & Royalty – Distributions made to beneficiaries by a Labuan trust – Technical or management fees & Lease rental paid to Non-residents & other Labuan Entities• 50% exemption of the gross employment income of non- citizen in managerial capacity• 100% tax exemption on Director’s fees for non-citizen & non-resident Director of Labuan entity• 65% exemption on Statutory Income of Service Providers• 50% exemption on Labuan allowance for Malaysian working in Labuan entity
  • 15. DOUBLE TAX AGREEMENTTo date Malaysia has signed 74 DTAsObjectives of DTA• Enhance cross-border trade and flow of capital• Grant relief from double taxation, eg reduced withholding tax rates• Exchange of information – tax evasionBasic Principles of DTA• Only tax residents can seek benefits under DTA• Rights to tax• Provide various definitions eg. “Permanent Establishment”
  • 16. COMPLIANCE WITH INTERNATIONALSTANDARDSa)Organization for Economic Co-operation and Development (OECD)  DTA Model  Standard setting body on taxationb) Effective Exchange of Information (Article 26) Global Forum on Transparency and Effective Exchange of Information
  • 17. COMPLIANCE WITH INTERNATIONAL STANDARDS ….Contdc) Transfer Pricing - Dealings with related partiesd) Thin Capitalization Rules - Power to Disregard Certain Transactions eg Restriction on interest expensee) Tax Information Exchange Agreements - Article 26 – Exchange of Information
  • 18. COMPLIANCE WITH INTERNATIONALSTANDARDS ….Contd(f) Foreign Account Tax Compliance Act (FATCA) i. What is FATCA? • US government introduced the FATCA provisions and included it in the Hiring Incentives to Restore Employment (“HIRE”) Act, which was signed into law on March 18, 2010 • Impose extensive new compliance obligations eg withholding tax ii. What is the purpose of FATCA? • To prevent a perceived tax abuse by U.S. persons through the use of off-shore financial accounts
  • 19. COMPLIANCE WITH INTERNATIONALSTANDARDS ….Contdiii. What are the penalties for non-compliance? • Imposes a 30% withholding tax on payments made to foreign financial institutions (“FFIs”) that do not register with the IRS • FATCA applies to U.S. source income, bank deposit interest and gross sales proceedsiv. To whom does the FATCA apply? • Foreign entities with investments in the U.S. and not just those with U.S. account holders • Treaty or portfolio interest exemption relief would normally apply
  • 20. Conclusion Strengthen Regional & International Financial Linkages  Further develop role of Labuan banks to support international trade and investment  Enhancing the competitiveness of International Banking in Labuan IBFC Internationalization of Islamic finance  Leverage on Labuan business structures and institutions to raise funds in multi-currencies in accordance with Shariah principles The regulatory and supervisory regime  Enhance the standards for Labuan IBFC
  • 21. QUESTIONS? Is the key toSEEKING KNOWLEDGE
  • 22. POST-TEST QUESTIONS1) What are the products and services offered by Labuan banks?2) What is the tax law that impose tax on income of Labuan bank?3) How is the tax impose on the banking industry in Labuan IBFC?4) What are the advantages of Labuan banking industry in Labuan IBFC?
  • 23. Thank you23