Offshore Market – FIN435 Topic 6

Vocabulary flashcards covering key terms and definitions related to Topic 6 – Offshore Market in FIN435.

Offshore Financial Center (OFC)

A jurisdiction offering financial products and services in a low-tax, lightly regulated environment to non-resident clients.

Characteristics of an OFC

Low taxes, minimal exchange controls, numerous financial institutions, maximum confidentiality, and strong physical infrastructure.

Labuan International Business and Financial Centre (Labuan IBFC)

Malaysia’s offshore hub providing wholesale financial services under a separate legal and tax framework from the domestic market.

Labuan Financial Services Authority (Labuan FSA)

Regulator established in 1996 to license, supervise, and enforce all financial activities within Labuan IBFC.

Dual Financial System

The coexistence of conventional and Islamic finance offerings within Labuan IBFC.

Low Tax Regime

Favorable fiscal environment in OFCs where profits are taxed minimally or not at all.

Exchange Control (OFC Context)

Absence of foreign-exchange restrictions, allowing free movement of funds in multiple currencies.

Confidentiality (OFC)

Legal assurance of client privacy and limited disclosure of financial information.

Participants in Labuan IBFC

Malaysians, foreigners, and multinational companies utilizing Labuan’s offshore services.

Offshore Trading Activity

Banking, insurance, licensing, management or similar business conducted by an offshore company; taxed at 3 % of audited net profit in Labuan.

Offshore Non-Trading Activity

Passive holding of investments (securities, loans, property) by an offshore company; taxed at 0 % in Labuan if substance rules are met.

Labuan Business Activity Tax Act 1990 (LBATA)

Primary statute governing Labuan’s tax treatment; amended in 2019 to align with OECD standards.

Tax Rate – 3 % / 0 %

Labuan entities pay 3 % on trading profits and 0 % on non-trading profits under LBATA, replacing the former flat RM20,000 tax.

Tax Restrictions on Payments

Deductibility limits for Malaysian payers to Labuan entities: 67 % on interest/lease, 3 % on other payments, 100 % on reinsurance premiums.

Intellectual Property Income (Labuan)

Taxed at 24 % under Malaysia’s Income Tax Act 1967 rather than LBATA.

Offshore Company (Labuan)

Entity incorporated under the Labuan Companies Act 1990 to conduct business in, from or through Labuan mainly in non-ringgit currencies.

Labuan Offshore Banking

Business of accepting deposits (except by investment banks), providing financing and treasury services; executed in any currency with no cash transactions.

Digital Banking (Labuan)

Provision of fully digital financial services within Labuan IBFC, expanding its offshore offerings.

Labuan Trust Company

Licensed firm that incorporates companies, offers secretarial, trustee, fund administration and corporate services in Labuan.

Offshore Insurance Business

Foreign-currency insurance and reinsurance (life, general, captive, etc.) conducted by licensed branches or subsidiaries in Labuan.

Wealth / Fund Management (Labuan)

Provision of private and public fund structures for wealth transfer, inheritance planning and asset management, available in conventional or Islamic form.

Private Fund

Labuan collective investment vehicle whose shares are not offered to the public and are held by up to 100 investors.

Public Fund

Labuan fund offering its shares to the general public under stricter regulatory oversight.

Labuan Financial Services and Securities Act 2010 (LFSSA)

Framework statute regulating banking, insurance, capital markets and other financial services in Labuan.

Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA)

Law governing Shariah-compliant financial activities within Labuan IBFC.

Labuan Companies Act 1990

Legislation covering incorporation, management and dissolution of Labuan companies.

Anti-Money Laundering (AML) Supervision

Prudential oversight by Labuan FSA to comply with FATF/APG standards and combat terrorism financing.

OECD Compliance (Labuan)

Status of being ‘largely compliant’ with international tax transparency and no harmful tax practices, as assessed by OECD.

Non-Ringgit Denomination

Predominant use of foreign currencies by Labuan entities, though ringgit transactions are now permitted with BNM approval.

No Cash Transactions (Labuan)

Operational rule prohibiting physical cash dealings within Labuan IBFC, ensuring all transfers are electronic or book-entry.