Private Funds in Labuan IBFC
The establishment and management of private funds are facilitated by a robust legal framework and business conducive ecosystem
An Introduction to Labuan IBFC
Labuan International Business and Financial Centre (Labuan IBFC) was established by the Malaysian government in 1990. It is governed by a centralised regulator, the Labuan Financial Services Authority (Labuan FSA), which operates under the supervision of Malaysia’s Ministry of Finance. Labuan IBFC Incorporated Sdn Bhd, a wholly-owned subsidiary of Labuan FSA, serves as the official promotional and marketing agency for the centre. Situated strategically in the Asia Pacific region, Labuan IBFC is well-placed to leverage opportunities in one of the world's fastest-growing regions, embodying its tagline as Asia’s premier international financial hub.
Labuan IBFC provides a diverse array of business structures and investment solutions designed to streamline cross-border transactions and facilitate international business activities for global investors and enterprises. Flagship sectors encompass banking, risk management, wealth management, activities in the capital markets, leasing, and commodity trading. These solutions are available in conventional, Shariah-compliant, and digital formats, offering flexibility and catering to a wide range of preferences and needs.
Labuan IBFC offers several benefits for businesses choosing to establish a company or obtain a financial activity license in the jurisdiction. These include the following:
- a competitive tax regime, making it appealing for businesses seeking tax efficiency, that is applicable to Labuan entities engaged in Labuan business activities as per the Labuan Business Activity Tax Act 1990;
- a transparent regulatory framework, ensuring stability and transparency for businesses operating in the jurisdiction, that adheres to global standards and best practices in its regulatory and supervisory framework. This includes strict protocols related to anti-money laundering and terrorism financing activities where Labuan FSA is a member of both the Asia/Pacific Group on Money Laundering and the Financial Action Task Force. The regulator is also a member of the International Organisation of Securities Commissions (IOSCO); and
- a jurisdiction with currency and fiscal neutrality, that allows transactions to be conducted in multiple currencies, for example businesses operating within Labuan IBFC can deal in various currencies without restrictions. This flexibility in currency choice enables businesses to mitigate currency risk and facilitates international trade and investment.
Understanding Labuan Funds
Labuan funds operate under specific regulations established by the Labuan Financial Services and Securities (Amendment) Act 2022, specifically Part III, and for Islamic funds, under Part IV of the Labuan Islamic Financial Services and Securities (Amendment) Act 2022. These acts provide a regulatory framework that ensures compliance, investor protection, and the promotion of Labuan IBFC as a global financial hub.
Labuan IBFC is home to both regional and international capital market service providers that are recognised and licensed by Labuan FSA. These include:
- securities licensees
- fund managers
- fund administrators
- custodians
As at end-2023, total assets under management for this sector grew to USD 1.15 billion with 58.1% of the funds issued from the APAC region. Labuan IBFC offers various fund structures that cater to both cost-efficient flexible equity funds and sophisticated international funds.
A Labuan fund can be structured in various form such as a company, partnership, protected cell company, foundation, unit trust or a corporation incorporated under the laws of any recognised country or jurisdiction, who is a member of IOSCO. These traditional Labuan fund structures may also be combined with the ability to tokenise the fund via blockchain technology. The transparency inherent in blockchain-based systems enhances investor confidence, which can lead to a larger fund size and increased recognition for both the fund and its manager.
Labuan private funds are mutual funds whose securities are not offered to the public and are owned or held by:
- a maximum of 50 investors where the first-time investment by each investor is not less than MYR 250,000* or
- an unlimited number of investors where the first-time investment by each investor is not less than MYR 500,000*.
* equivalent in any foreign currency
To establish a Labuan private fund, a written notification to Labuan FSA is required together with the lodgement of an information memorandum through either a Labuan trust company (also known as the licensed company secretary in Labuan IBFC), a Labuan bank, a Labuan investment bank or a Labuan fund manager. The memorandum serves as a prospectus helping potential investors assess whether to purchase or subscribe to the private fund. The information memorandum must at least provide a full, accurate, and clear disclosure of all relevant facts, including general information, investment strategy, financial results, redemption policy, and material changes.
Further guidance can be obtained from the ‘Guidelines on the Establishment of Labuan Funds including Islamic Mutual Fund’ available at www.labuanfsa.gov.my