Forex License in Labuan

Obtaining a Labuan Forex license comes with several benefits, making it an attractive option for companies in the financial industry:

Flexible business operations
Labuan offers a supportive environment with less stringent regulatory requirements than many other financial centers. This flexibility allows forex license holders to run their business efficiently and adapt to changes in the market.

Simple regulatory process
The Labuan Forex license process is known for its simplicity and efficiency. It allows you to set up a finance company in this jurisdiction in less than 2 months.

Low taxation
The corporate tax rate is 3% of net profits or a fixed annual amount of 20,000 Malaysian Ringgit (approximately US$4,200).

Asset Protection
Labuan is known for its robust asset protection measures. The jurisdiction restricts the use of foreign judgments, providing additional security for companies operating in its regulatory environment.

Privacy and confidentiality
Labuan pays attention to client confidentiality and privacy. This jurisdiction has strict rules in place to ensure that financial transactions and client information remain confidential.

Experienced financial professionals
Labuan’s status as an international financial hub attracts qualified and experienced financial professionals. Companies with a Labuan Forex license can benefit from the availability of professionals who are well-versed in financial services.

Diverse financial services
Labuan offers a wide range of financial services beyond forex trading, including banking, insurance, and wealth management. This diversity creates opportunities to expand the range of services offered.

International Recognition
Labuan is recognized as an international financial center, increasing confidence in companies operating under its regulation. This recognition can attract international clients and partners.

Access to global markets
Labuan’s strategic location in Asia and its well-established financial infrastructure provide companies with access to a wide range of global markets, facilitating international trade and investment.

To obtain a Labuan forex license, you need to meet certain eligibility criteria set by the Labuan FSA. These criteria include:

• a registered legal entity in Labuan;
• having a minimum paid-up capital of 500 000 ringgit (approximately US$105 000);
• having a physical office in Labuan;
• all transactions must be made to, through, and from Labuan;
• having a minimum of 2 resident employees;
• having a minimum of 2 directors, one of whom may serve as resident director and resident secretary;
• hiring qualified staff;
• having a good reputation in the financial services industry;
• at least 3 years of experience as a broker;
• established maximum leverage of 100:1 for client trading transactions;
• having an external auditor for annual audits and reporting to the regulator;
• implementing and adhering to strict anti-money laundering (AML) and know-your-customer (KYC) procedures.

In addition, forex brokers licensed in Labuan are required to provide the FSA with the approvals obtained from the relevant regulatory authorities in the markets in which they plan to operate before commencing their business activities.

The process of obtaining a brokerage license in Labuan involves several steps and regulatory compliance:

1. Register the company in Labuan through the FSA.
2. Prepare the necessary documentation, including a business plan, details of shareholders, directors, and officers, and declarations of suitability for the positions held.
3. Apply and supporting documents to the FSA. The application should include information about the proposed brokerage and all required documents.
4. Go through a thorough due diligence process. At this stage, the Labuan FSA may vet directors and officers to ensure they meet the suitability criteria.
5. The Labuan FSA will review the application and supporting documents. If everything is in order, approval for a brokerage license will be issued.
6. Pay the Labuan FSA registration fee, which is 10,000 ringgit (about US$2,100), and cover the running costs.

Once all regulatory requirements have been met, the company can commence brokerage activities with the license granted.

The required documents to apply for a forex broker license in Labuan can vary, but the following are usually requested:

• a completed application form provided by the FSA;
• a detailed 3-year business plan outlining the proposed forex business, including details of business activities, target market, and financial projections;
• copies of the certificate of incorporation and other relevant corporate documents for the company in Labuan applying for a license;
• documents of directors, shareholders, and officers, including letters of recommendation from the bank and certified copies of academic qualifications;
• recent financial statements of the company, including audited statements (if applicable);
• developed AML/CFT policies;
• established risk management policies and procedures;
• a compliance manual describing how the company intends to comply with Labuan’s financial regulations;
• documents evidencing authorized capital as required by the Labuan FSA;
• documents confirming the existence of a local office;
• detailed operating procedures for the forex business;
• information on the information technology infrastructure and trading platforms used;
• if applicable, confirmation of approvals from other relevant regulatory authorities.

The Labuan FSA may also request additional documents or information as necessary during the application process.

All documents in Labuan are accepted in English. Original documents in another language must be accompanied by notarized English translations.

All financial services in Labuan, including forex business, are supervised and regulated by the Labuan Financial Services Authority (Labuan FSA), established on February 15, 1996, to promote and develop Labuan as an international business and financial services center.

Forex business in Labuan is supported by an extensive, modern, and internationally recognized legal framework that guarantees clear legal regulations and industry guidelines set by the Labuan FSA. The legal framework governing financial brokers in Labuan includes eight laws and bylaws of the Labuan laws. Also effective January 1, 2018, guidelines from the FSA came into effect, designed for brokerage firms to ensure the efficient and effective conduct of monetary transactions and foreign exchange transactions.

To legally conduct a brokerage business in this jurisdiction requires a license from the FSA. The Labuan Authority offers two types of licenses for forex activities:

• Money-Broker License;
• Money-Change License.

A Money-Broker License provides the ability to operate a forex brokerage business, while a Money-Change License allows you to provide currency exchange services. A decision needs to be made as to which type of license is better suited to your business model and goals.

It is worth considering that, according to current legislation, a Labuana forex company:

1. Is restricted from conducting transactions on its behalf, excluding the purchase or sale of foreign currencies by a broker as principal in such markets.
2. May not conduct transactions in Malaysian ringgit (only allowed to use ringgit for local expenses). Use of all other currencies is permitted.
3. Prohibited from dealing with Malaysian locals except through authorized dealers.

Labuan, a federal territory of Malaysia, has a separate tax system from the mainland. The tax structure in this jurisdiction is designed to be attractive to international businesses, especially those in the financial services sector.

Some key points of the tax system in Labuan:

1. Corporate Tax (LBAT).

The standard corporate tax rate is 3% of Labuan’s audited net profits from trading activities or a fixed amount of 20,000 Malaysian ringgit (about US$95 600). This applies to businesses such as forex brokers, money brokers, Islamic banking, and fund management.

2. Profits from non-trading activities are fully exempt from LBAT tax. These include investments in securities, shares, loans, deposits, or other property.
3. There is no Goods and Services Tax (GST) or VAT on transactions in Labuan.
4. Labuan does not levy withholding tax on dividends, interest, royalties, or service payments paid to non-residents.
5. Labuan does not levy capital gains tax, transfer tax on the transfer of shares in Labuan companies, or inheritance or post-mortem tax.

In addition, Malaysia has entered into double taxation agreements (DTAs) with various countries and these agreements may affect the tax treatment of companies in Labuan depending on the specific terms of each DTA.