A Guide to Labuan Banking Business

Labuan IBFC offers various banking licenses, depending on the nature of your business:

1. Labuan Bank (Commercial): Provides general banking services such as deposit-taking, loans, and other banking operations.

2. Labuan Investment Bank: Specializes in investment activities, offering services such as consultancy, advisory, and managing investments on behalf of clients.

3. Labuan Digital Bank: Focuses on digital financial services, providing innovative banking solutions including fintech and digital assets.

4. Labuan Islamic Bank (Commercial): Offers Islamic banking services, which operate according to Shariah law, providing a range of deposit and financing products.

5. Labuan Islamic Investment Bank: Combines the principles of Shariah law with investment banking services, making it an ideal platform for Islamic finance and investment activities.

6. Labuan Islamic Digital Bank: Provides digital banking services in compliance with Shariah principles.

Labuan IBFC is an attractive jurisdiction for banks and financial institutions for several reasons:

1. Flexibility and Variety: Labuan banking is available in conventional, Islamic, and digital formats, offering a broad range of solutions tailored to business needs.

2. Shariah-Compliant Options: Islamic banking is fully supported, allowing financial institutions to operate under Islamic finance principles. The jurisdiction offers incentives, including the ability to operate Islamic Windows (for Islamic banking activities within a conventional bank) without needing a separate license.

3. Tax Benefits: Labuan banking entities enjoy favorable tax treatment, with a 3% tax rate on net profits for entities engaged in trading activities, while non-trading income is tax-exempt. Additionally, there are no withholding taxes on dividends paid to non-residents.

4. International Recognition and Access: Banks in Labuan benefit from access to global financial markets and international standards in terms of compliance and transparency. The jurisdiction is well-recognized by international regulatory bodies and adheres to global financial regulations​.

5. Digital Innovation: With a Labuan Digital Bank license, financial institutions can leverage emerging technologies, including blockchain and digital assets, positioning Labuan at the forefront of digital financial services​.

• 100% Foreign Ownership: Labuan allows full foreign ownership for banking entities, offering flexibility in structuring businesses.

• Minimal Capital Requirements: Compared to other jurisdictions, the capital requirements for establishing a bank in Labuan are lower, making it cost-effective for startups and smaller financial entities.

• International Transactions: Banks in Labuan are permitted to engage in foreign currency transactions, making it easier to operate on a global scale.

• Islamic Windows: For conventional banks, the opportunity to offer Shariah-compliant services through Islamic Windows adds flexibility and market reach without requiring separate licensing​.

The establishment of a Labuan commercial bank requires approval from the Labuan Financial Services Authority (Labuan FSA). Key requirements include:

1. Application Submission: Banks must submit a detailed business plan, including the scope of operations, financial projections, and risk management strategies, along with proof of minimum paid-up capital.

2. Governance and Compliance: Banks are required to meet strict governance and compliance standards, including adherence to anti-money laundering (AML) and combating the financing of terrorism (CFT) protocols.

3. Economic Substance: Labuan banks must demonstrate economic substance by maintaining a physical office in Labuan and employing qualified staff. This is part of Labuan’s commitment to maintaining transparency and regulatory integrity.

4. Ongoing Reporting: Once licensed, Labuan banks are required to submit regular financial reports to Labuan FSA, ensuring continuous compliance with local and international regulations.

1. Consultation and Application Preparation: Engage with local experts to assist in the preparation of your business plan, financial statements, and other necessary documentation.

2. Submission to Labuan FSA: Submit the application, including the business plan and all required documents, to Labuan FSA for review.

3. Regulatory Review: Labuan FSA will review the application, assessing the bank’s financial stability, business model, and compliance with regulatory standards.

4. Approval and Licensing: Upon successful review, Labuan FSA will issue the commercial bank license, allowing the institution to begin operations.