Setting up a Labuan Islamic banking business in 2024

Since 2003, Healy Consultants Group has been providing our multi-national Clients with a range of Labuan business set up services. Recently, these include i) Islamic bank licensing ii) bank account opening iii) employee recruitment iv) visa strategies and v) office rental solutions.

Why set up a Labuan Islamic wealth management company?

Labuan is an emerging Asian Islamic finance hub with a sharia-compliant ecosystem (including a Sharia Supervisory Council) and a highly supportive legal and regulatory infrastructure. A Labuan company is therefore an excellent vehicle from which to access the region’s vibrant ‘halal’ economy. Points to note regarding Labuan Islamic banking include:

• Labuan Islamic banks enjoy incentives including: i) exemption from maintaining a physical presence in Labuan. A Labuan Islamic bank can open an office anywhere in Malaysia (this is despite Substantial Activity Requirements introduced in 2019 on Labuan entities) ii) no limits on staffing and the number of offices outside Labuan;
• The total value of sharia-compliant assets in Labuan grew 2.4% in 2018 to $3.2 billion. The total value of Islamic financing rose 8.4% from 2018 to 2019, to $2.7 billion;
• Labuan is the only Asian IFC to offer private foundations and special purpose trusts, including Islamic foundations (waqf);
• The Malaysian government’s ‘Islamic first’ policy is expected to result in 40% sharia-compliant banking assets as a share of overall banking assets by 2020 (30% by end-2017), further enhancing Malaysia’s global leadership position in Islamic finance;
• Labuan International Business and Financial Centre is positioned as a ‘midshore’ jurisdiction, offering client confidentiality, tax advantages and international best practices;
• Labuan IBFC is a signatory to the Foreign Account Tax Compliance Act (FATCA);

Disadvantages of using a Labuan Islamic wealth management company

• The annual licence fee for a Labuan financial services company are US$30,000;
• There is a shortage of qualified Islamic banking talent in Labuan, and in Malaysia in general;
• Despite its growing influence on the Islamic finance stage, Labuan is not considered a global Islamic finance centre (such as Kuala Lumpur, London, Dubai or Doha);

Setting up a Labuan Islamic banking business

• Labuan Islamic banking is defined as the business of receiving deposits on a current account, deposit account, savings account or any other account in compliance with sharia principles, as specified by the Labuan Financial Services Authority (LFSA);
• Applicants for an LFSA Islamic bank licence must i) be a bank or financial institution ii) possess a sound track record iii) have a good credit rating iv) be supervised by a competent regulatory authority and v) conform to generally accepted standards of international banking practices or the Bank for International Settlements (BIS);
• The minimum working fund for an investment bank in Labuan is RM10 million (or its foreign currency equivalent);
• A Labuan Islamic bank is required to pay annual fees to the Labuan Financial Services Authority (LFSA) every January. These amount to i) a one-off US$350 licence processing fee and ii) a US$30,000 annual fee;

Registering a Labuan Islamic bank

Healy Consultants Group will efficiently assist our Client to establish their Labuan Islamic banking business. This includes i) applying for an Islamic banking licence with the Labuan Financial Services Authority (LFSA) ii) paying the one-off licence processing fee iii) arranging payment of the annual licence fee to LFSA iv) assistance to recruit qualified staff v) assistance with visas vi) assistance with finding office premises.

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