A Guide to Obtaining a Labuan Fund Management License

This guide aims to provide potential investors and institutions with a comprehensive overview to help them understand the specific requirements, application process, and subsequent compliance obligations for obtaining a Labuan Fund Management License. By analyzing Labuan’s policy environment and industry advantages in detail, we aim to offer clear direction and practical guidance for investors interested in entering the international financial markets.

Overview of the Labuan Fund Management License

The Labuan Fund Management License is a special license issued by the Labuan Financial Services Authority (LFSA) under the Labuan Financial Services and Securities Act (LFSSA) 2010. It is designed to regulate and promote the legal operation of fund management activities. Licensed entities can conduct a range of business activities, including investment advisory services and securities trading, within Labuan, an international financial center.

1. Basic Definition and Scope of Application

The Labuan Fund Management License allows licensed entities to offer a variety of fund management services globally, including but not limited to:

• Investment Advisory Services: Providing professional advice on securities and asset allocation.
• ポートフォリオ管理： Customizing and managing investment portfolios for clients.
• Securities Trading: Buying, selling, and managing financial securities on behalf of clients.
• Administrative Services: Assisting clients with document submissions and compliance related to securities.

Additionally, the license covers traditional fund management operations and supports Sharia-compliant Islamic fund management activities to cater to the diverse needs of global investors.

2. Relevant Regulations Overview

The Labuan Fund Management business is regulated by the following key legal frameworks:

• Labuan Financial Services and Securities Act (LFSSA) 2010: Specifies the operational framework and compliance requirements for fund management businesses.
• Labuan Companies Act 1990: Regulates the basic rules for company registration and operations.
• Labuan Business Activity Tax Act 1990: Covers the tax filing and economic substance requirements for fund management companies.

These laws together create a robust regulatory framework that ensures transparency and legality in the market while providing high flexibility to meet the diverse needs of businesses.

3. Primary Functions and Applicable Business Types of the License

The Labuan Fund Management License mainly encompasses the following functions:

• Investment Management: Licensed entities can provide services to manage clients’ portfolios.
• Advisory Services: Offering customized financial advisory services to institutional and individual investors.
• Securities Trading: Allowing institutions to trade securities on behalf of clients with proper authorization.
• Administrative Support: Assisting clients in completing regulatory and administrative procedures related to investments.

Moreover, licensed entities can focus on either private or public fund management. Private fund management companies primarily serve proprietary funds or a limited number of investors, while public fund management companies can offer services to a broader client base.

Advantages of Applying for a Labuan Fund Management License

Labuan, as a prominent international financial center, offers several advantages through its fund management license, attracting global investors and businesses to establish operations there. These advantages are detailed across three main areas: tax benefits, business flexibility, and low compliance costs.

1. Tax Advantages

Labuan’s tax regime provides significant benefits, especially in the highly competitive international financial market.

• Low Corporate Tax Rates: Companies holding the Labuan Fund Management License are subject to a 3% corporate tax, applicable only to audited net profits. This competitive rate significantly reduces the tax burden compared to many other international financial centers.
• Extensive Double Taxation Agreement Network: Malaysia has signed Double Taxation Agreements (DTA) with over 70 countries, effectively eliminating the risk of double taxation in cross-border transactions. This allows fund management companies to optimize their tax structure and maximize profits.

By leveraging Labuan’s tax advantages, businesses can reduce operating costs and enhance their competitiveness in global investment activities.

2. Flexible Business Scope

The Labuan Fund Management License allows businesses to engage in a wide range of financial services and offer customized services to different client types.

• Investment Management: Businesses can design and manage investment portfolios for clients across various asset classes, including stocks, bonds, and funds.
• Securities Trading: Licensed entities can engage in securities trading on behalf of clients and also conduct underwriting activities, offering comprehensive capital market services.
• Islamic Financial Services: Labuan also provides a framework to support businesses that wish to operate in compliance with Islamic law, which offers significant business opportunities for servicing clients in the Middle East and other Islamic markets.

This broad business scope enables Labuan fund management companies to fully capitalize on competitive advantages in the global investment market.

3. Low Compliance Costs as an International Financial Center

Compared to other international financial centers such as Hong Kong and Singapore, Labuan offers relatively low compliance costs:

• Flexible Economic Substance Requirements: Licensed entities only need to fulfill simple economic substance requirements, such as employing at least two local staff, establishing a local office, and meeting minimal local expenditure. These requirements help businesses maintain compliance at a lower cost.
• Efficient Regulatory System: The Labuan Financial Services Authority (Labuan FSA) provides a fast and transparent approval process while ensuring business legality and efficiency through modern regulatory tools.

Low compliance costs enable businesses to allocate more resources toward core business development and deliver higher value services to clients.

Types of Fund Management Licenses and Applicable Scope

Labuan offers two main types of fund management licenses based on business nature and client types: Private Fund Management Companies and Public Fund Management Companies. Below, we provide details of both license types, their applications, and business characteristics.

1. Private Fund Management Companies

• Definition and Application Scenario: Private Fund Management Companies are entities that manage their own assets. These companies do not need to apply for a Labuan Fund Management License but must submit an information memorandum to the Labuan Financial Services Authority (Labuan FSA) outlining their business nature and scope.
• Suitable for: Entities that manage only their own funds or family trusts. This structure is ideal for asset optimization and risk management without external clients.
• Key Advantages:
  • Lower compliance requirements.
  • Simplified registration process.
  • Flexible economic substance requirements.

2. Public Fund Management Companies

• Definition and Application Scenario: Public Fund Management Companies are businesses that provide asset management services to third-party clients. These companies need to apply for a Labuan Fund Management License and adhere to higher regulatory standards.
• Suitable for: Firms focusing on managing investment portfolios for high-net-worth clients, institutional investors, and other external clients.
• Key Characteristics:
  • Broad business scope, including investment advisory, portfolio management, and securities trading.
  • Higher regulatory requirements, including minimum capital and employee numbers.

Application Requirements for the Labuan Fund Management License

To apply for a Labuan Fund Management License, companies must meet a series of strict conditions to ensure their stability, compliance, and professionalism. These include capital requirements, personnel qualifications, and other compliance conditions.

1. Capital Requirements

• Minimum Paid-up Capital: The company must have at least RM300,000 in paid-up capital to ensure sufficient funding for business operations. If the company’s assets under management (AUM) exceed RM150,000,000, additional capital requirements apply based on 0.2% of the excess amount.
• Capital Maintenance Requirements: Paid-up capital must remain unaffected by market fluctuations to ensure operational stability during economic shifts.

2. Personnel Qualifications

• Educational and Experience Requirements for Fund Managers: Applicants must possess degrees or certifications related to fund management, finance, economics, or investment management, along with at least three years of experience in capital markets or fund management.
• Fit and Proper Criteria: All directors, senior management, and key personnel must undergo a “fit and proper” review by the Labuan FSA, assessing their professional background, integrity, and competencies.

3. Other Compliance Conditions

• Professional Liability Insurance: Fund management companies must obtain professional liability insurance of at least RM1,000,000 to cover potential business risks.
• Internal Controls, Corporate Governance, and Risk Management Policies: The company must establish a comprehensive internal control system, including anti-money laundering (AML) and anti-terrorism financing (CFT) policies, corporate governance frameworks, and risk management policies.

Application Process

The application process for the Labuan Fund Management License involves several steps to ensure that the company complies with regulatory requirements and successfully obtains the license.

Step 1: Company Registration and Structure Confirmation

• Company Type Selection: Choose the appropriate company type (Private Fund Management or Public Fund Management).
• Company Registration: Register the company in Labuan and obtain approval from Labuan FSA.

Step 2: Prepare Necessary Documents

• 事業計画： Submit a detailed three-year business plan, including business objectives, target customers, and financial forecasts.
• AML/CFT Policy: Develop an anti-money laundering and anti-terrorism financing policy covering customer due diligence and transaction monitoring.

Step 3: Submit License Application

• Submit the application, including the business plan, AML/CFT policies, and other required documents, to Labuan FSA.

Step 4: Open a Bank Account and Capital Injection

• Open a corporate bank account in Labuan or an international bank, ensuring sufficient capital deposits.

Step 5: Obtain the License and Start Operations

• After capital verification, Labuan FSA will issue the Fund Management License, and the company can begin operations while ensuring compliance with ongoing reporting and economic substance requirements.

Compliance and Maintenance Post-Registration

Once the Labuan Fund Management License is granted, the company must strictly adhere to regulatory requirements, including annual audits, tax filings, and license renewals to maintain ongoing compliance.

The Labuan fund management license has become the preferred choice for international investors and businesses due to its outstanding tax advantages, flexible business scope, and lower compliance costs. Whether for tax optimization, wealth management, or cross-border investment, Labuan has demonstrated its strong appeal as an international financial center.

For businesses looking to develop in this field, partnering with a professional organization is the key to success. フィオンザ, with its extensive industry experience, provides clients with efficient and comprehensive support, from license application to operational compliance, ensuring smooth business operations and helping clients achieve long-term growth goals in Labuan.