The small Malaysian island that wants to be a tax haven

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In the secret world of offshore tax havens, the small Malaysian island of Labuan is doing something curious: seeking the limelight.

Senior executives from the Labuan International Business and Financial Center have been touring major cities in Asia since late April, touting the benefits of domiciling businesses on a 36 square mile island off the coast of East Malaysia that imposes taxes. profits at only 3%.

The pitch at a recent presentation in Hong Kong included a 36-page glossy book ticking off the benefits of starting a Labuan-based trust, complete with photos of vintage Ferrari and Lamborghinis. Labuan does not keep any public register of private trusts and foundations established within its perimeter. Investment vehicles on the island are not taxed. There is an 18-hole golf course there, which is quite difficult, according to the deputy general manager of the Labuan Financial Services Authority.

“I lost a lot of balls,” said Danial Mah Abdullah, who is also the general manager of the island’s official marketing arm.

The roadshow, only Labuan’s third in its 26-year history as a financial center, comes at a tense time for the offshore industry. The “Panama Papers” – a massive leak of documents from a Panamanian law firm released in April – named a number of prominent public figures around the world who quietly parked money at the outside their country using offshore companies. Although legal in many forms, offshore companies have been used to evade taxes and funnel illicit funds overseas, making them a lightning rod for public suspicion.

Labuan’s demand for attention also coincides with an escalation of controversy in Malaysia over the government investment fund 1MDB. The fund, launched by Prime Minister Najib Razak in 2009, is under investigation in six countries, including the United States, for the alleged embezzlement of billions of dollars.

A 1MDB bond offering entity that has come under scrutiny, 1MDB Energy Ltd., has been incorporated in Labuan, according to bond offering documents. Another entity has been incorporated in the British Virgin Islands.

Mr. Najib and 1MDB denied any wrongdoing. The fund said it was cooperating with investigators. The Attorney General of Malaysia cleared the Prime Minister of any wrongdoing.

Labuan was caught in political crossfire last April when one of Mr. Najib’s cabinet ministers singled out the island in a seemingly coup against former Malaysian Prime Minister Mahathir Mohamad, who called on Mr. Najib to resign following the 1MDB scandal.

“… If putting money in tax havens was a crime, then Labuan, the brainchild of Tun Dr Mahathir Mohamad, should be shut down,” Malaysian Communication Minister Salleh Said Keruak said.

Labuan officials say they are not focusing on the 1MDB controversy.

“We are a financial services center,” Mr. Danial said. “We don’t get involved in politics.

Labuan officials also say they welcome calls for increased transparency in the offshore industry and believe the time has come to promote the island’s focus on Asian companies and the rapidly growing ranks of the industry. wealthy individuals from the region. More than 70% of companies registered in Labuan are from Asia, they say, adding that the cost of operating in Labuan is one-third that of Hong Kong or Singapore.

Malaysia’s status as a center of Islamic finance is also a selling point: services and business structures are available in conventional and Sharia-compliant forms.

“You can no longer sell secrecy, and we have never been secrecy,” Mr. Danial said.

Founded in 1990, Labuan is a small player in a region known for its business-friendly financial centers. The London Tax Justice Network lobby claims that Labuan offers a level of secrecy about things such as business ownership similar to Hong Kong or Singapore.

Labuan was home to 11,630 businesses, banks and leasing companies at the end of 2014, according to its latest annual report.


Photo:

Reuters

The tax transparency lobby estimates that Labuan represents less than 0.1% of the global offshore financial services market, compared to nearly 4% for Hong Kong, which ranks second on a tax haven index established by the lobby for the year. last. Singapore occupies fourth place, ahead of the Cayman Islands. Labuan ranks 18th, behind Japan and Germany.

Mr Danial said Labuan is not looking to compete with Hong Kong and Singapore, but to complement them. A Hong Kong lawyer, for example, could use a Labuan-based foundation to protect the assets of a local private client.

“If I said we are competing with Singapore I would be lying,” he said.

Labuan was home to a total of 11,630 businesses, banks and leasing companies at the end of 2014, according to its latest annual report. This is an increase of 45% compared to the end of 2010.

That’s also roughly the number of businesses incorporated in the British Virgin Islands in the fourth quarter of 2014 alone, according to the BVI Financial Services Commission.

Write to Mia Lamar at [email protected]

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