14 October 2023: Labuan FSA wishes to inform that the Prime Minister of Malaysia has announced in his 2024 Budget speech yesterday on the tax incentive to be accorded to Labuan Business and Finance Centre (Labuan IBFC) to support the development of Labuan IBFC as an Islamic financial hub. The tax incentive is intended for Labuan entities conducting Islamic finance activities to be granted a full income tax exemption for five years, starting from the year of assessment 2024.

The tax incentives will promote the Islamic finance activities in Labuan IBFC such as Islamic digital banking, Islamic digital exchange, Ummah-linked companies (ULC) and Islamic token issuers that would include Islamic digital asset or RAMZ as known in Arabic. The budget announcement augurs well with the expected announcement of the world’s first asset backed securities token or RAMZ to be listed on Labuan digital exchanges in a few weeks’ time. The ULC which will also be accorded with the tax incentives, are categorization of Labuan players which offer Islamic social finance activities such as savings for hajj and pension, collection of global zakat and wakaf to the global Muslim community. The framework on ULC will also be finalised to attract more players to offer Islamic financial businesses globally especially to the underserved market.

The Director General of Labuan FSA, Encik Nik Mohamed Din Nik Musa said, “Labuan FSA welcomed the announcement made by the Prime Minister on the incentives accorded to Labuan Islamic finance activities in Labuan IBFC. This announcement will provide further impetus to promote Labuan’s Islamic Digital Asset Centre or IDAC initiative that was unveiled by Labuan FSA last October”.

As embedded in the five-year Labuan IBFC Strategic Roadmap 2022-2026, IDAC is a digital gateway that will play a significant role as a fund raising and investment hub in the global digital space, with a niche in Environmental, Social and Governance (ESG) and Shariah compliant activities. IDAC will facilitate companies especially SMEs to digitally securitise their assets to back their fund raising and issue token to be subscribed by investors and traded on the exchange. The underlying infrastructure of IDAC will be Shariah-compliant blockchain that will supplement the IDAC players and their products with Shariah-compliant smart contracts and decentralised applications.

The recently issued Guidelines on Labuan Securities Token Offering (STO) by Labuan FSA will also provide guidance on issuances of securities token, both conventional and Shariah-compliant as well as ESG issuances through Labuan IBFC. Labuan FSA encourages innovations in Islamic finance and digital transformation in businesses beyond the traditional model to improve market access and promote greater financial inclusivity.

The tax incentive for Labuan financial sector which will certainly catalyse and renew the focus on Islamic finance in the Labuan IBFC. The full tax exemption will support Labuan FSA to develop Islamic finance further and we laud the Government’s call to promote Islamic finance businesses, which will certainly bode well for Malaysia’s global leadership position in Islamic finance, in line with Malaysia’s Madani Economy Framework.

Labuan Financial Services Authority
14 October 2023