KUCHING: Players in the shipping business can enjoy significant tax benefits whenever they lease ships via Labuan, instead of spending more than they really need to.Aiding this would be the favourable tax-regime and regulatory environment in Labuan, which has helped both local and foreign companies to lower their operating costs through innovative leasing structures.
“Leasing through the Labuan International Business and Financial Centre (Labuan IBFC) involves enormous tax benefits namely taxation at three per cent of net audited profit or a flat tax of RM20,000, instead of the usual 25 per cent.
“Unfortunately, many remain either unaware of or indifferent to this oppor-tunity to better manage their funds,” said Equity Trust Labuan Ltd’s (Equity Trust) managing director Sue Yong at a seminar, ‘Labuan IBFC for Ship Owners’, held at Menara OCBC in Kuala Lumpur recently.
The half-day event, co-organised by OCBC Bank Malaysia Bhd (OCBC Bank) and Equity Trust, saw the participation of various companies involved in the shipping business. It also provided an avenue for stakeholders in maritime financing to gain insights into opportunities available at Labuan IBFC.
“Besides the generous tax benefit, offshore companies registered in Labuan have no withholding tax and also no stamp duty on offshore transactions. With the exception of the transportation of passengers or cargo by sea or letting out on charter of ships on voyage or time charter basis, Labuan Offshore companies are allowed to carry on leasing of ships on a ‘bare boat’ basis,” she added.
With amendments to the country’s insurance law, which allows direct access to the reinsurance market without the requirement for fronting companies, Labuan has become even more cost-effective and attractive.
“Previously, risk prevention measures required a fronting company that would take up to 10 per cent in commission before reinsuring to a captive insurer. However, with the change in regulation after April 1 last year, a fronting company is no longer required. With direct access to the reinsurance market, about 50 per cent of costs spent on risk prevention may now be saved,” explained Labuan IBFC’s chief executive officer, David Kinloch.
He continued, “Labuan is strategically located with access to developing economies such as China and India. There, setting up a company is a quick and simple exercise, with approvals coming from a one-stop regulator, the Labuan Offshore Financial Services Authority (LOFSA). Operationally, costs are lower in this jurisdiction without sacrificing quality, with access to expertise and world-class infrastructure.”
Meanwhile, OCBC Bank’s head of commercial banking, Jeffrey Teoh, commented that having a dedicated ship-financing team, the bank invested over the last three years to provide insights into vessel financing for the industry players.
“We are aware that a bulk of SMEs (small and medium enterprises) operating in the shipping industry is not fully aware of the benefits associated with Labuan IBFC, thus, missing out on opportunities that could bring untold benefits.
“The thrust of the briefing centred around the question of why a company should lease vessels through Labuan IBFC and also consider setting up its own captive insurance company. Many companies such as international airlines as well as major shipping, oil exploration and real estate companies are already reaping the rewards of having done so.
“Either by locating their captive insurance bases or establishing a leasing company at Labuan IBFC, or even both, companies get to enjoy generous tax benefits, innovative products, financial expertise and exceptionally low costs of operation. Progressive regulations and clear laws further ensure maximum security and transparency.”
On the seminar, Teoh added that it aided in bridging the gap between capability and knowledge.
“As OCBC Bank has a strong presence in Labuan and also offers financing in major foreign currencies, we are in a position to assist the industry players in a more focused end-to-end approach to fulfil their goals.”