Labuan Financial Services Authority: Tax incentive for Islamic finance industry players a well-timed boost

LABUAN, Oct 14 — The Labuan Financial Services Authority (Labuan FSA) has hailed the newly announced tax incentives for the Labuan Business and Finance Centre (Labuan IBFC) as a well-timed boost to its development as a thriving Islamic financial hub.

The tax incentive, as announced in Budget 2024 yesterday, targets Labuan entities engaged in Islamic finance activities, in which they will be granted a full income tax exemption for a period of five years, commencing from the year of assessment 2024.

Labuan FSA director general Nik Mohamed Din Nik Musa said this tax incentive would stimulate Islamic finance activities within Labuan IBFC.

He said this includes areas such as Islamic digital banking, Islamic digital exchange, ummah-linked companies (ULC), and Islamic token issuers, including Islamic digital assets, known as RAMZ in Arabic.

ULCs, which are also eligible for these tax incentives, encompass Labuan entities engaged in Islamic social finance activities, and these activities range from savings for hajj and pension funds to the collection of global zakat and wakaf funds destined for the global Muslim community.

“The recent budget announcement aligns perfectly with the forthcoming listing of the world’s first asset-backed securities token, known as RAMZ, on Labuan’s digital exchanges in the coming weeks,” Nik Mohamed Din told Bernama tonight.

He said the framework for ULC would be finalised to attract more players to offer Islamic financial services on a global scale, particularly to underserved markets.

“Labuan FSA has expressed its deep appreciation for the incentives highlighted by the Prime Minister, which are designed to support Labuan’s Islamic finance activities within Labuan IBFC.

“This tax incentive will provide an added impetus to advance Labuan’s Islamic Digital Asset Centre (IDAC) initiative, introduced by Labuan FSA last October,” Nik Mohamed Din said.

He said as outlined in the five-year Labuan IBFC Strategic Roadmap 2022-2026, IDAC serves as a digital gateway with a pivotal role in fundraising and investment activities within the global digital space, and it specialises in environmental, social and governance (ESG) and shariah-compliant ventures.

“IDAC will enable companies, especially SMEs, to digitise their assets for fundraising and issue tokens that can be subscribed to by investors and traded on the exchange,” he continued.

“Underlying the infrastructure of IDAC is a shariah-compliant blockchain, supplementing the IDAC players and their products with shariah-compliant smart contracts and decentralised applications,” he said.

Nik Mohamed Din said Labuan FSA has recently issued Guidelines on Labuan Securities Token Offering (STO), which offer guidance on the issuance of securities tokens, both conventional and shariah-compliant, along with ESG-based offerings through Labuan IBFC.

“Labuan FSA actively encourages innovation in Islamic finance and digital transformation, moving beyond traditional models to improve market access and promote greater financial inclusivity.

“The full tax exemption for Labuan’s financial sector will undoubtedly catalyse and rekindle the focus on Islamic finance within Labuan IBFC,” he said.

He emphasised this tax incentive would provide essential support for Labuan FSA in advancing Islamic finance.

He commended the government’s commitment to promoting Islamic finance businesses, which will undoubtedly enhance Malaysia’s global leadership position in Islamic finance, in line with Malaysia’s Madani Economy framework. — Bernama