The Topping-Up Ceremony of Financial Park Complex, Labuan, 1 July 1995
Today's ceremony marks a major step forward in the Malaysian government's strong commitment to transform Labuan into a premier Offshore Financial Centre. The Financial Park Complex is only the first of a series of integrated projects to be undertaken here. Considering that it is to be regarded as a landmark structure, it is significant that its construction has been carried out entirely by local contractors. I am confident that the construction of the entire Complex would be on schedule, and that it would meet the objective of catering to the various needs of the offshore community.
In fostering the growth of the Labuan IOFC, the Government has adopted a proactive, pragmatic and consultative approach. The offshore and other interested parties have been active in recommending changes to administrative rules and procedures and proposing new activities for consideration by the authorities. We have responded positively, removing impediments and making improvements without any compromise on supervision or the regulatory requirements. The Steering Committee has been focussing efforts to accelerate the development of the Labuan IOFC.
Last year, the offshore banks and insurance companies had requested to be allowed to maintain their management offices in Kuala Lumpur after the expiry of the prescribed deadline at the end of this year, or alternatively to set up a marketing office there. I am pleased to announce that the deadline is extended for a period of three months until March 31, 1996. This is to facilitate the smooth transfer of operations of the offshore banks and insurance companies to Labuan when the infrastructure would be ready and complete. They will also be allowed to set up marketing offices in Kuala Lumpur to facilitate meetings and business dealings. In terms of personnel of the offshore companies in general, there is already no restriction on the number of expatriates at the management level. This has helped to speed up the creation of a pool of management expertise in Labuan for offshore operations.
Currently the offshore banks in Labuan are permitted to use the External Account which is in ringgit to defray their administrative and statutory expenses. To reduce the cost of doing business, we have also decided to allow offshore banks to receive fees and commissions in ringgit arising from transactions denominated in ringgit. One example is the fees and commissions associated with guarantees denominated in ringgit, issued by the offshore banks.
In order to extend the scope of offshore activities in Labuan, the offshore banks should exploit the profitable opportunities for private banking business. The Government has decided to allow money broking businesses to be set up, either as a branch or as a subsidiary, in Labuan IOFC. For the time being, a money broker may only act for a Labuan offshore bank with an onshore bank, or for a Labuan offshore bank with another offshore party, or for two Labuan offshore banks. In fact when all the offshore banks and insurers have relocated to Labuan, I would anticipate the emergence of an inter-offshore bank money market. In addition, to maintain Malaysia's lead in the development of Islamic financial activities and products, offshore banks should begin tapping the vast potentials available in the Islamic countries.
In the area of fund management, I wish to clarify that exemption is already granted to management companies of offshore unit trust funds in Labuan to invest in Malaysian securities. As a further boost to the development of unit trust funds, Malaysian fund management companies are now allowed to form joint ventures with foreign fund management companies in Labuan.
The Offshore Trust Bill is scheduled for tabling in Parliament in August. While the liberalization package I had announced last week would have beneficial spill-over effects on the growth of the Labuan offshore fund management industry, we have also considered direct measures to promote Labuan. We believe that separate offshore securities legislation is essential. In order to streamline procedures and coordinate efforts in developing the offshore unit trust industry, a separate Securities Act for offshore activities to be administered by a single regulatory agency is necessary.
In respect of the offshore insurance industry, the premium ceded to Labuan offshore insurance companies will be 100 per cent tax deductible as compared with 95 per cent currently. Offshore life insurers who are now prohibited from underwriting direct insurance of Malaysian risks will be allowed to sell life insurance policies denominated in foreign currency to high net worth Malaysian individuals. As I have suggested to the offshore banks, I would like to see the offshore insurers offering interest free facilities according to Islamic principles.
We are fully aware that in order for Labuan to compete as an international offshore financial centre, it should offer a conducive tax environment. As such we are conducting a comprehensive review of the tax structure so as to provide further incentives to the offshore community. I hope to be able to unveil the new measures by the end of this year.
On the administrative front, efforts are continuously directed at rationalising and streamlining procedures. Accordingly, the Registrar of Companies is reviewing, among others, the requests to simplify the filing of returns; to allow trust companies to be corporate directors or secretaries of offshore companies; and to prescribe the procedure for the winding-up of offshore companies. While the Steering Committee has succeeded in resolving a number of issues, it was a readily available vehicle to meet an urgent need. Thus, the Government has agreed to establish a separate single authority to oversee regulatory aspects of IOFC other than the Labuan Development Authority.
While today's event may mark the culmination of six years of painstaking and dedicated efforts by all parties to lay the foundations of an international offshore financial centre, it also signifies the beginning of a new chapter full of challenges. I am confident that with your firm support, God willing, we shall succeed.
Thank you.