Global Incentives for Trading And Labuan International Trading Commodity Company

Encik Ahmad Hizzad Baharuddin
Director-General of Labuan FSA

31 October 2011

  • Yang Berhormat Dato’ Sri Mustapha bin Mohamed, Minister of International Trade and Industry 
  • Yang Berbahagia Tan Sri Dato’ Sri Dr Zeti Akhtar Aziz 
  • Yang Berusaha Dr. Emir Mavani, President and Chief Executive Officer Malaysia Petroleum Resources Corporation 
  • Members of the Labuan Financial Services Authority 
  • Distinguished Guests 
  • Ladies and Gentlemen 

Assalammualaikum and a very good afternoon,

On behalf of the Labuan Financial Services Authority, it is my pleasure to welcome you to the launch of the Global Incentive for Trading (GIFT) Programme and the introduction of the Labuan International Trading Commodity Company (LITC). This is an exciting time for us as we introduce yet another new scheme out of Labuan International Business and Financial Centre (IBFC), in our effort to widen the spectrum of offerings in the IBFC, and diversify the products and services of Malaysian’s financial services sector. Allow me to share with you the rationale of the GIFT Programme and the LITC, conceived under the collaborative effort between the Malaysia Petroleum Resources Corporation (MPRC) and Labuan FSA.

Environmental Backdrop

In pursuing the National Economic Model to transform Malaysia into a high income economy by 2020, several National Key Economic Activities (NKEA) have been identified by the Government as the main drivers towards achieving this vision. Over the years, the Oil, Gas and Energy sector has contributed significantly to the growth of the country and it now accounts to about 20% of the national GDP. It is against this backdrop that the Government has earmarked the Oil, Gas and Energy as one of the key growth areas to further contribute to the increase in gross national income (GNI).

The future outlook for the national Oil and Gas sector is certainly promising with new resource discoveries and Malaysia is projected to contribute up to 11.60% of the supply of Oil for Asia Pacific. Global demand for natural gas is predicted also to rise by 41%, with more than 80% of this demand expected to come from users in the Asia Pacific region. This trend is indeed encouraging as it positions Malaysia to capture the value creation from the rising demand for Oil and its related products.

Ladies and Gentlemen,

While Malaysia has a thriving up-stream activities in the Oil and Gas sector, more activities could be initiated at the various levels in the business value chain, particularly in the trading of petroleum and its related products. Notably, several of the largest Oil Trading hubs are located in non-oil producing countries such as London and Geneva, where billions of trade transactions are flowing through these centres. This offers a huge potential for Malaysia to tap on the Oil Trading market, as it would not only generate revenue for the country, but would also increase the pool of expertise and talent, and improve the transfer of technology in the Malaysia.

Indeed, the GIFT Programme has been designed to reap these foreseeable potentials in the Oil and Gas industry. One of the main objectives of the GIFT Programme, at this initial stage, is to attract major international Oil Trading companies, to consider locating their operations in Malaysia. In attracting these international Oil Trading companies, the GIFT Programme offers a set of incentives through the establishment of the LITC. The introduction of LITC seeks to enable companies and financial institutions to tap on the huge trading markets of petroleum, petroleum-related products as well as selected commodities, including minerals and carbon credits.

The key incentives offered to the LICT under the GIFT Programme include:

  • a flat corporate tax rate of 3% of chargeable income; 
  • 100% exemption on director fees paid to non-Malaysian director; 
  • 50% exemption on gross employment income for non-Malaysian professional traders and others in managerial capacity of the LITC companies; 
  • exemption of stamp duties on documentation for these business activities; 
  • tax exemption on dividends received by or paid from the LITC companies; and 
  • all other fiscal incentives that are attached to a Labuan entity.

Capacity of the Financial Services in supporting the NEM

The attractiveness of using Labuan IBFC as the base for the LITC to conduct the oil trading business in Malaysia extends beyond fiscal incentives. Labuan IBFC, as hosts to over 400 international financial institutions comprising 61 banks, 169 insurance and insurance-related companies, 176 leasing companies amongst others, is a natural and ideal location as it provides the Oil and Gas trading companies with a comprehensive range of financial products and services, both under conventional and Shariah-based principles. With the strong support from the financial services industry, the Oil and Gas industry is poised to contribute significantly to the financial and business activities in Malaysia. In meeting this development, the Labuan FSA is pleased to note that the global banks and insurance companies in Malaysia including Labuan, are gearing towards providing specialised financial services that are needed by the Oil Trading companies. Labuan FSA welcomes the availability of Oil trading desks in the financial institutions to support the oil trading activities.

Ladies and Gentlemen,

In Labuan IBFC, the financial institutions and Labuan companies operate within legal and supervisory frameworks which are very conducive for business operations. The Labuan IBFC achieved a key milestone in 2010 with the enactment of four new laws and enhancement of its existing laws, which had significantly improved the IBFC’s already competitive position and ensures that its legislative framework remains facilitative. The new legislation had also improved the regulatory and supervisory regime of Labuan IBFC in its efforts in ensuring financial stability and soundness of the financial institutions. In this regard, while Labuan FSA encourages the growth of the LITC and the conduct of Oil Trading activities, the Authority is also committed to ensure that the business is conducted with the necessary elements and considerations for risk management, with investors protection accorded to the transactors and other general investors.


Ladies and Gentlemen,

The launch of the LITC is timely as its marks yet another significant event for the IBFC to complement the strategies for the economic development of the country. As the regulator, Labuan FSA is indeed optimistic of the growth prospects of the LITC under the GIFT Program, and its multiplier effect to the vibrancy of Labuan IBFC and the financial services sector.

In closing, I would like to record my appreciation to Bank Negara Malaysia, PEMANDU and the Malaysia Petroleum Resources Corporation for collaborating with Labuan FSA in formulating the GIFT Programme. We are very grateful of the support and approval obtained from the Ministry of Finance and the Inland Revenue Board for the Programme. We certainly look forward to more strategic collaboration and the opportunities of synergistic work like this in the future for the benefit of the nation.

I wish to convey my congratulations to all the pioneering companies that have immediately come on board in this very exciting LITC Scheme. Last but not least, Labuan FSA would like to encourage the existing Oil Trading companies in Labuan to seize the opportunity to benefit from the GIFT Program. A special thank you to all present today for your continued support and participation in the growth and development of Labuan IBFC.

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