Forex License in Labuan

Labuan, a federal territory of Malaysia located near Borneo, has become one of the most attractive jurisdictions for international financial services. Over the past three decades, the island has built a reputation as a well-regulated offshore hub, offering foreign investors favorable conditions for establishing brokerage operations.

Advantages of a Labuan Forex License

A Labuan Forex License presents a wide range of advantages for brokers and fintech entrepreneurs seeking access to Asian and global markets:

• Flexible tax system. Labuan offers one of the lowest tax rates in the region — only 3% on net profits. As an alternative, companies can choose a flat tax of RM20,000 annually. 
• Affordable fees. Annual maintenance costs start from just $1,000–1,250, making the jurisdiction cost-effective even for startups.
• Access to tax benefits. Labuan companies benefit from Malaysia’s extensive network of double taxation treaties. 
• Ease and speed of obtaining a license. On average, the licensing procedure takes three to four months, which is considerably faster compared to European or Middle Eastern jurisdictions.
• International recognition. A Labuan Forex License is regarded as equivalent to many European financial licenses, confirming the high level of compliance standards and trust. 
• No currency control. Labuan does not impose restrictions on foreign exchange transactions. 
• 100% foreign ownership. Unlike many Asian jurisdictions, Labuan allows full foreign ownership of licensed companies. 

Requirements for Labuan Money Broking License

To operate as a licensed broker in Labuan, companies must obtain a Labuan Money Broking License issued by the Labuan Financial Services Authority (LFSA). 

The key requirements include:

• • Minimum paid-up capital at least $110,000 (RM500,000). 
  • At least two directors must be appointed that possess relevant education and a minimum of three years of experience in brokerage or financial services.
  • At least two shareholders are required to establish the company.
  • The company must open a corporate account with a local financial institution.
  • Brokers are required to lease or purchase office space in Labuan.
  • Applicants must demonstrate professionalism and provide supporting documentation.
  • Companies are obliged to develop and implement AML and KYC procedures.
  • Firms must restrict client leverage to a maximum of 100:1.
  • Licensed brokers are required to undergo yearly external audits.
  • State fee is approximately $1,250 annually.

These requirements are designed to ensure only competent, financially sound, and compliant brokers operate under a forex license in Labuan.

Process and timeline for obtaining a Labuan Money Broking License

The steps include:

1. Collect corporate information, financial details, resumes, business plans, and other required paperwork.
2. Submit original documents to LFSA via courier for verification.
3. Provide any additional information requested by LFSA.
4. The regulator reviews the application in detail.
5. Preliminary approval is granted, giving the company up to three months to fulfill all outstanding requirements.
6. Deposit the required minimum capital of $110,000 (RM500,000) into the corporate bank account.
7. Secure a local office space in Labuan as per LFSA requirements.
8. Employ qualified local staff where necessary.
9. Pay the state licensing fee of about $1,250.

Upon successful completion of these steps, the LFSA issues the Labuan Money Broking License, authorizing the company to commence forex operations.

Required documents for applying for a forex license in Labuan

The Labuan Forex License documents package is extensive and requires professional preparation. The standard list includes:

• Corporate registration documents.
• Certified copies of personal documents of beneficiaries.
• Professional resumes of directors and shareholders.
• Proof of residency (utility bills).
• Letters of recommendation from a lawyer, auditor, and notary.
• Bank statements confirming availability of minimum capital.
• Evidence of relevant education in finance, law, or economics.
• A detailed three-year business plan with financial projections.
• AML/KYC policies.

Hence, most applicants engage professional advisors to prepare the Labuan forex license documents package.

Regulation of Forex license in Labuan

The forex broker license in Labuan is regulated by the Labuan Financial Services Authority (LFSA). 

The regulatory framework includes:

• Labuan Financial Services and Securities Act (2010) that governs the activities of licensed brokers, defines intermediary services, and sets compliance standards.
• LFSA has the power to license, supervise, and, if necessary, revoke licenses.
• Brokerage services are classified as intermediary activities, meaning brokers act solely as facilitators without becoming direct counterparties in client trades.
• Licensed entities must file annual reports, audits, and compliance confirmations.

Taxation in Labuan

Key taxation benefits include:

• Companies can choose between a flat tax of RM20,000 annually or 3% of audited net profits.
• No tax on dividends, royalties, management fees, or interest.
• Free capital movements across jurisdictions.
• No mandatory indirect taxes such as import duty, sales, or service tax.
• 50% reduction in taxable income for foreign professionals.
• 100% exemption from taxation of directors’ fees.
• Dividends paid to shareholders are not subject to withholding tax.

Forex License in Labuan