With the rise of Asia on the global stage, it was perhaps inevitable that offshore, tax-efficient jurisdictions would grow in popularity in the region among financial firms including fund managers.
And so it is that Labuan International Business and Finance Centre is seeing “serious, quality organisations” setting up there, says David Kinloch, chief executive of Labuan International Business and Financial Centre.
Asset managers, family offices, foundations and wealth-management firms have all come from as far afield as Europe and the US, he adds, and some are even moving their businesses wholesale. “There’s huge capital flight from Europe, from which Labuan is benefiting,” he says.
As of the end of 2010, companies with a presence in Labuan IBFC included 13 fund or wealth management firms, 61 conventional banks (of which 14 are investment banks and six fully fledged Islamic banks), 169 insurance entities (including 34 captives), 24 trust companies (or international registration agents/corporate service providers).
The ratio of Malaysian firms to international firms is around 70/30 now, but the proportion of foreign companies is rising, he says.
One executive who manages a private fund out of Hong Kong, and whose firm recently set up an office in Labuan IBFC, is enthusiastic about the benefits of the jurisdiction.
“Setting up and operating funds in an offshore centre is relatively more cost-efficient than incorporating a fund in an ‘onshore’ jurisdiction,” says the executive, who asked not to be named. “This cost efficiency can then be translated into many advantages to the fund and investors.”
For example, he notes, money which may otherwise be paid to tax and regulatory costs can instead be reinvested in the fund to promote growth. Plus lower operating costs can be translated into lower fees charged to investors and so on.
“Some of the key advantages we see in Labuan IBFC are its simple tax structure, which is easy to understand, its close proximity to Asian markets and good legal framework,” adds the fund manager.
More and more offshore jurisdictions are becoming more transparent with robust legal frameworks, he says. As a result, he sees such centres becoming more prominent and growing in importance.
“With the likes of the OECD, Financial Action Task Force and so on, pressure is definitely building-up against offshore centres that are merely tax havens,” says the unnamed executive. “I believe more offshore centres will adhere to international standards, offering a robust legal framework and the ability to actually create substance if needed.”
Asset and wealth managers in Asia are increasingly seeing Labuan as a more convenient option than setting up a structure in, say, the Caymans or British Virgin Islands, says Kinloch.
Moreover, he says Labuan IBFC is taking business from Hong Kong and Singapore in terms of companies setting up there, with increasing numbers coming in to use the centre as a regulatory base.
Kinloch points out that Labuan is one of the few jurisdictions to have a tax agreement with both China and Taiwan. It is also, he adds, the only truly sharia-compliant tax-efficient jurisdiction in the world.