Factoring businesses in Labuan benefit from the tax advantages, infrastructure and experienced workforce offered by the Labuan IBFC of Malaysia. Factoring is a financial transaction whereby a person or corporation selling goods and services can sell on its accounts receivable to a third party known as a ‘factor’ at a discounted price. In essence, debt is sold to a factoring company at a discounted rate in return for financing or cash – this has benefits for both parties. For the seller, cash flow is improved and risk management enhanced. For the buyer (factoring business) the purchase of the account or invoice at a discounted rate means generous taxation due on the full-recovered amount.
For a Labuan factoring business to operate legally and in the most lucrative manner, it is essential you use our services. We have over 5 decades of experience in the Trust industry, and can help you with every stage in the creation of a factoring business including planning, regulation and Labuan FSA approval, structuring and management.
How Factoring works?
- The seller, as the owner of the invoice, sells it on to a factor company in return for instant cash or some other form of financing
- The sale price will always be less than the invoice is actually worth as there is a possibility that the factor may not receive full payment from the debtor
- The factor then collects the full amount of the invoice from the debtor, deducts their fees and any interest due, then passes over the balance to the seller
- Fast cash:By selling off the debt to a factor the company gets paid before the credit term is up. They will usually get around 80 – 90% of the value of the invoice upfront.
- Alternative business financing:Factoring is a good alternative to a loan or other type of credit facility and gives businesses the cash they need to fund new opportunities with minimum hassle.
- Debt management:Selling on accounts receivable means companies don’t have to deal with the hassle of chasing debts and can focus more on growing the business.
- Reduction in overheads:Factoring is a more cost-effective alternative to employing an accounts person to deal with invoices and debtors.
Key Benefits of Setting up a Factoring Business in Labuan
- Tax and business incentives: Any trading company, which includes factoring business, will only have to pay tax at the preferential rate of 3%. Alternatively a flat rate of MYR 20,000 (USD 6,700) can be paid.
- No withholding tax:Withholding taxes are not imposed on the beneficial owner’s income.
- No exchange control imposed:Labuan companies are not subject to The Exchange Control Act 1953 because of their non-resident status (ECM 15).
- Extensive double taxation treaty (DTA) network: Labuan is included in Malaysia’s DTA. This means, Labuan can access the extensive double taxation agreements made by Malaysia with its treaty partners.
- Minimal renewal fee:The annual license fee for a factoring business is a very reasonable RM40,000 (USD13,300) for companies that are physically present in Labuan, or RM60,000 (USD20,000) for companies based overseas.
- Strategic location with skilled work force: Labuan operates on the same time zone as a number of large Asian cities, making it ideal for business dealings. Labuan IBFC is just a short flight from Kuala Lumpur and Kota Kinabalu and there are plenty of flights daily. Additionally, Labuan has a highly skilled and talented workforce that is very familiar with international financial business protocol.
- Strict confidentiality legislations: a comprehensive regulatory framework ensures that Labuan complies with international standards of service, performance and confidentiality. In addition to this Labuan is a ‘white listed’ jurisdiction and endorses the bilateral exchange of tax information with foreign authorities.
Requirements for Setting up a Factoring Business in Labuan
If you would like to set up a factoring business in Labuan, certain minimum criteria must be met:
- Your company must be a Labuan company or a foreign Labuan company incorporated or registered under the Labuan Companies Act 1990
- Factoring can also be carried out by a Malaysian bank that holds a valid factoring license under the Banking and Financial Institutions Act 1989.
- A Special Purpose Vehicle must be set up to facilitate inter-company transactions
- Your company must have a good record within the industry without any negative reports from reliable sources
An application for a factoring license should be made in writing to the Labuan Financial Services Authority (Labuan FSA). It should be accompanied by the following information:
- The nature of the applicant’s business
- A list containing the names of the Board of Directors and senior management of the applicant. The applicant will need to get written approval from Labuan FSA before appointing Directors, Controller or a Chief Executive Officer
- A comprehensive business plan outlining the operations and strategies of the applicant with regard to its Labuan entity
- Two years audited financial statements
- Other information that may be relevant to the application.
Operational requirements include the following:
- All business transactions must be done from and through Labuan. This can be via the setting up of business office or through the company’s registered office.
- Proper records and books of accounts must be kept up to date in Labuan.
- Sufficient working capital must be maintained to manage the company’s daily operations.
- All transactions must be in foreign currency, not in Malaysian Ringgit (MYR) except for the payment of administrative and statutory expenses.
- Dealings with Malaysian residents is no permitted, except those approved by the Bank Negara Malaysia.
- The company must carry out its business with due diligence and sound principles and comply with the local laws and regulations of its clients.
- The company name should be indicated clearly on letterheads, stationery and other documents.
- Accounts must be audited and submitted to Labuan FSA three months after the end of each financial year. Submissions should include one copy of its audited annual balance sheet as well as a profit and loss account.
- The company must submit statistics and information to Labuan FSA regarding prudential information, general business conduct and the volume and direction of its business in Labuan.
- The company must notify Labuan FSA of any changes to its constituent documents, shareholdings, management or business plans and any other requirements issued by Labuan FSA from time to time.
The Valsen Advantage
- Speedy, Efficient and consistent Services.
- Relentless effort to obtain bank accounts.
- Expert advice on structuring options.
- Dedicated ongoing compliance support.