Labuan is an island off the coast of Malaysia with a population of about 100,000. Despite its small size, this jurisdiction has gained the status of an important financial center of the region. Many banks and financial institutions, including international ones, are concentrated on the island. Also in recent years, Labuan has become a hub for cryptocurrency business, with dozens of crypto exchanges and other cryptocurrency-related businesses opening here.

 

Labuan is still ignored by many corporate service providers. And this is despite the fact that this jurisdiction is probably one of the most interesting options for international crypto business. The local government is eager to create optimal conditions for foreign entrepreneurs who decide to explore the local blockchain market, applying low taxes, offering fast company registration, as well as a number of other advantages.

 

Obtaining a crypto license in Labuan is done by applying to the LFSA, the government body responsible for regulating the crypto market. It is important for businesses to comply with a number of requirements, including having adequate security measures to protect customer funds and complying with AML/KYC regulations. Professionals of Lawrange Law Office will help to make the licensing process much easier. We will help to fulfill all the requirements of the local Regulator, prepare the necessary documents, open a bank account and much more. With us, you will be able to save a lot of time, as legal support eliminates the risk of making a mistake when applying to the LFSA.

 

Benefits of obtaining a crypto license in Labuan

The small island of Labuan is a federal territory of Malaysia. It is located off the coast of the island of Borneo, not far from Brunei. Labuan has a free trade zone, so this jurisdiction has traditionally been the main center of support for deepwater oil and gas production in the region.

 

However, Labuan timely assessed the prospects of the fintech sector, and therefore took a number of measures at the legislative level, which allowed it to become an international financial center with its own legislation in the field of financial, cryptocurrency business, taxation. For this reason, global companies, including those with strong ties to Asia, looking for low taxes are advised to consider this jurisdiction.

 

Labuan seeks to attract fintech companies, including those involved in distributed ledger technology, blockchain and cryptocurrencies. Businesses on the island are offered flexibility in dealing with international markets, a comprehensive legal framework that welcomes digital transformation and blockchain innovation. Labuan is an economically strong and politically stable jurisdiction that has also worked hard to improve its own physical infrastructure. There are other advantages that can be enjoyed by those wishing to register a crypto license in Labuan.

 

Favorable regulatory environment

The government supports the development of the blockchain and crypto industry. In 2019, a regulatory framework for digital assets was implemented here, providing clarity and certainty for businesses and investors in the crypto asset market. Plus, the jurisdiction has a legal system based on common law familiar to many international companies.

 

Labuan provides businesses with a clear regulatory framework to work within. This significantly reduces the risk of regulatory uncertainty, which usually acts as a major obstacle for crypto companies. By providing businesses with clear guidelines and requirements, the Labuan license ensures that business activities are conducted within the law.

 

Skilled labor force

Labuan is home to a highly skilled labor force with experience in the financial sector. Each of these professionals is fluent in English. This makes the island an attractive place to do business in the blockchain and cryptocurrency industry.

 

Financial benefit

Passing licensure in Labuan financially proves to be extremely beneficial for companies of all sizes in view:

 

  • Low income tax of 3% (or a flat amount up to $5,000).
  • No tax on interest, dividends, management fees, royalties, maintenance and stamp duty.
  • Lack of currency control.
  • Exemption of foreign companies from import duty, capital gains and inheritance duty.

 

In addition, Labuan-licensed crypto companies have at their disposal the possibility to reduce taxation for foreign employees to 50% and non-resident directors to 100%. Also, running a cryptocurrency business here avoids double taxation due to the conclusion of more than 70 relevant treaties by the local government.

 

Advantageous strategic location

Labuan is strategically located between Southeast Asia and East Asia. This makes it an ideal location for businesses and investors who want to access these markets. For example, Labuan is particularly attractive for crypto businesses due to its proximity to Singapore, which has fully embraced the cryptocurrency market with over 230 blockchain organizations.

 

In addition, a well-developed and regulated local financial market is at the disposal of foreign entrepreneurs. Obtaining a cryptocurrency license in Labuan opens the door for companies to raise capital from local investors.

 

Compliance with international standards

Labuan Financial Services Authority is a member of the Financial Action Task Force (FATF), an international organization that sets standards to combat global financial crime. Obtaining a crypto license in this jurisdiction demonstrates that the company is committed to complying with these standards. In addition, the FSA has a strong track record of protecting investors from fraud and cyberattacks. Obtaining a Labuan crypto license gives companies access to the resources and expertise of this organization.

 

Increased credibility and trust from investors, customers

A cryptocurrency license in Labuan is a valuable asset for any company that wants to operate a cryptocurrency exchange, crypto exchange or crypto storage platform. Having this authorization document demonstrates to investors and customers that the company is committed to operating not just legally, but above all, safely and securely.

 

With a Labuan crypto license, it will be much easier to gain the trust of a potential audience. By obtaining a license from a reputable regulatory body, businesses can demonstrate that they are willing to operate within the law and protect their users. This can help build trust and confidence in a business, which is especially important in the cryptocurrency industry, where the question “to trust a company or not to trust?” is often a concern for customers.

 

Important: The blockchain and cryptocurrency industry in Labuan is poised for significant growth in the coming years. The territory has a number of advantages that make it an attractive location for businesses and investors in this sector. With the steady growth of the cryptocurrency sector, Labuan is well positioned to become a leading crypto center.

 

The process of obtaining a crypto license in Labuan

Only companies officially registered in the jurisdiction can proceed to licensing. As a rule, formalizing a legal entity here takes no more than two weeks. For this purpose, it is necessary, among other things, to decide on the organizational and legal form, the name of the future company, to draw up the Articles of Association and other corporate documents. After obtaining a certificate of registration of a legal entity, you can proceed to the next steps on the way to licensing.

 

Work on the preparation of documents

A crypto license in Labuan is issued upon submission to the Registrar of a documentation package that consists of:

 

  • A business plan is an important document describing the essence of the main processes in the company, its strategy and projected financial profit, as well as possible risks. The success of the licensing process depends on how detailed this plan is. Therefore, it should, among other things, clearly indicate the mechanisms of the firm’s work in the cryptocurrency market.
  • AML/CFT policies – the licensee must clearly explain to the Regulator how the company is going to prevent terrorist financing and money laundering. It is necessary to develop and implement in practice effective methods, procedures that will ensure protection, safety of investors, clients of the company.
  • Details of business owners, persons holding key positions in the company and shareholders – this includes passport details, qualifications, experience, location, etc.
  • Proof of legal and physical address – to meet additional economic substance requirements, a local office in Labuan must be leased and must be operational and fully equipped in accordance with LFSA requirements. A lease or purchase agreement for the office space, executed in accordance with local regulations, shall be submitted to the Regulator.

 

These and other documents (the Regulator may additionally require other certificates, statements, etc.) shall be executed in accordance with the current legislation.

 

Submitting an application

When everything is ready, an application for a license is made to the FSA. The Regulator may then decide to interview the directors, chief executive and controllers. At this stage, the LFSA will carry out a comprehensive check of your application, including the information provided, then assess suitability to run, for example, a crypto exchange or crypto exchange. It is important to be patient as the LFSA may take some time to complete the assessment (3-4 months).

 

Upon receiving a favorable response, the Labuan Financial Supervisory Authority will issue an in-principle approval along with a list of requirements that must be met within a specified timeframe. Some of these requirements include posting disclaimers on company websites, depositing paid-up capital in a corporate bank account or providing additional KYC documents. Once all of the above are met, the LFSA will issue a full cryptocurrency exchange license.

 

Requirements and restrictions when obtaining a crypto license in Labuan

The company must meet certain operational and regulatory requirements in order to successfully pass licensure:

 

  • Payment of minimum authorized capital (from US$125,000) in one of the banks in Malaysia or Labuan.
  • Opening of a physical, legal office in the jurisdiction through which all transactions of the company will have to be carried out.
  • The presence of an embedded security system. Any hacking or systems failures, including adverse incidents, must be reported to the LFSA with the root cause and a consequence analysis report must be submitted no later than within 14 days of the incident.
  • The company should appoint an approved external auditor to monitor business operations on an annual basis.
  • The need to maintain a separate client account with each transaction clearly labeled.
  • Compliance with AML/CFT regulations and principles through the appointment of an AML specialist.
  • In case of changes in shareholders, directors, office location, opening of additional office outside Labuan and outsourcing arrangements, prior approval from the Regulator is required.
  • There must be at least 1 shareholder (it can be a legal entity, with no restrictions on citizenship or residence).
  • Presence of at least two directors (natural persons only, no restrictions on citizenship).
  • Availability of a minimum number of local employees.
  • The company name must consist of Latin letters, ending with suffixes or abbreviations such as Limited, Corporation, Incorporated, Societe Anonyme, Sociedad Anonima.

 

Restrictions related to the company name

  • Any name that implies illegal activity or patronage of the royal family or government is prohibited.
  • The registrar is authorized to reject any name he or she deems undesirable or contrary to the public interest.
  • If the company name is used in a foreign language, a translation must be provided to the Registrar who will ensure compliance with the above restrictions.

 

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Please note that Labuan law permits the registration of companies with 100% foreign ownership. However, all non-resident investors must comply with certain immigration procedures prior to their arrival. In most cases, this will require a visa, which is issued for 2 years.

 

Cryptocurrency regulator

Crypto companies on Labuan Island are regulated by the LFSA, the Financial Services Authority. A favorable, reliable, safe environment in the cryptocurrency market is ensured through the function of this regulatory body:

 

  • Setting requirements aimed at normalizing relations between market participants. For example, the LFSA requires financial reporting, risk management programs, customer protection mechanisms, financial crime prevention, etc.
  • Licensing – a cryptocurrency license in Labuan is issued to those businesses that, in the opinion of the LFSA, meet the established standards. Having a license is proof of the legitimacy and reliability of the firm.
  • Supervision, Control – The LFSA is involved in monitoring and inspecting companies’ operations and compliance in the course of the company’s operations.

 

The activities of the Cryptocurrency Regulator on Labuan Island minimize financial and crime and protect the interests of market participants.

 

Peculiarities of taxation, accounting and auditing

A crypto company registered in Labuan should pay:

 

  • Income tax at the rate of 3%, but there is a real possibility to reduce this tax or reduce it.
  • The fixed annual fee is between $800 and $1,500 depending on the legal form of the company.

 

In addition, a Labuan offshore company must be audited by an approved auditor. The annual report must be filed 30 days prior to the anniversary of the company’s incorporation.

 

Labuan is required to keep accounting records. Crypto firms are generally required to prepare their financial statements in accordance with recognized international accounting standards. Companies associated with the cryptocurrency business must submit annually to the LFSA audited financial statements consisting of:

 

  • balances;
  • the income statement;
  • the statement of cash flows;
  • notes to the financial activities.

 

Important! You need to be able to correctly categorize crypto assets for accounting purposes. The LFSA considers cryptocurrencies according to the distinction between investment portfolios and operating assets. Given the complexity of accounting and auditing cryptocurrency companies, it is recommended to engage Lawrange professionals who are familiar with Labuan’s regulatory requirements and have experience in the crypto industry.

 

Why contact Lawrange

Our Law Office is ready to provide comprehensive assistance in registration and licensing of cryptocurrency in Labuan. We have extensive experience in this task, have the necessary knowledge of international law, and are deeply familiar with the peculiarities of local cryptocurrency legislation. As part of the licensing work we:

 

  • We provide detailed consultations, during which we help you decide on the legal form of the company, familiarize you with the peculiarities of internal audit and compliance.
  • We carry out comprehensive preparation and verification of the necessary documents.
  • We help prepare business plan, financial forecast, AML policy manuals.
  • We submit the application on your behalf, oversee the application process.
  • Maintain contact with LFSA – correspondence, organize interviews.
  • Tracking the license approval process.

 

Our team specializes in providing comprehensive solutions that are selected on a strictly individual basis, taking into account your wishes and business peculiarities. Contact us right now if you want to apply for a crypto license in Labuan, but don’t know where to start. We will tell you how to do it as quickly and easily as possible.

 

FAQ

Who is eligible to apply for licensure?

These can be entrepreneurs with at least 2 years of experience in the cryptocurrency industry and a solid business structure, as well as crypto exchange owners licensed in other jurisdictions.

 

What types of licenses can be obtained in Labuan to operate a cryptocurrency business?

Labuan has several types of licenses that may apply to cryptocurrency activities, such as a financial broker license, a credit token license, or a digital assets and exchanges (DAX) license. The specific license required for cryptocurrency activities depends on the nature of the business.

 

What does the minimum amount of authorized capital depend on?

The amount of capital required can vary based on the scope of services provided, technical infrastructure, staffing needs, compliance costs, and potential expansion plans.

 

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