“We’d like to see it (a new tax structure) come out as soon as possible because it would enhance LOFSA's’s competitiveness and attractiveness, in particular with other jurisdictions,” Tan Sri Dr Zeti Akhtar Aziz, chairman of the Labuan Offshore Financial Services Authority (LOFSA's) said.

Labuan already has a very favourable offshore tax regime. At present, the Labuan Offshore Business Activity Tax Act 1990 (as amended 2004) provides for the reduction of or complete exemption from income tax in respect of certain business activities carried on by offshore companies in Labuan.

Chargeable profits derived by an offshore company from an offshore trading activity are subject to tax at a rate of 3%.

Alternatively, an offshore company which carries on an offshore trading activity may, within three months from the commencement of any calendar year, elect to be charged to tax of M$20,000 for that year of assessment.

An offshore company which carries on an offshore non-trading activity is exempt from income tax altogether.

Zeti stated that LOFSA also plans to "constantly review" the existing regulatory requirements to promote business growth in the Labuan IOFC.

"The approval and supervisory processes will be enhanced to make them more market-oriented,” Zeti explained.

LOFSA is also keen to develop Labuan as a major Islamic finance centre, particularly in the area of reinsurance, and Zeti stated that the regulator is developing a framework to allow more conventional reinsurers to establish a retakaful division in Labuan.

With 2006 marking LOFSA's tenth year, the regulator says that growth of offshore companies has been steady in Labuan since 1996, with a continuous inflow of approximately 500-600 companies being incorporated annually.

In 2005, the number of offshore companies registered in the Labuan IOFC rose by 532, bringing the total of registered offshore companies to 5,152 as at end-December 2005. Of these, 3,067 were operating companies. The offshore companies originated from almost 80 countries, reflecting the international stature of the Labuan IOFC.