Labuan Cryptocurrency Exchange License

Labuan Cryptocurrency Exchange License

• Before you proceed to apply for a Labuan cryptocurrency exchange license, Tetra Consultants advises you to read through this guide to fully understand the law and regulations governing such a license. Our team of licensing experts is well aware of the requirements and procedures to secure a Labuan cryptocurrency exchange license ensuring accurate advice to our clients.
• Labuan, Malaysia, encourages those interested in establishing a legally acceptable Cryptocurrency Exchange in an offshore setting. Labuan considers itself a mid-shore rather than an offshore jurisdiction since it satisfies the requirements for dealing with both domestic and foreign markets.
• Labuan is on the OECD’s white list due to its mid-shore structure. As a result, the cryptocurrency exchange license is justifiable, and bank account opening is permitted, allowing you to do business more smoothly throughout the world. Your cryptocurrency exchange corporation may be licensed through the fully compliant and white-listed Labuan Jurisdiction at a reduced operational cost under the Labuan Financial Services Authority (Labuan FSA). Companies are also advised to have a modern and competent KYC (know your client) compliance system in place for customer onboarding and maintenance.

Benefits of Labuan Cryptocurrency Exchange License

• A cryptocurrency exchange or digital assets exchange platform enables the transfer of electronic money and cryptocurrencies. This provides a convenient way to exchange various currencies; for instance, you can trade cryptocurrencies for cryptocurrencies, convert cryptocurrencies to fiat, and exchange fiat for cryptocurrencies. To operate legally, businesses must obtain a cryptocurrency exchange license Labuan, adhering to the established Labuan crypto exchange regulations. These regulations ensure a secure and efficient trading environment for all participants.  
• Crypto exchange/digital assets exchange platform allows you to transfer electronic money and cryptocurrencies. This gives a convenient opportunity to exchange different currencies; for example, you can exchange cryptocurrencies for cryptocurrencies, cryptocurrencies for fiat, and fiat for cryptocurrencies.
• Market participants can pay for cryptocurrencies by credit card, e-wallets, and other methods of payment. It is possible to obtain an exchange license in Labuan and this has been in great demand since 2018.
• In Labuan (Federal Territory of Malaysia), you get the opportunity to conduct business on the international market under 3% corporate tax and on the Malaysian market under 24% rate.
• Fusang Exchange, a fully licensed Asian stock exchange, received full approval for the stock exchange from the Labuan FCA in 2019. In Labuan, great efforts are made to regulate exchanges and trade, in accordance with adequate AML and KYC standards in order to establish a sustainable business.
• Under the applicable law, the exchange can freely operate in other jurisdictions which provides great convenience for entrepreneurs. Labuan is known for its affordable costs and good reputation and is popular with people who start new businesses.

Why is it worth getting a Labuan cryptocurrency license:

• 100% foreign ownership, no need for a local partner
• No management fees, pass-through interest taxes, technical fees, and royalties
• Currency exchange is not controlled
• No stamp duties, no VAT
• No sales and service taxes, as well as import duty
• There is no capital gain tax and inheritance tax.
• There is access to over 70 Treaties on Avoidance of Double Taxation
• Tax reduction for foreign managers and specialists at the rate of 50%
• No taxes on director’s fees
• There is no tax on dividends to shareholders
• Malaysian 2-year work visa with the possibility of further extension

Qualifying Eligibility for a Labuan Cryptocurrency Exchange License

• Individual or institution with cryptocurrency exchange expertise with a good track record and sufficient years of experience in the industry; or
• A regulated cryptocurrency exchange or provider of such services from other jurisdictions with approval from home authority with the letter of consent; or
• Any licensed institutions including approved cryptocurrency exchange under the Financial Services Act 2013 with approval from the Central Bank of Malaysia.

Regulatory and operational requirements for a Labuan Cryptocurrency License

Our team of experts advises you to read through the below-mentioned operational and regulatory requirements for acquiring a Labuan cryptocurrency exchange license:

• There is a minimum paid-up capital requirement of MYR10,000,000 (or equivalent) unimpaired by losses with a certificate of evidence from the banks within Malaysia and Labuan.
• You will be required to maintain an operational office in Labuan and all transactions must be done to, through, and from this Labuan local office to fulfill the minimum expenditure requirement.
• You will be allowed to transact in foreign currencies of your choice, including Malaysian Ringgit (MYR)
  Accordingly, the transactions with Malaysian residents are permissible, including authorized dealers approved by the Malaysian Exchange Control
• An incorporated secured system for the entity where the technology client interface is deployed, any intrusions or malfunctions of the systems including adverse incidents discovered must be reported to Labuan FSA on the root cause and an impact analysis report is to be submitted within 14 days.
• The company must appoint an approved external auditor to carry out an audit of business operations annually.
  You are required to maintain a separate account for clients’ monies and each transaction is to be marked clearly. All withdrawals are to be reported within 3 working days. Along with the conditions of having the written agreements and contracts with clients and any party to be documented.
• You are mandatorily required to adhere and comply with the AML/CFT Act and Guidelines issued by the Central Bank of Malaysia and Labuan Authority via the provision of a compliance officer.
• In case of changes in shareholders, directors, office location, additional office outside Labuan, and outsourcing arrangements require prior approval from Labuan FSA.

Other regulatory requirements

Company structure

• At least 1 shareholder (can also be a legal person, no nationality or residency restrictions*);
• At least 1 director (can only be natural person, no nationality or residency restrictions*).
• A resident company secretary, will be provided by Tetra Consultants before advancing to the registration of Labuan company.

The local office is a mandatory requirement for companies looking to set up business in Labuan and the same will be provided by Tetra Consultants.

• Local employees For companies to be incorporated in Labuan to conduct the operation as licensed cryptocurrency exchange businesses are mandatorily required to have a minimum number of local employees while also having to fulfill the condition of minimum annual operating expenditure in Labuan.

Company name

• Letters: From the Roman alphabet
• Company name must end with such suffixes or their abbreviations: Limited, Corporation,
• Incorporated, Societe Anonyme, Sociedad Anonima. If the Malaysian word Berhad is used then it must be preceded by “(L)” to denote that the company is incorporated in Labuan
• Names Requiring Consent or a Licence: Bank, buildings society, insurance, assurance, reinsurance, fund management, investment fund, trust, trustees, Chamber of Commerce, university, municipal or their foreign language equivalents

Restrictions on Company name

• Restricted connections for a company name with the name of state, national or local government.
• Any name that implies illegal activity or implies royal or government patronage is restricted.
• The registrar is allowed to reject any name that it considers undesirable or contrary to the public interest.
• A company name is restricted to identical or similar to an existing company name.
• In case when a foreign language is used for the company name the translation must be provided to Registrar which will ensure conformity to the above-listed restrictions.

Taxation, accounting and audit requirements

Accounting obligations: 

• Accounting standards: Labuan cryptocurrency businesses are typically required to prepare their financial statements in accordance with generally accepted accounting standards. The Labuan Financial Services Authority recommends that companies follow International Financial Reporting Standards (IFRS) or other recognized accounting principles. To operate, businesses must obtain a Labuan digital assets exchange license and adhere to the guidelines outlined by the Labuan FSA cryptocurrency license. This ensures compliance with the regulatory framework governing financial reporting and transparency in the industry. 
• Audit requirements: A statutory requirement demands every cryptocurrency company undergo an independent audit of their financial statements. The LFSA must approve the independent auditor with the right qualifications and experience. 
• Reporting obligations: Cryptocurrency companies shall submit their annual audited financial statements to the LFSA. For these statements, the companies are required to present a balance sheet, income statement, cash flow statement, and accompanying notes. 
• Classification of crypto assets: The proper classification of crypto assets is essential for accounting. In fact, the LFSA has outlined this classification, distinguishing investment portfolios from operating assets. 
• Internal controls: A cryptocurrency company should be able to demonstrate a prudent application of appropriate internal controls and show that its financial statements are accurate and reliable. These comprise procedures to protect the crypto assets, prevent fraud, and keep the record accurate. 
• Compliance and anti-money laundering: Any Labuan-based cryptocurrency company must have strong policies and procedures related to anti-money laundering. It includes due customer diligence followed by reporting suspicious transactions to the respective regulatory authorities. 

Tax obligations: 

• Labuan Business Activity Tax (LBATA): Under the LBATA, qualifying activities, like cryptocurrencies, must also qualify under either a flat rate of 3% on audited net income or fixed rate of MYR 20,000 whichever is higher. Tax incentives are available if the core business’ main transaction happens with non-residents and there are no related activities in the Malaysian domestic market. 
• Tax exemptions from other sources: Labuan, in fact, has some tax exemptions to offer, including: 
• No taxes on interest, management fees, royalty fees, or technical support fees. 
• Exempted to Stamp Duty, Goods and Service Tax, Import Duty, Sales Tax, Capital Gains Tax, and Inheritance Tax. 
• Tax incentives for employment: There is a 50% tax credit on hiring foreign professionals and managers. 
• For director’s compensation, foreign directors are tax-exempt. 
• The shareholders are not subject to any dividend tax. 
• Bilateral double taxation agreements: Malaysia has a widely spread bilateral double taxation agreement network that is created to expel the concept of double tax and to provide tax benefits. Lower or exempt taxes on some transactions between such jurisdictions that have agreements with Malaysia will be a boon to Labuan cryptocurrency companies. 

Overview of crypto regulations in Labuan 

Labuan, a federal territory of Malaysia, has established an effective regulatory framework that promotes cryptocurrencies through progressive regulatory measures and a business-friendly environment. The Labuan Financial Services Authority oversees regulations concerning digital assets, aiming to attract global entrepreneurs and investors. To operate in this thriving market, businesses must obtain a Labuan cryptocurrency trading license. Additionally, they are required to secure a Labuan crypto exchange license or a Labuan cryptocurrency exchange license to ensure compliance with the regulatory standards set forth by the authorities. Below is an overview of the regulatory framework: 

Regulatory framework: 

Licensing requirements: 

• Crypto businesses must obtain a license from the Labuan Financial Services Authority (LFSA) in accordance with local regulations. This Labuan crypto license is essential for operations that typically include various activities such as cryptocurrency exchanges, custodial services, and initial coin offerings. Compliance with the established Labuan crypto license requirements is crucial for businesses looking to operate legally in this sector. 

Duties of due diligence standards: 

• Companies shall comply with stringent AML and CFT norms that would be at par with the international benchmarks and for which an efficient anti-financial crime framework shall be offered. 

Investor protection: 

• The regulatory framework incorporates measures designed to protect investors. This includes transparency and disclosure practices in all operational activities, fostering confidence and security in the market. To operate legally, businesses must obtain a Labuan cryptocurrency license, ensuring compliance with these protective measures. Additionally, adherence to the cryptocurrency license Labuan guidelines is essential for maintaining investor trust. 

Operational requirements: 

Establish legal entity: 

• Businesses need to incorporate legal entity in accordance with the Labuan Companies Act. 

 Physical presence: 

• Companies must have a physical presence in Labuan, including the maintenance of an office and local employees. 

 Minimum paid-up capital: 

• There must be at least MYR 500,000 (approximately USD 110,000) paid-up capital. 

 Appointment of key personnel: 

• Appointment of key persons, including directors and a nominated AML officer will ensure that the standards as determined by the regulatory authority are adhered to. 

What is the procedure to get a Labuan Cryptocurrency exchange license?

Our team of experts advises you to read through the below-mentioned steps that take place during a typical course of engagement for obtaining a Labuan cryptocurrency license:

Step 5: Submission of Labuan cryptocurrency license application to LFSA

• With everything in place, Tetra Consultants will submit the Labuan digital assets exchange license application to Labuan FSA. After which, Labuan FSA may revert to asking for an interview with the directors, principal officer, and controllers. 
• Once satisfied, Labuan FSA will issue an in-principal approval together with a list of requirements to be met within a stipulated deadline. Some of these requirements include putting disclaimers on websites, injecting paid-up capital into a corporate bank account or providing additional KYC documents. 
• Once the above is completed, Labuan FSA will issue you the full cryptocurrency exchange license Labuan, in accordance with the Labuan crypto exchange regulations. 

Sanctions for violating Labuan crypto-business obligations 

• There are completely prohibited activities associated with cryptocurrencies, and it is strictly prohibited to carry them without obtaining the relevant license. Business activities may be shut down immediately, and significant actions are taken in accordance with the law. The beneficiary of such a company faces very harsh treatment: up to 10 years’ imprisonment and a fine not less than MYR 5,000,000. 
• Whereas the minimum share capital requirements aside, failure to achieve that capital requirement will leave it vulnerable to receiving a fine not exceeding MYR 25,000,000. Undoubtedly, the beneficiary himself would face imprisonment up to 8 years for that breach. 
• The Financial Services Act of 2013 defines multiple types of legal offenses to carry such heavy penalties as heavy fines and even imprisonment. Known to be a business-friendly hub, Labuan is no less stringent in its efforts at eliminating financial crimes. Such a regulatory setup just points out the need for compliance on all cryptocurrency companies under its jurisdiction. 

How much does it cost to obtain a Labuan Cryptocurrency exchange license?

• Before the onset of our engagement, Tetra Consultants will provide you with a comprehensive project plan outlining the timelines for setting up your Labuan entity, drafting all the essential documents, and submitting the Labuan cryptocurrency exchange license application. This plan will also clearly delineate the project milestones for every party involved, including the steps necessary to obtain the Labuan crypto license and ensure compliance with the requirements for the Labuan crypto exchange license.  
• Normally, the company registration takes about 2 weeks of time, and the corporate bank account opening would require about 4 weeks. That means getting the Labuan cryptocurrency exchange license will take an acquisition and approval period which could take some time before it is acquired and approved, say 4-6 months. In short, it will take 6-8 months in total, with the assurance of a smooth setting-up process.

How much time does it take to obtain a Labuan Cryptocurrency exchange license?

• Before the start of the engagement, Tetra Consultants will send you a project plan with the timelines stipulated for Labuan entity setup, drafting of documents as well as Labuan Cryptocurrency License application. This is to ensure that all parties are clear on the upcoming project.

Our services

• Tetra Consultants is an international professional consultancy firm that specializes in the attainment of different offshore financial licenses including cryptocurrency license. We can assist you in obtaining a specific license or authorization from your selected jurisdiction like Labuan, to lawfully operate your cryptocurrency business. We provide licensing services in all major jurisdictions that have introduced advanced legislation regulating cryptocurrency activities.
• Tetra Consultants will assist you with communications with the local regulatory authorities, and government officials throughout the whole course of the engagement.
• In addition, Tetra Consultants can also assist with attaining other offshore financial licenses depending on your long-term business goals.

Find out more!

Contact us to find out more about how to secure a Labuan Cryptocurrency License. Our team of experts will revert within the next 24 hours.

Do I need to be physically present in Labuan to incorporate the Labuan Company?

• Tetra Consultants strive to provide our international client zero to minimum traveling solutions as such you will not be required to travel to Labuan to get the entity registered and incorporated.

What are the minimum director and shareholder requirements for a Labuan company?

• For a typical Labuan entity, there are the minimum regulatory requirements of one director who can either be an individual or a corporate entity and one shareholder who can either be an individual or a corporate entity.

What are the benefits of registering a business in Labuan?

• Labuan is considered to be one of the important Asian investment locations. Labuan has become a prominent jurisdiction for attracting numerous investors and enterprises from all over the world in recent years. To conduct business in Labuan, Malaysia, investors, and enterprises will benefit from a variety of advantages, including cheap taxes, 100 percent foreign ownership, cost-effectiveness, and secrecy.

Who is the regulating authority of a Labuan cryptocurrency exchange license?

• The Labuan Financial Services Authority (LFSA) is the body responsible for regulating the financial centers in the country.

Does a Labuan cryptocurrency entity require the appointment of a company secretary?

• Yes, a Labuan registered entity contemplating conducting cryptocurrency business in the country is required to appoint a resident company secretary.