Crypto License in Labuan

Crypto-authorization process in the Labuan Virtual Currency Registry

The crypto authorization process in the Labuan VASP register can be described as simple but not very easy. The application process is one of the simplest in the world, as it is entirely based on engaging directly with the authorities. However, the requirements to be met, before and during the application process, must be carefully considered.

The registration of Labuan Company in Register of crypto currency companies

Only companies incorporated in Labuan, into the International Business and Finance Center, can apply for a Labuan crypto license. To register a Labuan company in the registry of crypto currency companies, a project must send an application directly to the Financial Services Authorities (FSA), asking to be licensed as a Digital Financial Services provider (DFS provider).

The FSA will then make an assessment of the application by reviewing all the attachments. It may ask for additional information, documents, provide forms to fill and ask for interviews with the founding team.

The licensing process is straightforward but can last close to 6 months in best cases scenario, making it a significant time to market.

Governmental Statements on Crypto in Labuan

Labuan is a federal territory of Malaysia. It is an island located in the east of Malaysia, on the coast of Borneo. Since 1990, it has held the status of special economic zone, financial center and free trade zone.

Labuan is administered by the Labuan Corporation, which is very close to the Labuan Financial Services Authority. The FSA is the dedicated governing body for financial services and activities, including crypto, in Labuan.

Consequently, there is no such thing as a government of Labuan. There is an administrative entity and a financial authority, which are openly working together to attract companies and funds into Labuan, including digital assets service providers.

Requirements for companies engaged in crypto activities in Labuan

There is a certain number of requirements that a company must meet before applying for a VASP license in Labuan. The so-called DFS license is required to engage in crypto activities with a Labuan company.

Incorporating a company in Labuan is mandatory, as foreign companies cannot apply for the crypto license. The company must appoint a natural person as its resident director. This individual doesn’t need to be a resident of Labuan, and can be of almost any nationality. The company must have an office in Labuan.

The company should have policies and procedures showing its compliance with the latest FATF guidelines on anti money laundering and countering the financing of terrorism. Labuan also has its own AML-CFT law that must be taken into account, the Anti-Money Laundering, Anti Terrorism Financing and Proceeds of Unlawful Activities Act 2001. The law requires the appointment of a contact person to communicate with the FSA.

The Guidelines on Market Conduct issued by the Labuan FSA describe various areas of attention, where an applicant must prepare adequate systems and processes:

• Cybersecurity and data protection;
• Supervision and reporting of suspicious activities;
• Internal policies on integrity and ethics;
• Protection and segregation of customers’ funds and digital assets;
• KYC and customer onboarding;
• Auditing.

The applicant must also provide proof of deposit in a Malaysian bank of its paid up share capital, which should be a minimum of 1,500,000 MYR.

The process of setting up a company for a cryptocurrency business in Labuan

Labuan is famous for being business friendly, generally speaking. Incorporating a company in Labuan as the first stage of the process to get a crypto license in Labuan is therefore simple.

With the provision of certified documents pertaining to shareholders, a company can be created in approximately 2 weeks. It does not require significant change after registration, in order to get the crypto license. The main topic of interest with the incorporation is to open a bank account in Malaysia.

Taxation for cryptocurrency companies in Labuan

Labuan benefits from a different, more advantageous taxation regime than the other Malaysian federal regions. The only applicable tax for cryptocurrency companies in Labuan is the income tax on non-trading profits, which is 3%.

Capital gains and dividends are not liable to any taxation in Labuan.

Obligations for crypto companies in Labuan

Labuan crypto companies are held to a high standard of conduct. They must comply at all times with a certain number of rules, expressed in the guidelines issued by the FSA.

Supervision, monitoring and reporting of suspicious activity, as defined by the FATF guidelines and the AML-CFT law of Labuan, shall be performed at all time by the contact person of the crypto organization.

The Digital Financial Services (DFS) provider must train its staff on AML-CFT and good practices on a yearly basis.

The handling of clients information, assets and money should be done through proven systems that are regularly audited. A record should be maintained, subsequently.

The crypto company should take necessary measures to prevent market manipulation, conflicts of interest and other abusive activities.

The terms of business and client information in general should be transparent and publicly available. It should not mislead clients.

The crypto licensed company should pay the annual fee for its license, in the amount of 5,000 MYR (approximately 1,115 USD / 1,090 EUR).

Sanctions for violating Labuan crypto-business obligations

It is strictly forbidden to carry out crypto activities without a license in Labuan. Such wrongdoing is considered an offense and will lead to the closure of the company. The beneficiary of the company will face up to 10 years of imprisonment and a fine of up to 5,000,000 MYR (approximately 1,115,000 USD / 1,090,000 EUR).

If the minimum share capital requirement is breached, the company will be liable to pay a fine of up to 25,000,000 MYR (approximately 5,578,000 USD / 5,445,000 EUR) and the beneficiary may be convicted to 8 years of jail time.

The Financial Services Act of 2013 describes many such cases of law infringement, that are punished by imprisonment and hefty fines. Though a business-friendly jurisdiction, Labuan is also reputed for being strong in combating financial crime.