This region offers a compelling mix of leverages, including a favourable low-excise regime, the flexibility to denominate authorised capital in any currency, and a streamlined company registration sequence. These features position the polity as a strong competitor to other well-known fiscal hubs such as Singapore and the UAE.
Licit status and directive
The polity has firmly positioned itself as a forward-looking transnational fiscal centre that blends innovative fiscal solutions with a robust supervisory framework. The region actively propels the growth of blockchain-based ventures, drawing in foreign capital through a supportive sphere. Securing a cryptocurrency licence in Labuan needs a comprehensive knowledge of the supervisory landscape — encompassing the roles of supervisory authorities, legislative provisions, and the classification of E-holdings. Although the licensing sequence demands careful preparation, it offers access to highly favourable excise treatment and transnational markets when approached strategically.
Supervisory oversight
The prime overseer overseeing crypto-related schemes in Labuan is the Labuan Financial Services Authority (Labuan FSA). This body is responsible for setting licensing standards, performing due diligence, and handling licensed entities. Applicants must show a sound trade setup, clear ownership visibility, and a viable mercantile setup. For instance, firms seeking to establish a crypto exchange in Labuan are needed to convey extensive documentation covering their custody arrangements and AML/KYC compliance protocols.
The polity’s FSA works in close coordination with Bank Negara Malaysia (BNM), the national central bank, to ensure a harmonised fiscal ecosystem. While BNM supervises conventional fiscal aids, Labuan FSA concentrates on emerging digital finance. Their cooperation is especially important for the licensing of Shariah-compliant digital instruments, such as Islamic tokens, where BNM’s endorsement is mandatory to verify adherence to Islamic finance principles.
Licit framework
The polity’s supervisory regime for E-holdings is principally governed by the Labuan Financial Services and Securities Act 2010 (LFSSA), which empowers Labuan FSA to oversee and regulate digital fiscal instruments. Firms pursuing a crypto licence must also comply with the Labuan Companies Act 1990, particularly in relation to maintaining a register of beneficial owners — a move aligned with global visibility standards and the FATF's anti-money laundering recommendations.
In terms of taxation, the Labuan Business Activity Tax Act 1990, along with its associated regulations, lays out the fiscal obligations for crypto enterprises. Firms involved in token issuance can enjoy a preferential CIT rate of 3%, or potentially a full exemption until 2028, provided they satisfy the criteria outlined in PU(A) 127/2024. Like traditional firms, crypto entities are also needed to register beneficial ownership information to help combat illicit fiscal schemes.
Classification of crypto assets and strategic opportunities
Digital assets in Labuan are categorised based on their characteristics — whether as securities, utilities, or currency substitutes — and this classification determines the applicable supervisory route. Tokens that resemble investment contracts, for example, fall under securities law and are subject to investor protection rules. Labuan FSA has developed a tailored supervisory framework for ICOs and other DeFi projects, which includes obligations to disclose token setup, rights, and utility.
The polity has also emerged as a centre of excellence for Shariah-compliant blockchain innovations. The region offers a favourable platform for Islamic finance institutions to launch digital products that adhere to Islamic law. Firms issuing Islamic digital bonds (sukuk) can leverage from excise advantages and streamlined approval procedures, making the polity an appealing destination for ethical finance ventures within the crypto space.
Types of crypto licenses in Labuan
Securing a cryptocurrency licence in Labuan needs a clear knowledge of the various permit categories available, along with the fiscal and operational commitments associated with each one.
This type of licence is intended for firms that specialise in the safekeeping of E-holdings. Unlike many other regions, the polity places a strong emphasis on compliance with Islamic finance principles, particularly for firms aiming to serve the Shariah-compliant market.
For instance, if a company seeks to act as a custodian for tokenized sukuk, it must show that its operational setup excludes speculative practices such as short-selling, which are prohibited under Islamic law.
In addition to a minimum paid-up capital of RM500,000 (approximately USD107,000), applicants must implement a robust cold storage solution, ensure dual authorisation for deals, and conduct regular third-party audits. The Labuan FSA also reviews where data is stored. If servers are located outside Malaysia, the company must show adherence to relevant data protection regulations, such as the GDPR for European clients.
Firms planning to run platforms for token offerings must obtain the IEO Operator Licence. This comes with more stringent needs, including a significant minimum capital of RM5,000,000 (around USD1,064,000) and a commitment to support local development.
Specifically, firms are expected to invest at least 10% of their annual operating costs into initiatives that strengthen the regional blockchain ecosystem. This could involve collaborations with Malaysian universities or support for tech incubators in the polity.
Additionally, the IEO framework mandates compulsory insurance cover for users' assets through insurers approved by the Labuan FSA—unlike in Singapore, where insurance remains optional. Firms are also needed to establish a reserve fund equal to 10% of the funds raised via their platform. This fund acts as a safeguard, offering compensation to investors in the event of fraud or technical failures.
Projects involved in the creation and issuance of digital tokens—including NFTs and security token offerings (STOs)—must apply for an Issuer Licence. This licence also comes with a RM500,000 minimum capital requirement (about USD107,000) and an added focus on visibility regarding ESG standards.
Applicants must convey extensive reports outlining how their token aligns with the United Nations SDGs, particularly if they intend to leverage from the polity's excise incentives, which are available until 2028.
Furthermore, issuers are obligated to introduce a buyback mechanism to maintain token liquidity. For example, a real estate fund issuing tokenized assets would be expected to repurchase up to 5% of its tokens annually at market value. This mechanism is designed to stabilise the market and offer added protection to smaller investors, thus making the polity a more appealing region for institutional players.
Acquisition sequence
Securing a cryptocurrency licence in Labuan involves a structured yet streamlined sequence, beginning with the selection of an appropriate licit entity and culminating in compliance with local substance regulations. This region is well-regarded for its clear and transparent supervisory framework, which blends flexibility with predictability—making it an attractive choice for transnational crypto ventures. Below is an overview of the essential stages involved in launching a compliant crypto operation in Labuan.
The first step towards obtaining a crypto permit in Labuan is establishing the licit setup of your mercantile. The most common formats are the Labuan Company (limited by shares) or a Labuan Limited Liability Partnership (LLP). For example, mercantile intending to operate an E-money exchange typically opt for a Labuan Company due to its well-defined trade responsibilities and compatibility with the supervisory standards of the Labuan FSA.
Once the entity is established, key appointments must be made. These include a licensed Trust Company, a resident company secretary, and a registered auditor, all of whom are responsible for ensuring supervisory compliance. Core trade documentation—such as the memorandum and articles of association, shareholder agreements, and evidence of capital adequacy—must also be compiled. Should the mercantile involve the issuance of Sharia-compliant digital tokens, specialist consultation will be needed to ensure alignment with Islamic finance principles.
Following the preparatory phase, an application is lodged with the polity's FSA. The submission must include:
- A comprehensive mercantile plan detailing operational procedures and objectives.
- Proof of the company’s fiscal standing.
- Documents demonstrating adherence to AML and KYC protocols.
- Information on ownership and the management setup.
Processing times vary according to the licence type. For instance, a Digital Asset Broking Licence typically takes 2–3 months, while ICO/STO-related applications may take up to six months, owing to the in-depth scrutiny needed.
Application fees differ depending on the type of licence sought:
- Digital asset broking licence – from USD 350 to USD 1,750.
- Crypto exchange licence – fixed at USD 1,750.
- External rent-a-captive licence – a standard fee of USD 1,000.
These charges are outlined in PU(A) 379/2022 and PU(A) 388/2023, which also stipulate provisions for expedited processing (e.g., an additional USD 1,200 for fast-track consideration).
A critical component of Labuan’s crypto licensing regime is satisfying substance needs, which relate to the company’s physical presence and economic contribution within the region. For example, a mercantile holding a digital banking licence must employ at least three full-time staff members and incur annual operational expenses of no less than RM 200,000 (approx. USD 47,200). In contrast, a pure equity holding company may suffice with two staff and annual costs as low as RM 20,000 (approx. USD 4,700).
A registered office in the polity is mandatory, and board meetings must be conducted there at least once per year. Additionally, crypto-related mercantiles—such as exchanges or E-holding funds—are expected to maintain segregated accounts and implement secure custody arrangements, backed by annual audits.
Maintaining a tangible presence and ensuring local oversight are not only supervisory obligations but also bolster credibility with investors. This is particularly important for ventures targeting the Middle Eastern and Southeast Asian markets, where visibility and alignment with local norms are crucial.
Taxation of crypto companies in Labuan
The polity has become a highly attractive destination for E-money ventures, offering an excise-friendly sphere that balances visibility with operational flexibility. Securing a crypto licence in Labuan involves knowledge of how the region’s excise framework functions—from standard rates to available incentives and mandatory accounting practices. The region actively propels blockchain and E-holding ventures by offering competitive excise advantages aimed at lowering operational expenses and boosting profitability.
General excise setup
Crypto-related entities in Labuan typically fall under a 3% excise on net profits. However, depending on the nature of the mercantile, there is an option to pay a fixed annual excise ranging from RM 20,000 to RM 100,000 (approximately USD 4,700 to 23,600). This fixed sum is particularly popular among crypto exchanges, as it provides predictability in fiscal planning and budgeting.
Of notable interest are the excise exemptions available under PU(A) 127/2024. Firms engaged in Sharia-compliant digital initiatives—such as issuing Islamic tokens—are fully exempt from income excise until 2028. However, to leverage from this incentive, firms must maintain clearly segregated records distinguishing exempt income from taxable schemes. This same requirement extends to E-holding funds and token trading platforms to ensure compliance and prevent misuse of the relief.
Specific considerations for crypto-focused entities
Securing a cryptocurrency licence in Labuan entails a range of supervisory, fiscal, and operational responsibilities tailored to the nature of E-holding mercantiles. For instance, E-money exchanges are obligated to maintain segregated client accounts, which serve to protect client funds and enhance cybersecurity measures. This separation of assets not only helps mitigate digital security risks but also bolsters confidence among investors and users.
Similarly, fund managers handling E-holdings under a Fund Management Licence are needed to maintain distinct accounts for each managed portfolio. Annual fiscal audits are mandatory, ensuring visibility and supervisory compliance. Diligent and structured record-keeping becomes even more critical for mercantiles performing operations across multiple regions.
Entities that generate income both within Malaysia and from foreign markets—such as China or the UAE—must accurately distinguish between domestic and transnational revenue streams. Clear fiscal classification is vital to prevent the risk of double taxation and to comply with the regulations imposed by the LFSA. For mercantiles applying for token-related licences, a precise breakdown of income sources is essential to access the region’s excise incentives.
While the polity does not maintain its own publicly listed network of Double Taxation Avoidance Agreements (DTAAs), it leverages from Malaysia’s extensive treaty framework. As a territory under the Malaysian region, Labuan-incorporated companies can utilise these agreements to minimise withholding excise obligations and other cross-border fiscal burdens.
This strategic advantage is particularly beneficial for crypto enterprises engaging with investors or partners in the European Union, the Middle East, and other transnational markets. By leveraging Malaysia’s treaty network, Labuan-based firms can optimize their excise planning and improve global operational efficiency.
Furthermore, Labuan permits companies to denominate their authorised capital in any foreign currency. This flexibility is especially useful for E-money funds and exchanges dealing primarily in USD, EUR, or other transnational currencies, as it helps to minimise currency conversion losses and supports seamless global deals.
Investment and practical advantages
The polity has earned a reputation as a favourable region that blends supervisory clarity, global market access, and resilience against external pressures. When pursuing a crypto licence in Labuan, it is crucial to assess not only the formal application needs but also the strategic advantages that make this territory particularly appealing to investors and fintech innovators. Below, we explore the core leverages that influence the polity’s growing popularity in the E-money sector.
Transparent supervisory framework and licit assurance
A defining strength of the polity is its well-structured and transparent licit sphere, which enhances investor confidence by minimising uncertainty and risk. For instance, crypto exchanges registering in Labuan must adhere to disclosure obligations concerning beneficial ownership, in alignment with FATF and OECD standards. These compliance measures are especially valuable for initiatives targeting the Middle East and Southeast Asia—regions where visibility and cultural alignment are vital.
The polity is also proactive in modernising its licit framework. The introduction of legislative amendments (Acts A1756–A1759) mandates firms to maintain beneficial ownership registers, while still allowing flexible ownership setups. This legislative balance enables organisations to design governance setups that conform with Shariah principles—an essential consideration for projects aiming to issue Shariah-compliant tokens. Consequently, the polity has become a preferred destination for Islamic fiscal institutions that seek to reconcile innovation with traditional values.
For crypto ventures with global ambitions, the polity offers a licitly sound route to operate across borders. Entities holding a crypto licence in Labuan leverage Malaysia's network of DTAAs, facilitating excise-efficient collaborations with partners in the European Union, the Middle East, and the UAE.
Additionally, the region is cultivating a robust ecosystem for Islamic fintech. This provides new opportunities in markets where Shariah-compliant fiscal instruments, such as sukuk, are in high demand. For example, blockchain projects issuing tokenized sukuk not only leverage from excise incentives—extended until 2028—but also gain a recognised licit foundation to list and trade on Shariah-compliant exchanges. Such developments position the polity as a central hub for crypto initiatives focused on Muslim-majority economies.
Capital mobility is another major draw for firms seeking a crypto licence in Labuan. Under Act A1756, authorised capital can be denominated in any currency, streamlining transnational deals and reducing conversion losses. For instance, E-holding funds investing in dollar- or euro-based ventures retain greater control and efficiency over their fiscal operations.
Labuan’s tax regime further enhances fiscal predictability. With a fixed excise rate and straightforward accounting needs, such as separate income tracking for crypto exchanges, the administrative burden is kept minimal. Moreover, firms offering Shariah-based digital solutions can access additional excise leverages. These features make the polity particularly appealing to startups and emerging ventures that require supervisory consistency and operational ease.
The polity offers a stable mercantile sphere, safeguarded against geopolitical and economic volatility—a crucial consideration for long-term investors. The region’s emphasis on substance, including the requirement for a physical office and a minimum of two employees, contributes to operational visibility and significantly reduces the risk of exposure to transnational sanctions. This is especially pertinent for projects previously affected by restrictions in other regions.
Furthermore, Labuan’s supervisory authorities, including Bank Negara Malaysia and the Labuan FSA, enforce strict AML and KYC protocols. For example, ICO applications in the polity must include comprehensive disclosures on beneficial ownership, thereby deterring illicit schemes and enhancing credibility. This commitment to supervisory integrity reinforces the polity’s reputation as a trusted region for institutional investors seeking both compliance and long-term security.
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Risks and difficulties
The polity presents a compelling opportunity for crypto ventures, thanks to its favourable supervisory sphere and attractive excise framework. However, securing a crypto licence in this region demands meticulous adherence to a range of supervisory and operational needs. A key obligation is satisfying the economic substance criteria, which necessitate a minimum number of local staff, annual operational expenditure, and a tangible physical presence within the territory.
For instance, registering a cryptocurrency exchange in Labuan entails employing no fewer than three full-time staff members and maintaining yearly expenditures of at least RM 200,000 (approximately USD 47,200). In contrast, entities such as E-holding funds or holding firms that deal solely in equity must meet lighter needs—two employees and RM 20,000 (USD 4,700) in annual costs. However, these more lenient thresholds apply only to specific, narrowly defined schemes.
Additionally, firms must maintain a functional office space in the polity, where board meetings are convened annually. This adds to operational overheads and necessitates local management infrastructure—posing significant logistical hurdles, particularly for remotely based startups pursuing initial coin offering (ICO) approvals under the polity framework.
A further layer of complexity stems from the evolving global supervisory landscape, particularly the Financial Action Task Force (FATF) measures aimed at enhancing AML and KYC compliance. Any firm seeking a crypto licence in Labuan must maintain an extensive register of beneficial ownership, convey regular reports to the polity's FSA, and undergo periodic audits. Breaches—such as the submission of false or misleading information—carry penalties of up to MYR 1 million (approximately USD 235,900) or custodial sentences.
Moreover, FATF’s increased scrutiny of E-holdings raises the likelihood of unannounced inspections. Firms interacting with clients in high-risk or blacklisted regions must carry out enhanced due diligence on the origin of funds and enforce robust AML/KYC protocols. This inevitably entails additional investment in verification systems and the hiring of compliance personnel. For example, acquiring authorisation to issue Shariah-compliant tokens needs not only technical infrastructure but also stringent oversight of capital sources to meet religious and supervisory standards.
The political landscape in Malaysia introduces further uncertainty. Although current excise incentives for Islamic digital finance products remain valid until 2028, these provisions are subject to revision depending on economic developments or external pressures. Any government shift towards stricter substance criteria or increased taxation could have direct implications for existing projects. Malaysia’s participation in broader transnational supervisory discussions on E-holdings also means the licit framework may evolve rapidly. Should FATF, for example, introduce new compliance expectations around tokenised assets, mercantiles would need to allocate additional resources to update their infrastructure, particularly those operating exchanges—already under close observation by Bank Negara Malaysia.
Despite the flexibility of expressing authorised capital in any currency, repatriating profits from the polity may be met with bureaucratic delays. Transferring funds via Malaysian banks needs clear documentation of lawful asset origins and conformity with currency control regulations. This is particularly relevant for crypto exchanges and E-holding funds, where supervisory demands for segregated income accounting further complicate fiscal reporting. ICO applicants must show clear separation between preferential and standard income streams to avoid supervisory disputes. As a result, firms must invest in comprehensive auditing and internal control systems—costs that can be burdensome for startups.
The polity's appeal is also affected by growing reputation and competitive pressures. While the region continues to attract legitimate enterprises, it has also drawn scrutiny due to a minority of actors exploiting its favourable framework for questionable purposes. This increases the risk of heightened supervisory scrutiny, particularly for exchanges and E-holding managers. If a company registered in Labuan is linked to suspicious fiscal activity, the LFSA may respond with sanctions or suspensions.
Moreover, with other fiscal hubs such as the UAE and Singapore offering competitive crypto licensing regimes, the polity's unique value proposition is gradually eroding. Firms that initially opted for the polity based on excise advantages are now re-evaluating their strategies in light of similar offerings from alternative regions.
Final word
The polity has emerged as a compelling destination for E-money ventures, thanks to its combination of excise advantages, adaptable supervisory framework, and a strong emphasis on Islamic fintech. The region is particularly attractive for startups, E-holding funds, and crypto exchanges aiming to streamline operational costs while tapping into markets across Southeast Asia and the Middle East.
The polity’s competitive edge lies in its low corporate excise rates and moderate substance needs, positioning it as a viable alternative to more established hubs such as Singapore and the UAE. However, operating successfully in the polity needs adherence to supervisory standards—this includes maintaining segregated fiscal accounts and disclosing the identities of beneficial owners.
Crypto businesses developing Shariah-compliant products are especially well-placed to leverage from the polity’s offering. Schemes such as issuing tokenized sukuk or managing Islamic-compliant funds can leverage from excise concessions and expedited approval procedures. For young firms with limited resources, the region’s low staffing and overhead expectations provide a low-barrier entry into regulated markets.
ICOs and crypto exchanges are drawn to the visibility upheld by the polity's FSA, as well as the opportunity to engage transnational investors under the protection of Malaysia’s network of DTAAs. Nonetheless, it is essential to factor in potential risks, such as shifts in Malaysia’s political landscape and increasing scrutiny from global bodies like the FATF.
If you are considering obtaining a crypto licence in Labuan, expert guidance is strongly recommended. Our team offers end-to-end support—from advising on the most suitable trade setup and conveying your application to the polity's FSA, to ensuring compliance with substance needs.
We also assist with the registration of beneficial ownership, the preparation of fiscal reports, and meeting all mandatory AML/KYC obligations. For tailored advice and to reduce supervisory and operational risks when entering the polity's market, please get in touch with us for a confidential consultation.
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