Malaysia: Your Oil & Gas Trading Hub by Danial Mah Abdullah CEO, Labuan IBFC
Oil Prices Low
Oil Production Still Increasing Global oil production (1989-2014) Source: BP Statistical Review of World Energy 2015 3
Global Refining Capacity is Growing Distillation Conversion 4
Refining Growth Even in APAC Asia Pacific crude distillation unit additions (2014-2018) 5
Production and Prices Low oil prices, but production continues to rise (1,000 b/d) USD 74000 73000 72000 71000 70000 69000 68000 67000 66000 65000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 110 100 90 80 70 60 50 40 30 World crude oil production Crude oil prices, WTI Source: Macrotrends.net, OPEC 6
Demand for Storage Space is Increasing Rise in oil stock in storage In the second half, every tank and swimming pool in the world is going to fill (up) International Petroleum Week 7
Notwithstanding: Trading is Increasing! 1,000 lots USD 55,000 50,000 45,000 40,000 35,000 30,000 25,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: ICE, Macrotrends.net Futures (WTI) - trade volume Crude oil prices, WTI (RHS) 110 100 90 80 70 60 50 40 30 8
Oil & Gas in Malaysia 9
National Key Economic Areas
Why Malaysia for Oil and Gas Trading? EPPs SUSTAIN Continue domestic oil and gas production 1. Enhanced oil recovery 2. Develop small fields 3. Increase exploration activities GROW Grow in downstream 4. Create a regional oil storage and trading hub 5. Unlock latent gas demand through LNG import Make Malaysia #1 Asian hub for oil field services 6. Encourage investment in oil and gas industry (DDI + FDI) 7. Local companies successful in going overseas 8. Attract MNCs to bring global operations to Malaysia DIVERSIFY Build alternative energy capabilities 9. Reduce energy bill through energy efficiency 10. Build up solar power capacity 11. Ensure best practice nuclear deployment 12. Drive industrial growth in Sarawak with big hydro 13. Increasing petrochemical output
Why Malaysia for Oil and Gas Trading? There will be demand for petroleum product storage and trading in this region for the next decade. This region will still drive global petroleum product growth Petroleum products growth 2010-2020 KBD Rest of the world China India Singapore Indonesia Thailand Vietnam Malaysia Philippines 384 213 208 199 143 50 51 49 China, India, SEA 1,547 4,576 There will be an increase in volume moving in and out of the countries of this region China, India, Southeast Asia petroleum import and export KBD 7,600 3,750 8,800 4,600 9,400 5,200 3,850 4,200 4,200 2010 2015 2020 +1,800 Import Export SOURCE: FACTS 2010
Growing: Refining, Storage, and Transit Terminals Malaysia's existing and planned refineries : Refinery Operator Capacity (bbl/d) Existing LNG terminals Melaka 1 (PSR-1) Petronas 95,000 Melaka 2 (PSR-2) JV between Petronas and ConocoPhillips 125,000 Port Dickson Shell 145,000 Port Dickson San Miguel/Petron 85,000 Kertih Petronas 121,000 Kemaman Kemaman Bitumen Company 20,000 Planned projects Johor (RAPID project)* Petronas 300,000 *The RAPID project is part of Johor s Pengerang Integrated Petroleum Complex Source: EIA, MPRC 13
Increasing Storage in Johor (South Malaysia) Opportunity There is a demand to build storage capacity for the region Facility would complement Singapore, which currently is the only major independent terminal and storage facility in South East Asia Malaysia South Johor can complement Singapore to form an oil co-hub with 10 Million m 3 if all the potential projects comes online (Million m 3 capacity planned to 2020) Potential for an oil trading business, future development of downstream industry including refinery and oil based petrochemical complex, and LNG regas terminal Singapore Independent Storage Capacity 10 Million m 3 Limited land for new major storage investments Tanjung Bin (3) Tanjung Langsat (2) Pengerang (5) Singapore
The Global Incentives for Trading Programme (GIFT)
Trading Through GIFT The GIFT programme is established to encourage global petroleum trading companies to use Malaysia as a platform to enter the Asia Pacific region market. The GIFT Programme is managed and supervised by the Labuan Financial Services Authority (Labuan FSA), the regulatory authority for Labuan IBFC The Malaysia Petroleum Resources Corporation (MPRC) and Labuan IBFC Inc., promote the GIFT programme Companies that participate in the GIFT programme are licensed as Labuan International Commodity Trading Company (LITC) LITC-status companies can trade in petroleum, petroleum-related products, and selected commodities, including minerals and carbon credits and operate from anywhere in Malaysia
Overview Global Incentives For Trading Programme (GIFT) Initiative to transform Malaysia into a commodities hub Attract global companies trading in selected commodities to locate their regional operations to Malaysia The participants (LITC) may engage in any physical and derivatives trading of qualifying products, which include over-the-counter (OTC) and exchange-governed transactions Qualifying Products 1. Petroleum and petroleumrelated products including liquefied natural gas and coal* 2. Agriculture products 3. Refined raw materials 4. Chemicals 5. Base minerals Qualifying Criteria 1. Minimum annual turnover of USD100 million 2. Minimum annual business spending to Malaysian residents of RM3 million 3. Min 3 professional traders employed throughout its operations with minimum salary of approximately RM15,000 per month each Exempted to comply for the first 5 years from the date of license * Can deal with residents in any currency other than Ringgit Malaysia
Corporate Tax and Incentives of GIFT Corporate Tax 3% flat tax rate on chargeable profits Key Incentives Flexibility to establish its operational office(s) everywhere in Malaysia 100% exemption on director fee paid to non-malaysian director 50% exemption on gross employment income of non-malaysian professional, managerial staff including the traders Exemption on dividends received Exemption on royalties received Exemption on interest received Exemption on stamp duty on all instruments for Labuan business activities, M&A of Labuan company and transfer of shares
Salient Operational Requirements Operational Requirements Annual Submission Annual Fee Maintain sufficient capital/working funds Maintenance of a registered office in Labuan Indicate clearly it is a LITC licensed under Labuan Financial Services and Securities Act 2010 in its relevant documents including signage Ensure the business is conducted with proper corporate governance and risk management framework Comply with all the relevant laws/requirements in Labuan IBFC or jurisdictions that the LITC operate in Completed Annual Update Submission Form Audited financial statements License fee RM40,000 or USD13,000 Company i. Labuan company RM2,600 or USD800 ii. Foreign Labuan company RM5,300 or USD1,500
Licensing and Incorporation Licensing Application Can be made directly by applicant / Labuan trust company / other service provider to Labuan FSA Application forms can be obtained from Labuan FSA s website or Labuan trust company Form FLB Incorporation of LITC Appoint a Labuan trust company for the incorporation of LITC Share capital must be in any currency, other than Ringgit (RM) Registration fee for Labuan companies with paid-up capital: i. Less than RM50,000 RM1,000 or USD300 ii. RM50,000 but less than RM1 million RM2,000 or USD600 iii. Exceed RM1 million RM5,000 or USD1,500 Registration fee for foreign Labuan company RM6,000 or USD2,000 Undertake trading activities Comply with the operational requirements, annual submission and payment of annual fee imposed by Labuan FSA
Application Process Appoint a Labuan Trust Company as Adviser Application for Approval to Labuan FSA Obtain Approval from Labuan FSA Incorporation of LITC via a Labuan Trust Company Trade
Malaysia s Cost Efficiency The cost of doing business in Malaysia is comparatively low compared to other major trading hubs. SINGAPORE MALAYSIA GENEVA DUBAI Marina Bay Financial Centre USD10 psf KL USD3 psf CBD USD9 psf monthly CBD USD4 psf monthly Accountant 5 years exp USD64k Accountant 6 years exp USD30k Accountant 5-7 years exp USD130k Accountant 5-9 years exp USD 236k GTP 5-10% GIFT 3% Corporate Tax 8%-22% Corporate Tax 0%
GIFT Companies
Comparison of Schemes GIFT (established 2011) GTP* (established 2001) Tax Rate 3% 5% 10% 10% Period Not Limited 5 years renewable 5 years renewable 3 years non-renewable Annual Turnover USD100m USD1.5b USD150m USD50m Annual Business Spend RM3m SGD50m SGD4m SGD1.5m Hiring of Professional Traders 3 18 4 2
ASIA PACIFIC S MIDSHORE INTERNATIONAL BUSINESS AND FINANCIAL CENTRE
Off the coast of Sabah, East Malaysia Federal Territory About 100,000 population Common time zone with major cities Where business meets leisure Where is Labuan?
What is Labuan IBFC? International business and financial centre A tax-efficient jurisdiction to facilitate businesses, trading, investments etc., through financial services and legal structures Well-balanced legal and regulatory framework Our Vision To be Asia Pacific s leading midshore international business and financial centre Striking an ideal balance between client confidentiality and international best standards
Connecting Asia s Economies 70% of Labuan Companies are Asian-based (as at 2015)
Internationally Recognised Group of International Finance Centre Supervisors (GIFCS) Member since 1999 International Organisation of Securities Commissions (IOSCO) Member since 2003 Group of International Insurance Centre Supervisors (GIICS) Member since 1999 International Association of Insurance Supervisors (IAIS) Member since 1998 Islamic Financial Services Board (IFSB) Member since 1998 International Islamic Financial Market (IIFM) Member since 2002 Asia/Pacific Group on Money Laundering (APG) Member since 2000 Labuan IBFC Adheres to OECD s International Standards and Best Practices
Comprehensive Legislation Labuan Financial Services and Securities Act 2010 Labuan Business Activity Tax Act 1990 Labuan Islamic Financial Services and Securities Act 2010 Labuan Financial Services Authority Act 1996 Labuan Foundations Act 2010 Labuan Trusts Act 1996 Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 Labuan Companies Act 1990
Unique: One Country, Two Tax Systems Labuan Business Activity Trading income taxed under Labuan Business Activity Tax Act 1990 Non-trading income, not taxable Investment income, not taxable 3% per annum or maximum of RM20,000 per annum Tax efficiency via yearly election Tax certainty via statutory perpetuity Irrevocable election provided Non-Labuan Business Activity Income taxed under Income Tax Act 1967 Tax rate at 25%* on Malaysian source income Applicable for all domestic trade (* YA 2015)
An Ecosystem of Solutions Services Banking Insurance risk management Corporate secretarial Legal Administrative activities Trusteeship Accounting Structures Holding company Trading company Protected cell companies Company limited by shares and guarantee Limited partnership Limited liability partnership Trusts Foundations Available in conventional and Shariah-compliant forms Marketing offices may be located in Kuala Lumpur or Iskandar Malaysia (north of Singapore)
Business Activities Companies (11,630) Banking (57) Insurance (209) Leasing (359) Trust Cos. (39) Investment holding Trading Wholesale banking Investment banking Loans/deposit Financial guarantees Trade finance Life/general Broking Captives Re-insurance Aviation Shipping Heavy machinery Company incorporation Company administration Corporate secretarial Wealth Management (more than 300) Commodity Trading (39) Trustee services Business succession Oil and gas Estate management Agriculture Legacy planning Minerals SOURCE: STATISTICS FROM LABUAN FSA S ANNUAL REPORT 2014
Why Labuan IBFC? Business Purpose In the centre of Asia Member of ASEAN Established trade and investment location Developed legal infrastructure and support services Tax efficiency and flexibility Over 70 double taxation agreements Malaysia/Labuan: 18 th in the world for ease of doing business Substance Cost efficient Operational and commercial substance (adheres to international standards in regulation and exchange of information) Local expertise No minimum or maximum substance requirements, thus flexible to fit business needs Provision for co-located office in onshore Malaysia English-speaking talent
25 Years and Growing Reputation and Track Record Connecting Asia s Economies
Thank You
Disclaimer This presentation should not be regarded as offering a complete explanation of the matters referred to and is subject to changes in law. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Labuan IBFC cannot accept any responsibility for loss occasional to any person acting or refraining from action as a result of any material in this presentation. The republication, reproduction or commercial use of any part of this presentation in any manner whatsoever, including electronically, without the prior written permission from Labuan IBFC Inc. is strictly prohibited. LABUAN IBFC INC SDN BHD IS THE OFFICIAL AGENCY ESTABLISHED BY GOVERNMENT OF MALAYSIA TO POSITION LABUAN IBFC AS THE PREFERRED INTERNATIONAL BUSINESS AND FINANCIAL CENTRE IN ASIA PACIFIC