The MIFC Secretariat at Bank Negara Malaysia wishes to announce that Bank Negara Malaysia is today issuing the guidelines to specify the eligibility criteria and scope of business for the establishment of new entities in the MIFC to conduct Islamic financial business in international currencies. The details are as follows:

Application to conduct Islamic banking business in international currencies is open to any qualified foreign and Malaysian financial institution that is well capitalised and reputable with sound track record, adopts the international best practices set by international standard-setting bodies, and is regulated and supervised by a competent home regulatory authority.

Upon licensing under the Islamic Banking Act 1983 , the new entity will be known as International Islamic Bank (IIB) and allowed to conduct Islamic commercial banking, investment banking and other banking businesses specified by Bank Negara Malaysia as stipulated in the Guidelines on the Establishment of International Islamic Bank issued by Bank Negara Malaysia . The IIB is a resident for the purpose of foreign exchange administration policies.

In addition, the IIB may be formed as an incorporated entity or a branch and is required to have a minimum paid-up capital or net working fund of RM10 million respectively. The annual licence fee for IIB is RM50,000. The IIB is eligible for full tax exemption accorded under the Income Tax Act 1967 for ten years effective from the year of assessment 2007 as announced in the Budget 2007.

Application to conduct takaful business in international currencies is open to any qualified foreign and Malaysian financial institution that is well established and reputable with sound track record, adopts the international best practices set by international standard-setting bodies, and is regulated and supervised by a competent home regulatory authority.

Upon licensing under the Takaful Act 1984, the new entity will be known as International Takaful Operator (ITO) and allowed to conduct non-ringgit composite (general and family) takaful business and re-takaful (Islamic reinsurance) business as stipulated in the Guidelines on the Establishment of International Takaful Operator issued by Bank Negara Malaysia . The ITO is a resident for the purpose of foreign exchange administration policies.

In addition, the ITO may be formed as an incorporated entity or a branch and is required to have a minimum paid-up capital or net working fund of RM10 million respectively. The annual licence fee for ITO is RM5,000. The ITO is eligible for full tax exemption accorded under the Income Tax Act 1967 for ten years effective from the year of assessment 2007 as announced in the Budget 2007.

Application to conduct Islamic banking business in international currencies via a division set-up is open to Malaysian Islamic banks licensed under the Islamic Banking Act 1983.

Upon approval, the new division will be known as International Currency Business Unit (ICBU) and allowed to conduct Islamic commercial banking, investment banking and other banking businesses specified by Bank Negara Malaysia as stipulated in the Guidelines on the Establishment of International Currency Business Unit (Islamic Bank) issued by Bank Negara Malaysia.

In addition, the ICBU must be a dedicated division that maintains separate accounts from the ringgit transactions of the entity. The income arising from the transactions of ICBU is eligible for full tax exemption accorded under the Income Tax Act 1967 for ten years effective from the year of assessment 2007 as announced in the Budget 2007.

Application to conduct takaful business in international currencies via a division set-up is open to Malaysian takaful operators licensed under the Takaful Act 1984.

Upon approval, the new division will be known as International Currency Business Unit (ICBU) and allowed to conduct non-ringgit composite (general and family) takaful business and re-takaful (Islamic reinsurance) business as stipulated in the Guidelines on the Establishment of International Currency Business Unit (Takaful Operator) issued by Bank Negara Malaysia.

In addition, the ICBU must be a dedicated division that maintains separate accounts from the ringgit transactions of the entity. The income arising from the transactions of ICBU is eligible for full tax exemption accorded under the Income Tax Act 1967 for ten years effective from the year of assessment 2007 as announced in the Budget 2007.

1. Establishment of International Islamic Bank
2. Establishment of International Takaful Operator
3. Establishment of International Currency Business Unit for Islamic Bank
4. Establishment of International Currency Business Unit for Takaful Operator

Establishment of Fund Managers

In addition, all existing and new fund managers licensed under the Securities Industry Act 1983 in accordance with the current guidelines and requirements of the Securities Commission are given full income tax exemption on management fees for ten years for managing funds of foreign investors based on Shariah principles as announced in the Budget 2007.

Establishment of Operation Offices of Labuan Entities anywhere in Malaysia

Existing and new offshore financial institutions licensed to conduct Islamic financial business in international currencies by the Labuan Offshore Financial Services Authority (LOFSA) including offshore Islamic banks, offshore Islamic investment banks, offshore takaful companies, and Islamic divisions of offshore banks and offshore insurance companies, have been given greater flexibility to open operation offices anywhere in Malaysia without having the need to maintain physical presence in Labuan. The current guidelines and requirements issued by LOFSA apply. These entities will continue to enjoy the tax preferential rate of 3% or RM20,000 accorded under the Labuan Offshore Business Activity Tax Act 1990.

These measures and attractive incentives are part of the Government initiative to promote and strengthen Malaysia's position as a centre of origination, distribution and trading of Islamic capital market and treasury instruments, Islamic fund and wealth management, international currency financial services, and takaful and re-takaful business. Besides dealing freely with non-residents, these entities may deal with residents who have been permitted under Bank Negara Malaysia's foreign exchange administration policies.

Financial institutions interested to apply for the licences and approvals may refer to the respective guidelines available at Bank Negara Malaysia's website at http://www.bnm.gov.my, Securities Commission's website at http://www.sc.com.myand LOFSA's website at http://www.lofsa.gov.my accordingly.

See also:

1. Guidelines on International Islamic Bank (supersedes Guidelines on The Establishment of International Islamic Bank, issued in September 2006) [PDF, 137K]
2. Guidelines on The Establishment of International Takaful Operator [PDF, 39.8K]
3. Guidelines on The Establishment of International Currency Business Unit (Islamic, Commercial and Investment banks) [PDF, 37.5K]
4. Guidelines on The Establishment of International Currency Business Unit (Takaful Operator) [PDF, 37.6K]
5. Application for International Takaful Operator Licence (Form ITO) [PDF, 1.7MB]
6. Application for International Islamic Bank Licence (Form IIB) [PDF, 1.6MB]

The MIFC Secretariat
14 September 2006