Crypto License in Labuan 2026

If your platform matches buy and sell orders for digital assets (spot exchange or OTC desk), you need a Money Broker (Digital Asset) license. This is the route most exchange operators take. Minimum paid-up capital is RM 1,500,000 (~USD 378,000).

Some consulting sources reference a separate “Digital Asset Exchange (DAX)” category with a higher capital threshold. However, the current LFSA fee schedule does not list DAX as a distinct license category. Applicants seeking to operate an institutional-grade multilateral trading facility should confirm the applicable route directly with LFSA during the pre-application process.

Operational requirements for the Money Broker (Digital Asset) route include a minimum of 2 full-time employees based in Labuan and annual operating expenditure of at least RM 100,000. The annual LFSA licence fee is USD 10,000 for new licensees from 2026. Existing licensees follow a transitional schedule: USD 1,500 in 2026, USD 5,750 in 2027, and USD 10,000 from 2028.

A Digital Asset Custodian license covers the safekeeping and administration of digital assets on behalf of third parties: wallet infrastructure, key management, and asset storage services. This license does not permit trading or brokering. Minimum paid-up capital is RM 500,000 (~USD 126,000).

The custodian category suits businesses building regulated custody rails for institutional clients, family offices, or as a standalone service ancillary to an exchange. AML/CFT obligations under Act 613 apply in full regardless of license type.

• Core permitted activities — safekeeping private keys, managing wallets, settling digital asset transfers on client instruction
• Not permitted under this license — operating an exchange, offering brokerage, issuing tokens

The Digital Asset Issuer license permits a Labuan entity to issue digital tokens to the public, including security token offerings (STOs) and utility token sales structured as regulated instruments. This is the pathway for token projects that want a recognised regulatory framework rather than operating from an unlicensed jurisdiction.

Minimum paid-up capital is RM 500,000 (~USD 126,000). A caveat applies: if your token constitutes a Credit Token under LFSA’s classification, the capital requirement may rise to RM 1,000,000 (~USD 252,000). LFSA classifies token type during the review process; structure your offering documents carefully before submission.

Shariah-compliant digital token issuers (structured under Act 705) are eligible for a 0% corporate tax rate from YA2024 through YA2028 under P.U.(A) 127/2024, compared to the standard 3% rate for conventional issuers.

An Initial Exchange Offering (IEO) Operator license authorises a platform to conduct token fundraising rounds on behalf of issuing projects. The IEO Operator acts as the intermediary between the token issuer and investors, running the sale on its platform and conducting due diligence on listed projects.

This is the most capital-intensive license category. Indicative guidance from consulting practice suggests minimum paid-up capital of RM 5,000,000 (~USD 1,260,000) and compulsory insurance through an LFSA-approved insurer. Note: the current LFSA fee schedule does not list “IEO Operator” as a separate category; the specific framework should be confirmed with LFSA during the pre-application process. Budget for insurance premiums as an ongoing operating cost separate from the capital requirement.

• Due diligence obligation — the IEO Operator is responsible for vetting each token project listed on its platform
• Compulsory insurance — must be placed with an LFSA-approved insurer before licence activation
• AML screening — investor KYC and transaction monitoring apply to all IEO participants under Act 613

A Labuan trading company pays 3% corporate tax on audited net profits, provided it meets economic substance requirements (physical office, resident staff, minimum operating expenditure). Fail substance, and the rate reverts to Malaysia’s standard 24%. The 3% applies to conventional business activities; non-trading activities attract 0%.

Two additional exemptions apply on top of the base rate:

• Withholding tax relief — P.U.(A) 59/2025 exempts specific income types (dividends, interest, royalties, and service payments between Labuan entities) from income tax for YA 2023–2027; withholding tax under Sections 109/109B/109C does not apply where the underlying income itself is exempt. This is a time-limited concession covering defined income categories, not a blanket WHT exemption.
• Islamic digital activities — 0% tax — companies operating Islamic digital banking, bourses, ummah entities, or Islamic digital token issuance qualify for full tax exemption from YA2024 to YA2028 under the Labuan Business Activity Tax Exemption Order 2024.

Capital gains: 0%. Profits from disposing of digital assets are not taxed at the corporate or shareholder level in Labuan.

Malaysia has concluded 73 comprehensive double taxation avoidance agreements (DTAAs), covering most major trading jurisdictions. Labuan companies can access this treaty network. The full list is maintained by Malaysia’s Inland Revenue Board at hasil.gov.my. For a business with cross-border payment flows, this network reduces withholding costs on dividends, royalties, and interest received from treaty partners.

Labuan permits 100% foreign ownership across all license categories, with no local partner requirement and no mandatory shareholding for Malaysian nationals. No currency controls apply: you can move capital in and out freely, hold accounts in foreign currencies, and repatriate profits without central bank approval.

For staffing, the Labuan Employment Pass gives non-Malaysian directors and senior staff a multiple-entry pass for up to 5 years (minimum 2-year contract required), renewable, with the right to live in both Labuan and mainland Malaysia. The minimum qualifying salary is MYR 10,000 per month (increasing to MYR 20,000+ from 1 June 2026 per revised Ministry requirements). You can place a management team in-jurisdiction to satisfy substance requirements without committing to permanent residency.

The Labuan Financial Services Authority (LFSA) operates under a single-regulator model. You deal with one agency for licensing, ongoing supervision, and AML/CFT reporting. Bank Negara Malaysia (BNM) does not license or directly supervise Labuan IBFC entities, though BNM’s prudential guidelines may apply to banks operating within Labuan.

Labuan is a federal territory of Malaysia, situated in the South China Sea off the coast of Borneo. It sits within four hours’ flying time of Singapore, Hong Kong, Jakarta, Manila, and Ho Chi Minh City. For a crypto business serving clients across the Asia-Pacific region, that proximity means same-timezone operations with Southeast Asia’s 700 million population.

As an ASEAN member state jurisdiction, a Labuan entity operates within Malaysia’s broader trade and treaty network, including preferential access under the ASEAN Free Trade Area and bilateral investment treaties with key markets.

Labuan also functions as a gateway for Islamic finance. The Labuan Islamic Financial Services and Securities Act 2010 (Act 705) provides a parallel licensing track for Shariah-compliant digital instruments. If you target GCC investors, Malaysian retail clients, or institutions requiring halal-compliant structures, this track pairs with the YA2024–2028 tax exemption noted above.

A Labuan digital financial services company must meet the following corporate structure requirements:

• Directors — minimum 2, natural persons only; 3–5 years of documented financial services experience required. Since the Labuan Companies (Amendment) Act 2022 (effective 10 June 2022), at least one director must be a resident director (a trust officer with a Labuan trust company approved by LFSA, or a natural person aged 18+ meeting LFSA criteria). Other directors may be non-resident.
• Shareholders — minimum 1 (natural or legal person); 100% foreign ownership is permitted with no currency controls.
• Company secretary — mandatory; must be a licensed Labuan trust company. You cannot appoint an individual secretary directly.
• AML/Compliance officer — mandatory appointment. If this role becomes vacant, you must notify LFSA within 10 working days and fill the position within 30 days. The requirement derives from the LFSA Guidelines on AML/CFT/CPF and TFS for Labuan KRIs (February 2025).
• Physical office — a private, dedicated premises in Labuan with its own entrance. Virtual offices do not satisfy this requirement, and LFSA checks that the office size is proportionate to the scale of the business.

All minimum capital figures are set in Malaysian Ringgit (MYR) under Labuan law. USD equivalents below use the 2026 YTD average exchange rate of approximately 1 MYR ≈ USD 0.2519. These are paid-up share capital thresholds. Working capital for operations is a separate consideration.

Most crypto exchange operators apply under the Money Broker (Digital Asset) route at RM 1,500,000. Confirm the correct route for your business model with your licensed trust company or directly with LFSA before filing.

Labuan’s 3% preferential tax rate applies only to companies that demonstrate genuine economic activity in the territory. Failing to meet substance rules triggers the standard Malaysian corporate tax rate of 24%. The substance thresholds for money broking (crypto exchange) activities are:

• Full-time employees — minimum 2 full-time staff based in Labuan. These must be genuine employees, not contractors filling nominal roles.
• Annual operating expenditure — minimum RM 100,000 per year incurred in Labuan (effective under the revised Guidelines for Money Broking Business, 9 September 2024). The correct threshold is RM 100,000.
• Dedicated IT member — at least one staff member with IT responsibility is required, reflecting LFSA’s expectation that digital asset operations maintain local technical oversight.

For license types outside the money broking category (custodians, IEO operators), employee and expenditure thresholds differ. Contact us to confirm the exact substance rules for your license type before incorporation.

Four Acts form the statutory backbone of every Labuan crypto license:

Note: PU(A) 127/2024 is a tax exemption order granting 0% corporate tax on qualifying Islamic digital activities from YA2024 to YA2028. It is not a licensing instrument and does not alter the licence application process under Act 704.

All holders of a Labuan crypto license must comply with Act 613 and the LFSA’s AML/CFT guidelines and directives. The LFSA most recently updated these guidelines in February 2025 (expanding the scope to include counter-proliferation financing), and they apply from day one of operations. The four core obligations are:

• KYC procedures — verify identity of every customer and beneficial owner before onboarding; enhanced due diligence for PEPs and higher-risk relationships
• Transaction monitoring — automated screening with internal escalation of unusual patterns
• Suspicious transaction reporting (STR) — file with the Financial Intelligence and Enforcement Department when reasonable grounds exist; tipping off is prohibited under Act 613
• Record keeping — retain customer identification, transaction data, and correspondence for a minimum of six years

Responsibility for AML/CFT sits with a dedicated compliance officer appointed at incorporation. If the compliance officer leaves, the LFSA must be notified within 10 working days and a replacement named within 30 days.

Penalties under Act 613 for money-laundering violations include fines starting at MYR 5,000,000 (or five times the proceeds of the offence, whichever is higher) and imprisonment of up to 15 years. Operating without an LFSA licence is a separate criminal offence.

Labuan trading companies (crypto exchanges, digital asset brokers, and token issuers) are taxed at 3% of audited net profits under the Labuan Business Activity Tax Act 1990. Labuan non-trading companies (holding structures, investment vehicles) pay 0% corporate tax on income derived from their Labuan business activity.

The 3% rate applies only when a company satisfies the economic substance requirements set by LFSA (see Requirements). Companies that do not meet these thresholds are deemed to conduct a non-qualifying Labuan business activity and are assessed at the standard Malaysian corporate rate of 24%.

Labuan companies pay 0% capital gains tax on gains from disposal of digital assets and securities. Malaysia introduced CGT on disposal of unlisted shares from 1 March 2024 (10% on net gain), but gains on digital assets and listed securities held by a Labuan entity remain exempt from Malaysian capital gains tax. This applies to both trading and non-trading companies.

P.U.(A) 59/2025 exempts specific income types from income tax for assessment years YA2023 through YA2027: dividends from Labuan companies, interest received by non-residents or Labuan companies, royalties from Labuan companies, distributions from Labuan trusts/partnerships/foundations, and service payments between Labuan entities. Where the underlying income is exempt, withholding tax under Sections 109/109B/109C does not apply. This is not a blanket WHT exemption — it covers defined income categories only. Outside the exemption window or for income types not covered, standard Malaysian withholding tax rates apply.

Source: Crowe Malaysia, Labuan Tax Exemptions 2023–2027.

Under P.U.(A) 127/2024 (Labuan Business Activity Tax Exemption Order 2024), qualifying Islamic digital finance activities are fully exempt from Labuan business activity tax for YA2024 through YA2028. Eligible entity types include:

• Islamic digital banking operators — licensed under the Labuan Islamic Financial Services and Securities Act 2010
• Islamic digital bourses — Shariah-compliant digital asset exchange platforms
• Ummah companies — entities established to serve the Muslim community through digital financial products
• Islamic digital token issuers — issuers of Shariah-compliant digital tokens and sukuk

This incentive sits alongside, not instead of, the standard 3% / 0% regime. A conventional crypto company does not qualify simply by adding Shariah-compliant products; the entity itself must operate under the Islamic finance licensing framework under the Labuan Islamic Financial Services and Securities Act 2010 (Act 705).

Malaysia has concluded 73 comprehensive double taxation avoidance agreements (DTAAs) with treaty partners across Asia, Europe, the Middle East, the Americas, and Africa. Labuan companies can access these treaties, which can reduce withholding taxes on dividends, interest, and royalties paid between Malaysia and treaty countries.

Treaty access is relevant for crypto businesses that route payments to foreign vendors, pay management fees to offshore holding companies, or distribute profits to non-resident shareholders. Under many DTAAs, withholding tax rates are reduced to 5–10%, or to nil where the underlying income is exempt from Malaysian tax (as is the case for qualifying income types under P.U.(A) 59/2025 during YA2023–YA2027).

The full list of Malaysia’s comprehensive DTAAs is maintained by the Inland Revenue Board: LHDN, Comprehensive DTAs.

LFSA imposes three recurring reporting obligations on all digital financial service licensees:

• Annual audited accounts — financial statements must be audited by an approved auditor and submitted to LFSA each year. The audit must cover the full financial year and comply with Malaysian Financial Reporting Standards.
• Annual returns to LFSA — statutory annual returns are filed with the regulator, confirming the company’s directors, shareholders, registered office, and business activities remain accurate and unchanged.
• AML/CFT compliance reporting — licensees operate under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (Act 613). This requires a designated AML/Compliance Officer, periodic compliance reports, transaction monitoring records, and suspicious transaction reports filed with the Financial Intelligence and Enforcement Department. If the Compliance Officer position becomes vacant, LFSA must be notified within 10 working days and a replacement appointed within 30 days.

Economic substance requirements (see Requirements) run in parallel. Failure to maintain substance triggers reclassification to Malaysia’s standard 24% corporate tax rate.

Penalties vary by statute and violation type. The ceiling for money laundering under Act 613 is 15 years.

• Money laundering (AMLA Section 4) — conviction carries up to 15 years imprisonment. The minimum fine is MYR 5,000,000 or five times the proceeds of the offence, whichever is higher.
• Other AML/CFT violations — breaches such as failure to report suspicious transactions, inadequate record-keeping, or failure to conduct customer due diligence carry up to 5 years imprisonment and fines up to MYR 3,000,000.
• Corporate offences (Labuan Companies Act) — Sections 108A through 108H were deleted by the Labuan Companies (Amendment) Act 2025 (Act A1756), effective 23 April 2025, and replaced by a new beneficial ownership framework under Part Va. Remaining corporate penalty provisions carry distinct thresholds.

Labuan crypto licenses are subject to annual renewal. Two conditions must be met each year to retain the license without interruption.

• Annual fee — USD 10,000 per year for new licensees from 2026. Existing licensees follow a transitional schedule: USD 1,500 in 2026, USD 5,750 in 2027, and USD 10,000 from 2028.
• Substance maintenance — the physical Labuan office, minimum staffing (2 full-time employees), and operating expenditure thresholds (RM 100,000 for money broking) must be maintained continuously. LFSA can revoke or suspend a license where substance requirements lapse, regardless of whether the annual fee has been paid.

Budget for the LFSA fee, audit costs, and ongoing substance from day one. A missed deadline or lapsed substance requirement can trigger a renewal review that delays operations while the regulator investigates.