Labuan is a small Malaysian island located on the northern edge of the Bay of Brunei. It is situated approximately 10km off Sabah's west coast (Sabah being Borneo's northernmost Malaysian State). The island has been historically significant due to its natural deep-water port and rich coal deposits.

Formerly part of the Sultanate of Brunei, Labuan became the first British colony in Borneo when it was ceded to the British in 1847. Labuan served as a naval base for British trading vessels and was instrumental in the success of the British North Borneo Company. In the twentieth century Labuan came under the administration of British North Borneo (later to be known as Sabah after independence in 1957). When Malaysia was formed in 1963 Sabah was one of the founding states. The last major political development for Labuan was on the 16th of April, 1984 when it became a Federal Territory. Such status made the administration of the island far simpler as it effectively removed one tier of bureaucracy. This change served as the seed from which Labuan was able to develop into an offshore financial centre. Labuan became an international offshore financial centre in October 1990 with the passing of numerous Acts of Federal Parliament.

By international standards, Labuan's growth as an offshore financial centre has been moderate. However, from the outset the Authorities have exercised caution and prudence in an effort to ensure Labuan develops into a reputable centre that is capable of sustaining itself over the long term. Rapid growth is not seen as totally congruent to such a goal.