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Labuan Foundation

TAKING CARE OF YOUR BUSINESS

As an established and fully licensed global wealth management company, we can help you set up and run your Labuan Foundation. A Foundation offers you flexibility, confidentiality, asset protection and excellent value for money.

We use our extensive experience of more than 50 years in the Trust industry to provide our clients with expert advice on planning, structuring and creating a Labuan Foundation. As we offer bespoke solutions, you’ll be able to set up your Foundation your way – to meet your individual or company needs, as well as your budget needs. All our services are competitively priced, and renowned for quality, so our assistance is both effective and efficient.

Suitable for multiple business demands, Labuan is an ideal location as the Labuan International Business and Financial Centre (Labuan IBFC) is one of only a limited number of jurisdictions in the Asia Pacific region that provides Foundations as well as Trusts. This adds enormous value to the offshore financing and structuring opportunities available in the jurisdiction of Labuan. The Labuan Foundations Act 2010 provides flexibility alongside the benefits afforded by Labuan itself – for example, the OECD recently rated the Labuan IBFC as a “white” listed jurisdiction in light of its stringent regulatory framework and business-friendly tax laws which make the island ideal for global wealth management initiatives.

Why not let us, together with the growing offshore financial centre of Labuan, look after your business by setting up a Labuan Foundation structure for your company?

AN OVERVIEW OF A LABUAN FOUNDATION

The best way of describing a foundation is as a trust enveloped in a corporate shell. It is one of the many business structures available in Labuan that can save you money and help protect your wealth and assets, as it puts them beyond the reach of creditors and/or frivolous law suits.

It also means you can transfer wealth to your heirs as you see fit, and not necessarily according to the laws of the country you live in. Moreover, it offers great privacy as information regarding the foundation is strictly confidential.

The governance structure of a foundation is more favourable than that of traditional common law trusts, as it allows the founder to exercise a greater degree of control over the operation of the foundation and its investments.  In addition to this, a foundation is regarded as a unique legal entity.

According to Anglo-Saxon law, it is a body corporate that has no owners, is not the legal personification of any other person, and traditionally has philanthropic or charitable aims.

With its roots in civil law, a foundation will probably be more familiar (and therefore better suited) to clients based in Europe and the Middle East than a trust. This, added to Labuan’s growing reputation as a premier centre for offshore investment, makes a Labuan foundation a very attractive structure for clients from these jurisdictions.

If you have established foundations in other jurisdictions for philanthropic purposes then you might like to consider incorporating a Labuan foundation, as it can be established for non-charitable as well as charitable purposes.

Like all other business entities on the island, a Labuan foundation is not subject to income tax, capital gains tax or stamp duty. This, added to the solid regulatory environment that exists on the island, makes it the ideal place to establish a foundation.

KEY FEATURES

Below is a summary of the key features of a Labuan foundation:

  • Separate legal personality: Assets donated to a Labuan foundation become the property of the Labuan foundation and acquire their own legally independent status and legal personality within the Labuan foundation. They may be Malaysian or overseas assets or both, and the founder and beneficiaries may be either residents or non-residents. A Labuan foundation may hold assets, transact and sue, or be sued, in its own name. It can also act as an incorporated body and is not subject to the ultra vires doctrine.
  • Founder’s rights: These are laid out by the constituent documents.
  • Independent structure: A Labuan foundation is not owned by anyone, though it is incorporated according to the wishes of the founder.
  • Purposes of a Labuan foundation: A Labuan foundation must be established for lawful reasons. It can be for the benefit of an individual or group of people or to carry out a specific purpose. It may be charitable or non-charitable or both, if necessary.
  • Protocol for establishment: No initial endowment is needed to set up a Labuan foundation and there is no limit on the length of time it can be in existence. It is regulated by its constituent documents, which include the charter and the articles. Though the articles may be kept private, the charter must be registered with the Registrar.
  • Register: This contains the Labuan foundation’s name and registered number as well as its registered address in Labuan, the name of the appointed officer and its charter. The charter doesn’t need to include the names of either the council members or the supervisory person. Nor does it need to name the person or people who will benefit from its establishment. In this case all the charter needs to say is that the relevant person/people will be determined according to the constituent documents.
  • Information: Aside from the requirements of its constituent documents and the Labuan Foundations Act 2010, a foundation does not have to provide anyone with information about its activities.
  • Council: This is similar to a company’s board of directors. Its function is to administer the assets and see to it that the objectives of the Labuan foundation are carried out. Council members must always act in the interests of the Labuan foundation, honestly and in good faith.
  • Supervisory person: The role of the supervisory person is to ensure that the council acts appropriately and carries out its functions.

KEY BENEFITS OF SETTING UP A LABUAN FOUNDATION

The Labuan Foundation Act was enacted in 2010, and since then, due to the degree of flexibility in structuring that the Act allows, the majority of Labuan foundations have been set up to manage property. The main advantages of setting up a Labuan foundation are:

Confidentiality: Setting up a foundation in Labuan is your guarantee of confidentiality. It is a criminal offence for anyone to wrongfully disclose information about the foundation and there are strict safeguards and in place to ensure that the privacy of the founder is protected. Having said this do bear in mind that Labuan is classified by the OECD as a ‘white listed’ jurisdiction. This means it has signed agreements with at least 12 of its treaty partners to allow for the reciprocal exchange of information between overseas tax authorities.

Protection against the enforcement of foreign claims: Judgments against a validly established Labuan Foundation cannot be enforced with regard to:

  • Succession rights
  • The claims of a creditor in the event of an insolvency
  • The personal or proprietary consequences of marriage. To this extent, setting up a Labuan foundation could be a suitable way of protecting your assets from a possible future divorce case.

Tax and exemptions: Labuan foundations enjoy the same generous tax benefits as other business entities domiciled on the island. However if the Labuan foundation manages property, any income derived from the holdings will be subject to the Income Tax Act 1967.

Labuan foundations are not subject to The Exchange Control Act 1953, nor are there any withholding taxes on the distribution of income to the Labuan foundation’s beneficiaries. In addition, the legal structure of a Labuan foundation means that dividend distributions are guaranteed unconditionally within the scope of the foundation law.

The other option for a Labuan foundation is to be subject to tax under the Malaysia Income Tax Act 1967 at the corporate rate – currently 25%. This means the Labuan foundation has more secure access to the 74 Double Taxation agreements that Malaysia has signed with its treaty members.

Reservation of powers: The founder retains a degree of management control that does not invalidate or compromise the structure of the Labuan foundation. Nor can a third party challenge this control on the grounds that the structure lacks integrity.

Asset holding: Where an asset has to be shared amongst members of a family, tensions can sometimes arise if people disagree about how best to administer it. For example, if a business has been in a family for a long time, some members might think it would be better to sell the business and reinvest or distribute the profits, while some might prefer to hold on to it and run it themselves. One solution would be to establish a Labuan foundation to ‘hold’ the asset – in this case the business. In this way, the family still benefits from the business but doesn’t have to be involved in its day to day running

Owning shares in a private trust: If a private trust company has been established in order to act as a trustee for a family trust, the shares can be held by a Labuan foundation. This offers a solution to any questions that may arise regarding the ownership of the shares.

Migration: Labuan foundations established in another jurisdiction can be migrated to Labuan to take advantage of the benefits offered by the Labuan Foundation Act 2010. All the attendant rights, together with the existing structures of the foundation will remain the same.

Flexibility: A Labuan foundation has its own unique features and benefits – the principal being flexibility. Depending on your particular needs, a Labuan foundation can be established to look more like a company, or conversely, more like a trust.

Beneficiary rights: If you are thinking about establishing a trust for the purposes of succession planning and you would rather certain beneficiaries, (for example younger children or anyone outside the immediate family) didn’t know about it, then a Labuan foundation might be a better option for you. Strict safeguards are in place to protect the identity of both the founder and the beneficiaries.

WHY WE ARE THE RIGHT PEOPLE TO HELP YOU SET UP A LABUAN FOUNDATION

We are a fully licensed trust company with a highly experienced team of dedicated professionals. We can help you plan, establish and structure a Labuan foundation, and can offer you bespoke solutions, competitively priced services and professional advice backed by over 50 years’ experience.

To find out more about how we can help you set up your Labuan foundation, contact us on our live support or email us at info@labuanborneotrustees.com.