LABUAN PRIVATE FOUNDATION

The truly wealthy understands that maintaining their fortune for generations is as important as actually earning it. Many explore investment options such as Trusts and Foundations as an effective means of sustaining wealth. There is a Chinese proverb, “wealth does not pass (survive) three generations”. America has its own version of this saying,“From shirtsleeves to shirtsleeves in three generations.” As with most old proverbs, there is a grain of truth to this – – and the new rich are searching for ways to counter this myth.

Labuan Private Foundation is the best vehicle to hold assets with the objective of managing these assets for the benefit of a class of persons on a contractual basis. It is a registered corporate body with a separate legal entity from its managers (i.e. its officers and council) and is commonly used for private wealth management, business succession and asset preservation!

More so if you reside in Asia, Labuan Foundation is popular and favoured in the Asian region as it is governed and regulated by the Labuan Foundation Act 2010! To date, 21 jurisdictions worldwide including Labuan have Foundations Acts to govern the wealth management activities. Re-domiciliation to one another among these jurisdictions and vice versa is permissible. Find out 20 Jurisdictions Worldwide that have Foundation Acts!

WHY THE NEED FOR SUCCESSION PLANNING?


Avoid probate formalities - Distribute assets to heirs efficiently without or minimising the cost, delay and publicity of probate court

Protect assets from creditors or other claimants

Control how a beneficiary receives assets

Passing down of family wealth and values

Family expansion and multiple families

Give to charity

Cross-border assets and beneficiaries

Tax planning and mitigation in some jurisdictions

  • Avoid probate formalities - Distribute assets to heirs efficiently without or minimising the cost, delay and publicity of probate court
  • May protect your assets from creditors or other claimants if set up properly
  • Control how a beneficiary receives assets
  • Passing down of family wealth and values
  • Family expansion and multiple families
  • Give to charity
  • Cross-border assets and beneficiaries
  • Tax planning and mitigation in some jurisdictions

10 KEY ADVANTAGES OF A LABUAN PRIVATE FOUNDATION


  • Founder have 100% control at all times!
  • Founder is able to depict how the foundation is to be structured and managed, the types of assets to hold, and its beneficiaries with freedom to change anytime through the Charter!
  • Founder can be an individual or a corporation!
  • Relatively low cost to operate and maintain a Foundation compared to a Trust!
  • Founder is protected from foreign claims and cannot be forcefully liquidated to satisfy other obligations such as claims arising from divorce, lawsuit or creditors after 2 years!
  • It is a corporate body entitled to enter contact and perform lawful dealings!
  • It is a legal entity fully protected by its own Labuan Foundation Act 2010, without the need to refer to other jurisdictions' law!
  • Duration / life span of foundation can be perpetual or for a fixed period of your choice!
  • No minimum amount of assets requirement to be injected for initial set-up!
  • Permissible to hold worldwide assets including Malaysian assets!
Family Office

THE STRUCTURE OF A LABUAN FOUNDATION


Labuan Foundation

Key Personnel

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Founder a. The main controller who retains all power of the Foundation reserves the right to change the Charter of the Foundation
b. Minimum one, either a natural person or corporate entity
c. Subscriber to the Charter
d. Maybe residents or non-residents of Malaysia
e. May also be a council member and one of the beneficiaries
Beneficiaries a. Can be individuals, corporate entities or charities and anyone that have vested interest in assets of the foundation
b. Maybe residents staying in Malaysia or non-residents staying outside Malaysia
c. All beneficiaries have to be specified in the Foundation Charter or articles, to have their rights to the foundation’s assets
Officer a. Compulsory appointment
b. One or more must be appointed by Founder prior to registration of the foundation
c. Maybe either a natural person or corporate entity
d. Maybe residents or non-residents of Malaysia
e. Founder or Beneficiary may be appointed as Officer (but not be a council member at the same time)
f. Duties are inter alia to ensure proper administration of the foundation and to carry out decisions of the Council
Council Member a. Not a compulsory appointment, at the discretion of the Founder
b. If appointed, one or more, either a natural person or corporate entity
c. Maybe residents or non-residents of Malaysia
d. Cannot act as Officer at the same time
e. Council is similar to the Board of Directors in a company context. The council is responsible to manage and oversee operations (general supervision) of the foundation by its officer and to ensure compliance by the Labuan foundation and its officer with the charter of the foundation and provisions of the LFSA.
f. Council members supervise Officers of the foundation. The council’s decision must be in line with the objectives and purposes for which the foundation was established
g. Council members do not owe the fiduciary duty to beneficiaries and hence, this eliminates competing beneficiaries interests
Secretary a. A compulsory appointment must be a licensed Labuan Trust Company
b. Acts as a service provider to the foundation and perform a compliant agent function and acts as a conduit between Foundation and Labuan FSA
Supervisory Person A protector or supervisory person may be appointed by the founders. These parties may monitor the Council’s decision, the power to add or remove Officers, Council members etc.

Key Features and Operational Requirements

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  1. Maintain a Registered Office in Labuan, which can be the Trust Company‘s office.
  2. No capital requirements as Labuan Private Foundation can start with only a minimum endowment of USD 1.00 as an initial asset at the time of establishment.
  3. Legal Status
    • It is a legal entity with rights and status of a separate and independent person
    • It can be a shareholder of a company
    • It can enter into contracts, buy and sell properties, own bank accounts or own shares or interest in other corporations
    • For purposes of minimizing risk, it is encouraged that all trade activities (if any) should be carried out through an underlying company or partnership. Trade or commercial activities are incidentals or ancillary to its main purpose which is the management of its property.
  4. Duration of the Labuan Private Foundation may be fixed or infinite lifespan.
  5. Carry on business in any currency other than Malaysian Ringgit except as permitted by the relevant authorities.
  6. Types of Property, Assets permissible to be endowed into Labuan Private Foundation
    1. Assets of every kind whether corporeal or incorporeal, tangible or intangible, movable or immovable, however, acquired may be endowed to a Labuan Private foundation;
    2. Legal documents or instruments in any form, including electronic or digital, evidencing title to or interest in, such assets as described in the above (a) including bank cheques, money orders, shares, securities, bonds, bank drafts and letters of credit;
    3. Property of the Labuan Foundation is owned legally and beneficially by the foundation and is to be utilised solely for the purposes and objects stated in the charter of the foundation;
    4. Property of the Labuan Foundation can be Malaysian and/or non-Malaysian property.
  7. Malaysian Property endowed to Labuan Private Foundation must have prior approval from Labuan FSA. The qualifying criteria for approval shall include the Malaysian property(ies) but not limited to the following:
    1. To obtain all necessary approvals from the relevant authorities in relation to the endowment of property(ies) to the foundation;
    2. Property(ies) to be endowed shall be obtained through lawful means.
    3. Property(ies) endowed or to be endowed to the Labuan Foundation must include consent letters from relevant authorities, where necessary, to be submitted with the application or within 60 days from the registration date of the endowment of the property(ies). The relevant authority(ies) in this context may include the respective land office or local authority such as Bank Negara Malaysia, Companies Commission of Malaysia and Securities Commission of Malaysia.

    Malaysian founders are free to endow Malaysian property  to the foundation as permitted by Foreign Exchange Administration (FEA). However, it is required to provide in the charter that any subsequent conversion or transfer of the endowed property for investment abroad would need to comply with FEA rules.

  8. Creditors' claims

    Being a separate legal entity, if the transfer of assets was completed prior to the claim arising, the assets are beyond the reach of a creditor’s claim against the Founder. It is important that the transfer of assets:

    1. takes place before the creditor’s cause of action is accrued
    2. takes place two (2) years from the date of registration
    3. must not render the Founder’s insolvent; and
    4. must be made without any intent to defraud the creditor
  9. Accounts of Labuan Private Foundation

    All accounting records and other records shall be maintained in Labuan. They must be made available for inspection by the council members, supervisory person, officers and the approved auditor if appointed.

DIFFERENCES OF A LABUAN PRIVATE FOUNDATION, LABUAN TRUST AND LABUAN COMPANY


Key Elements Labuan Foundation Labuan Trust Labuan Company
Owner Founder Settlor Shareholder
Power The Foundation itself Trustees who own the assets Shareholders
Legal Entity Yes No legal personality – trust is a relationship Yes
Managed / Administered By Charter and Articles of Registration Trust Deed Articles of Association and Memorandum of Association
Governance Protector or Supervisory Board Protector may be appointed None
Time Frame Fixed or Perpetual Usually within a specified period Perpetual until dissolved
Objectives Assets, business holding, making distributions to beneficiaries, able to build/leave a legacy Asset, business holding distribution for beneficiaries only Trading, investing, etc to earn profits and pay dividends to shareholders
Payment Mode Distribution Distribution Dividend
Distribution Recipients Beneficiaries Beneficiaries Shareholders
Tax Rate on Net Gain Investment Holding: 0%
Trading Activities: 3%
Not applicable Investment Holding: 0%
Trading Activities: 3%
Accounting Record To be kept at Registered Address To be kept at Registered Address To be kept at Registered Address
Other Officers Trust Company as Resident Secretary Trust Company as Trustee Trust Company as Resident Secretary
Registered Address in Labuan Yes Yes Yes
labuan foundation
labuan trust

Comparison Between A Will, Trust and Foundation

Labuan “mid-shore” jurisdiction offers a wide range of wealth management solutions to meet your needs as follows:

  • Labuan Private Foundation
  • Labuan Charitable Foundation
  • Labuan Purpose Trusts
  • Labuan Charitable Trusts
  • Labuan Spendthrift or Protective Trusts
  • Labuan Trusts for Wealth Management
  • Labuan Special Trusts
  • Labuan Share Trust
  • Labuan Private Trust Company