With the declaration of the new legislation in 2010, Labuan is one of the few low tax jurisdictions in the world that offers investors the ultimate regulatory framework that combines both the common law trusts and civil law foundations.

Customarily employed in civil law countries, a foundation is custom-made for wealthy people, families and organisations and non-profit organisations who want to have authority over their assets and businesses along with accorded legal safety. All facets of Labuan Foundations are regulated by the Labuan Foundations Act 2010 (LFA). A Shariah-compliant version is also accessible under the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA), wherein its targets and functions should be in conformity with Shariah principles. Guidelines on the Establishment of Labuan Foundation, including Islamic Foundation, can also be issued by Labuan Financial Services Authority (Labuan FSA) from time to time.

Foundation is a registered corporate entity with its own legal framework, generally set up by the founder with the aim of handling these assets for the advantage of a class of people (i.e. beneficiaries) for a period of time and after the demise of the founder. A foundation is generally incorporated for Private Wealth Management, business succession, asset preservation, charitable purposes and other lawful activities.

The legislation in Labuan needs the engagement of a service provider who is governed and regulated by Labuan IBFC (Authority), namely a Labuan Trust Company to assist with the registration of the Foundation and to act as the resident secretary to the Foundation.

Intent and Aim of a Labuan Foundation

Labuan foundation can be set up to handle its own property for any lawful intent that can be charitable or non-charitable.

Classification –

Private Foundation

• For wealth management: Endowment of properties can only be done by the founder and his assignee.
• For charitable: Not permitted to attain donations from third parties and/or the public.

Public Charitable Foundation

• An endowment of properties can be done by third parties and/or the public.

 

Key Features of Labuan Foundation

1. a) Name

Must end with ‘Labuan Foundation’ or ‘(L) Foundation’.

1. b) Registered Office

Compulsory to keep a registered office in Labuan, which will be the address of the Secretary of the foundation.

1. c) Legal Status

It is a legal entity, and it can come into contracts, purchasing and selling properties, owning bank accounts or own shares or interest in other organizations.

1. d) Duration

It can be fixed or infinite life span.

1. e) Capital / Wealth Requirements

No capital requirements as a foundation does not have share capital—the minimum endowment of USD1.00 as a starting asset at the time of set up.

1. f) Assignment of Founder’s Rights, Powers and Obligation

A founder can transfer its rights, powers and obligations if permitted by the charter of the foundation or any instrument in writing (for instance, deed of assignment) to be done between the founder and his assignee. In this respect, the assignee who is assigned with these rights, powers and obligations shall be considered to be a founder when exercising them or executing such obligations. The assignee also has the rights to endow his own assets into the Labuan Foundation.

1. g) Property of Foundation

• Property of the Labuan foundation is possessed legally and beneficially by the foundation and is to be employed only for the intents and targets mentioned in the charter of the foundation.
• Property of the Labuan foundation may be Malaysian and/or non-Malaysian property.
• Any assets endowed to a Labuan foundation will be the properties of the foundation.

This entails –

• Assets of every type, be it corporeal or incorporeal, tangible or intangible, movable or immovable, although obtained can be endowed to a Labuan foundation; and
• Legal documents or instruments in any manner, including electronic or digital, evidencing title to or interest in, like bank cheques, money orders, shares, securities, bonds, bank drafts and letters of credit.
• The accounting records and other records will be maintained at the registered office of the Labuan foundation or at such other place in Labuan as the officers consider suitable and will at all times be open to inspection by the council members, supervisory person, officers and the approved auditor if appointed.
• A Labuan foundation will make sure that its founder, council member, officer and secretary remain as apt and appropriate individuals in the course of their appointment with the foundation as can be mentioned in the Guidelines on Fit and Proper Person Requirements issued by Labuan FSA.
• A Labuan foundation will make sure conformity with the Anti-Money Laundering and Anti-Terrorism Financing Act 2001.
• Dissolution of Labuan foundation can occur –
  • upon the passing of a resolution by the officer based on the fact that the foundation is set up for a definite period and that period has expired;
  • when the intent of the foundation is fulfilled or becomes incapable of fulfilment; or
  • when the charter needs such dissolution.
• After the dissolution, the ownership of the leftover assets will be transferred to the stakeholders.

Feel free to contact our private wealth experts at QX Trust via +60 3 9212 6940 or consultant@qx-trust.com