Labuan as a hub for Wealth Management
For individuals who are looking for a variety of wealth management products or solutions, Labuan is a good place to start. Governed by the Labuan International Business and Financial Centre (IBFC), one can opt for the various wealth management vehicles such as charitable trusts, private trust companies, purpose trusts, spendthrift/protective trusts, Labuan special trusts and Labuan Foundations.
For high net worth individuals or business owners who are planning structure their business and family succession for their family, Labuan special trust can help to protect the wealth against mismanagement by the following generations.
The various vehicles can be structured to suit different needs such as to facilitate wealth transfer, dynastic planning and inheritance management. For example, a Labuan Trust can be set up to give a specific property to a third party, to be held for the benefit of others or for charitable purposes.
A Labuan Foundation is a corporate body with a separate legal entity from the owner, can be setup to manage its own property for any lawful purpose, either for a charitable cause or noncharitable cause. A foundation is governed by its charter and articles. It is self-owned, which eliminates the requirement of shareholders. It is commonly established for charitable causes, it is also used for noncharitable causes such as wealth preservation and succession planning purposes.
A Labuan Foundation combines the benefits found in a trust with certainties of a company, whereby the founder of the Foundation may choose to be directly or indirectly involved in running the foundation via the council. While other international jurisdictions like Singapore and Hong Kong have their own foundation, they are usually used for charitable purposes unlike in Labuan where it is commonly used for private wealth management.
And for those in favor of Islamic solutions, it is possible to set up a Labuan Islamic Foundation which its aims and operations are in compliance with Shariah principles. Labuan IBFC is possibly the only jurisdiction in the world that offers wealth management vehicles that are Shariah-compliant, making it a key component in the global Islamic wealth management industry.
Here is an example of how an affluent family can use a Labuan foundation for the purpose as a succession planning tool and wealth protection. A family business with a legacy of 40 years with the business owners still running the show and their children are also involved in the business. The owners are planning to let their children run the business but they are worried because their children are quite spendthrift. The owners are also worried about the welfare of their loyal employees that have been with them for the past 30 over years.
A foundation is then set up and structured in a way that when the younger generation takes over the family business, they have limited roles and they cannot sell the shares of the company. The new owners (younger generation) will have to manage the business in accordance with the objectives set the by founders and are not allowed to do anything that can jeopardize the welfare of the employees. All the conditions will be clearly spelled out in the governing document of the foundation, according to the founder’s wishes.