We can help you to set up a foundation in Labuan for different purposes such as a charitable foundation, family foundation or private foundation. Whatever your intention or objective are or if you are still uncertain on how a Labuan offshore foundation can help you, speak to us today and let us advise, structure and deliver a solution according to your needs.
Common uses for setting up a foundation in Labuan
Foundations are set up to hold assets, either on behalf of families or organizations for:
- Private Wealth Management
To know more about Labuan Foundation, see the links below
Benefit and Advantages of Labuan Foundation
Why set up a foundation and why choose Labuan? Here are some benefits to you or your organization
A Foundation is a separate legal entity, as a registered corporate entity on its own. It can enter into contracts and transactions on its own
- Protection from potential foreign and creditor claims made against beneficiary of the Foundation
- Includes forceful liquidation claims to meet obligations arising from creditors, lawsuits or divorce
- Protection against forced heirship
Flexibility and Confidentiality
- Not restricted to any compulsory perpetuity period
- Information relating to Foundation is confidential and kept anonymously
- No Foreign Exchange control imposed
Cost efficient and Tax Savings
- Simple tax systems in Labuan. For non-trading activities, no charges for taxation.
- No withholding tax
- No capital gains tax
- No inheritance tax
- No stamp duties for any offshore business activities
Structure of a Labuan Foundation
The diagram below explains the structure, composition and functions of those involved in a Labuan Foundation
Labuan Foundation Simple Structure
Composition and Functions
Labuan Foundation Composition
The following diagram below is an example of a real life sample structure of a Labuan Foundation.
*Kindly note that this is a non-exhaustive example. Please contact us for an obligation free consultation to suit your needs and goals
Characteristic of Labuan Foundation
- No minimum capital is required.
- Exists “in perpetuity”
- All aspects of the foundation are kept confidential except for the charter.
- There is no statutory requirement for an audit unless ordered by the Court.
- A foundation established in another jurisdiction can be legally re-domiciled to Labuan and vice versa, provided that the other corresponding jurisdiction permits.
- A Labuan Foundation is protected from foreign claims and cannot be forcefully liquidated to satisfy other obligations such as claims arising from divorce, lawsuit or creditors.
- Council members do not owe any fiduciary duty to beneficiaries and hence, this eliminates competing beneficiaries’ interests.
- All Labuan Foundations are expected to carry on business in any currency other than the Malaysian currency except as permitted by the relevant authorities.
- A Labuan Foundation can be set for a defined time period or it can be set to go on forever.
Frequently Asked Questions (FAQ) about Labuan Foundation
Can Malaysians set up a foundation in Labuan?
Are there any other countries in Asia where a foundation can be used as a wealth management tool?
No, there is no other country in Asia that offers foundations as a wealth management tool. The foundations in other Asian jurisdictions are limited to charitable purposes, with detailed reporting requirements.
To know more about how a foundation in Labuan can be used as a wealth management tool, kindly contact us to find out more.
Are there any insurance-wealth structures?
Yes, protected cell companies and limited liability partnerships may also be used either in conjunction with a foundation or independently as a wealth management tool.
Are foundations in Labuan required to be registered?
Yes, foundations in Labuan must be registered with the regulator, the Labuan FSA.
Is a foundation registered in Labuan required to have an office in Labuan?
A Labuan foundation must maintain a registered office in Labuan. Its address shall be the address of the secretary to the foundation, which is a Labuan trust company.
Indah Trust Ltd, as a Labuan trust company, offers secretarial services in Labuan.
Are there any requirements for the foundation to be physically present in Labuan?
Are the council meetings required to be held in Labuan?
Is it possible to combine a foundation with a trust in Labuan?
Yes, one can own the other.
What is the taxation rate for a Labuan foundation?
All non-trading income which includes investment holding income is not taxable. Any trading income is taxable at 3% as provided by the Labuan Business Activity Tax Act 1990.
What is the tax implication on distributions by a Labuan foundation?
The distributions by a Labuan foundation to its beneficiaries are tax exempted in Labuan. The beneficiaries of the foundation will need to satisfy their own tax liabilities in their respective jurisdictions of tax residence.
Are foundations flexible?
Yes. Any changes may be incorporated in the charter to allow for flexibility
Can a Muslim use a foundation to manage their estate while alive?
Yes. Muslims can set up Islamic foundation in Labuan to manage their estates.
A Labuan Islamic foundation is structured to comply with the specific family requirements and principles of Shariah law, particularly the Islamic law of inheritance, Faraidh.
Under what conditions does Faraidh become inapplicable to the distribution of assets upon the demise of the Founder?
The inheritance rights of the heirs of a demised founder through Faraidh is non-exercisable on the transferred assets of a Labuan Islamic foundation if the foundation satisfies all the following conditions:
- The endowment has been made immediately and irrevocably
- The endowment has been made without any reserved powers of the founder
- The transfer of the ownership of the assets is absolute
- The transfer has been accepted by the Labuan Islamic foundation Faraidh would also not apply if the founder manages the assets and receives remuneration for such management from the foundation
What is a foundation?
A foundation is a registered legal entity used to hold and manage wealth, including for charitable/philanthropic purposes, business successions, asset preservation, estate planning and other lawful activities.
Why is a foundation useful?
A foundation can serve as a comprehensive solution for ultra high net worth and high net worth individuals and families who want to manage, preserve and protect their wealth.
A foundation can be the basis of a dynastic family wealth plan.
Are there any capital or wealth requirements for establishing a foundation?
There is no capital requirement to establish a foundation as a foundation does not have share capital.
It is a requirement under the Labuan Foundation Act 2010 for there to be an initial endowment of USD10,000.00 as an initial asset at the time of establishment.
What is the legal status of a foundation?
A foundation is a legal entity, with a legal personality and has rights and status of a separate and independent person.
The foundation can enter into contracts, sign agreements, own bank accounts, buy and sell properties, own shares or interest in other companies.
It can do anything a human being can do (with the exception of trading in its own right). Any trade must be carried out through a subsidiary company, partnership or trust.
Trade or commercial activities are incidental or ancillary to its main purpose which is the management of its property.
What type of assets can be held be a foundation?
Assets of every kind, tangible or intangible, movable or immovable, can be endowed to a Foundation. Typical asset classes include:
- Securities in both quoted and private companies
- Investment portfolios
- Real and intellectual property
- Bank deposits
- Life insurance policies
Can a foundation be a shareholder of a company?
Can a founder maintain control of the assets endowed to a foundation?
Yes. The Labuan Foundation Act 2010 allows the founder to be appointed as sole council member and as one of the beneficiaries. The founder may also reserve rights in the charter or articles of the foundation. This way, the founder is able to maintain control over the assets endowed to the foundation.
Do foundations in Labuan offer privacy and confidentiality?
The Labuan IBFC Foundation is governed by strict secrecy and confidentiality provisions under its governing Act. It is a criminal offense for anyone to wrongfully disclose information.
In addition, there are regulations in place to ensure that privacy of the founder and foundation is protected. Information concerning Labuan foundation is not available on any public record.
Can a Labuan foundation hold Malaysian property?
A Labuan foundation which is established as a charitable foundation may hold Malaysian property. If a foundation is not established for charity, it may hold Malaysian property but subject to approval from Labuan FSA.
Can a founder's creditors make claim against the assets placed in a foundation?
The foundation is a separate legal entity from its founders and therefore if the transfer of the 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 the assets must not render the founder insolvent and must be made without any intent to defraud the creditor.