A Foundation is a corporate body with a separate legal entity, usually established by the founder to hold assets with the objective of managing these assets for the benefit of a class of persons on a contractual basis. It is deemed a separate legal entity from its managers (i.e. its officers and its council) and is typically used for private wealth management and charitable purposes.
All aspects of Labuan Foundations are governed by the Labuan Foundations Act 2010. Islamic Foundations are provided for in Labuan and are required to ensure it’s aims and operations comply with Shariah principles.
A Labuan Foundation is essentially an investment holding vehicle and by definition conducts only investment holding activities. Such activities are defined in Section 2 of the Labuan Business Activity Tax Act 1990, and Section 9 of the same Act further provides that all Labuan Non Trading Companies are not subjected to tax.
The structure of a Labuan Foundation consists of the following:
A Registered office
A Labuan Foundation must be registered with Labuan FSA and have a registered office, where the administration and operations of a foundation is carried out in accordance with contractual principles.
The relationships within a foundation and contractual and the charter sets out the parameters within which the Labuan Foundation is to be managed and governed.
The key management of a Labuan Foundation consists of a council, an officer and a secretary. The council is responsible for the general supervision of the foundation’s management, ensuring that the purpose for which the foundation was established is fulfilled in accordance with the charter, articles and the law.
In effect, the council is similar to the Board of Directors of a company. The duties of the officer is to ensure responsible and proper administration of the foundation. The secretary acts as the service provider to the foundation and performs all secretarial functions including filing and lodging of documents with Labuan FSA.
Assets placed in the Labuan Foundation are owned by the foundation and are to be applied according to identified purposes. However, these assets must be non-Malaysian properties unless the said Foundation is a charitable foundation or said Malaysian assets have been approved by Labuan FSA.
This may include individuals, corporate entities or charities and are those who have vested interest in the assets of the foundation. Unless specifically provided in the charter or articles, beneficiaries have no rights to the foundation’s assets and are not owed any fiduciary duties.
A Labuan Foundation can be dissolved upon the passing of a resolution by the officer on the basis that the foundation is established for a definite period and that period has expired; the purpose of the foundation is fulfilled or becomes incapable of fulfillment; or the charter requires such dissolution. After the dissolution, the ownership of the remaining assets will be transferred to the beneficiaries.
Click here for Guidelines on setting up, operations and requirements of Labuan Foundations and click here for Labuan Foundation Reporting Form. (Effective date: 1st May 2013)
Last Updated on Wednesday, 24 April 2013 00:05
Characteristics of Labuan Foundations
No minimum capital is required to register a foundation in Labuan.
A Labuan Foundation exists ‘in perpetuity’ as there are no period rules in the Labuan Foundations Act 2010, this provides continuity of the foundation at the discretion of the founder.
A key attraction of the Labuan Foundations Act 2010 is that it provides reserve powers to the founder, providing the founder more control compared to a settlor of a trust. Additionally, since a founder may also be a council member, he may further direct and manage the foundation’s assets.
All aspects of the foundation is 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 redomiciled 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.
As the Foundation is a separate legal and corporate entity, all liabilities remain corporate liabilities of the foundation.
Council members do not owe fiduciary duty to beneficiaries and hence, this eliminates competing beneficiaries interests.
Officers, council members, supervisory person and the Foundation’s secretary benefit from statutory indemnification for liabilities incurred by the foundation unless the liabilities arise from personal negligence or there is proof of bad faith on the part of the officer.
Confidentiality provisions restrict the officer, council member, supervisory person and secretary from disclosing any information relating to the foundation unless otherwise required or provided for by law, the court or the charter.
All Labuan Foundations are expected to carry on business in any currency other than the Malaysian currency except as permitted by the relevant authorities.
Every Labuan Foundation must be registered with Labuan FSA.
Application for registration must be made by a Labuan trust company (i.e. secretary of the foundation) to Labuan FSA. Following acceptance of the required documentation by Labuan FSA and the payment of the required registration fee, a certificate of registration will be issued.
The following completed forms must be submitted to Labuan FSA: a) Form 8, “Application for Registration of a Labuan Foundation” which includes the following particulars:
The Foundation’s name
An original copy of the Charter
The date of the Charter
The purpose and objects of the Foundation
The date of the Foundation’s articles, if any, and the date of any amendments made to the articles
The name and address of the secretary
The address of the registered office of the Labuan Foundation
The duration of the Labuan Foundation
b) Form 9, “Declaration by Labuan Trust Company as Secretary” that includes a statutory declaration by the Secretary regarding compliance by the Foundation with Labuan Financial Services and Securities Act 2010 or the Labuan Islamic Financial Services and Securities Act 2010 and the Labuan Foundations Act 2010.
Please note that in order to establish a Labuan Islamic Foundation, the following shall be observed :
The Memorandum of Association must state that the aims and operations of the Labuan Islamic Foundation will be in compliance with Sharia principles
The officers of a Labuan Islamic Foundation shall appoint a qualified person as a Shariah adviser, or consult a qualified person, who shall advise the Labuan Islamic Foundation on the management of the said Foundation according to Islamic principles
The actual operations of the Labuan Islamic Foundation must be in compliance with Shariah principles.
Approval for change of name
Restoration to Register
Redomiciliation from another jurisdiction
Fee imposed for search or inspection of any document kept by Labuan FSA:
By the founder, beneficiaries, counsel and officers
WHAT IS WEALTH MANAGEMENT?
Wealth management is the provision of tailored financial solutions across a wide range of specialities, including asset protection, estate planning, legal resources, taxation advice, investment management and other tailored banking solutions with the goal of sustaining and growing long term wealth, to provide high net-worth individuals and families.
WHAT IS A FOUNDATION?
A Foundation is the Civil Law version of a trust which operates under Common Law. However Foundations share many similarities with trusts although there are also differences between the two, which are tabulated below.
ARE TRUSTS OR FOUNDATIONS REQUIRED TO REGISTER WITH LABUAN FSA FOR THEIR SET UP IN LABUAN IBFC?
Trusts do not have to register with the regulator but foundations must do so. Trusts, however, must use a Labuan trust company as one of their trustees.
WHO CAN SET UP A LABUAN TRUST?
A resident or non-resident can do so. In the case of a non-resident, Malaysian property can be injected into a Labuan trust while a Malaysian resident can place international assets into a Labuan trust but Malaysian property requires the approval of the regulator, Labuan FSA.
WHAT WEALTH MANAGEMENT SOLUTIONS ARE AVAILABLE IN LABUAN?
Labuan IBFC offers trusts (governed by common law) and foundations (under the civil law code), both types of which can be applied in an Islamic manner as long as they subscribe to Shariah principles. Both trusts and foundations are highly flexible, covering many types to suit different needs.
WHAT IS THE DIFFERENCE BETWEEN A TRUST AND A FOUNDATION ?
Trusts and foundations are differentiated as follows:
Common law origins.
Civil law origins.
Relationship amongst parties is fiduciary.
Relationship amongst parties is contractual.
Assets, upon being vested in the trust, are legally owned by the trustee.
Assets are legally owned by the foundation. Upon registration of the foundation, the property endowed or to be endowed becomes an estate separate and apart from that of the founder by acquiring a separate legal entity status.
The person who establishes the trust is known as the settlor and the persons who benefit from the trust are known as beneficiaries.
The person(s) who creates the endowment is known as the founder and the persons who benefit from the endowment are known as the beneficiaries.
The trust deed is the document that establishes the trust.
The charter is the main constituent document of a foundation. A foundation may also have articles which are a set of more detailed rules governing its administration matters.
The appointed trustee is the person responsible to hold the trust assets and administer the trust.
An appointed body called the Council is entrusted to carry on the business and affairs of the foundation and pursue its objects. Officers and Council are required to act in accordance with the terms of the charter and articles.
Registration of the trust is not mandatory.
Registration of the foundation is mandatory.
The settlor has certain reserved powers after establishing the trust and vesting the legal title in the trust assets to the trustee.
The foundation does not have a share capital, does not recognize shareholders and the founder does not retain or acquire any ownership rights in relation to the foundation's property. The law does recognize however, the beneficiaries or the persons in whose benefit the foundation is created, which can include the founder.
A trust can be established for any lawful purpose but a trust that is set up for a purpose must appoint an enforcer.
A foundation can be established for any lawful purpose which shall be spelt out in the charter of the foundation.
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