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Labuan International Business and Financial Centre (Labuan IBFC)
is at the forefront of international cross-jurisdictional wealth
planning, offering high-net-worth individuals a plethora of wealth
creation and wealth preservation structures in both conventional
and Islamic forms.
High-net-worth individuals will find a comprehensive stable of
private wealth management vehicles on offer in Labuan IBFC ranging
from common law trusts to civil law foundations. Labuan IBFC is the
only jurisdiction in Asia that offers private foundations as a
wealth management solution.
WHAT ARE FOUNDATIONS?
A Labuan foundation, as provided by the Labuan Foundations Act
2010, is a corporate body with a separate legal entity, established
to manage its own property for any lawful purpose, be it for
charitable or non-charitable purposes.
Established by a founder, a typical structure for a Labuan
foundation is depicted below:
Foundations provide a conduit for dynamic wealth transfer,
dynastic planning and inheritance management protected within a
tax-efficient legal entity.
In the case of a Labuan Islamic foundation, objectives and
operations shall comply with Shariah principles, as enshrined in
its incorporation charter and guided by Labuan IBFC’s Islamic
omnibus legislation (Labuan Islamic Financial Services and
Securities Act 2010).
COMPARISON WITH OTHER JURISDICTIONS
GROWTH OF FOUNDATIONS IN LABUAN IBFC
INTERESTING FACTS ABOUT LABUAN FOUNDATIONS
- A foundation is a registered legal entity
- As a legal entity, a foundation offers legal certainty
- May be re-domiciled to other jurisdictions
- May be re-domiciled from other jurisdictions
- Provides for unenforceability of foreign claim or judgment
- No minimum initial asset is required to set up
- The rights and powers of a founder can be enshrined via the
- Charitable and non-charitable foundations may hold Malaysian
assets, with Labuan FSA’s approval
- Arbitration is allowed
- A corporate body is allowed to be appointed as council and
- May exist in fixed or perpetual duration
- May be dissolved with assets returned to a designated
- Protected by confidentiality
- Allows reserved power by the founder
- Allows the appointment of a supervisory person
- Short clawback period of 2 years
- Flexibility to evolve according to circumstances, by issuing
articles to reflect changes
- Need not have an independent party in the council
- ‘Ownership’ may be transferred with protection
- Beneficiary has no legal or beneficiary ownership over the
FREQUENTLY ASKED QUESTIONS
Q: Can Malaysians set up a foundation?
Q: Are there any other countries in Asia with
foundations, which act 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
Q: Are there any insurance-related wealth
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.
Q: Are foundations required to be
Yes, foundations must be registered with the regulator, Labuan
Q: 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.
Q: Must the council meeting be held in
Q: Would it be possible to combine a foundation and a
Yes, one can own the other.
Q: What is the taxation rate of a Labuan foundation?
All non-trading income which includes investment holding income
is not taxable. Any trading income is taxed at 3% as provided by
the Labuan Business Activity Tax Act 1990.
Q: What is the tax implication on distributions by a
The distributions by a Labuan foundation to its beneficiaries
are tax exempt in Labuan. The beneficiaries of the foundation will
need to satisfy their own tax liabilities in their respective
jurisdictions of tax residence.
Q: Are foundations flexible?
Yes, any changes may be incorporated in the charter to allow for
Q: Can a Muslim use a foundation to manage their estate
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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