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Labuan Foundations, which is a statutory creature under the Labuan Foundations Act 2010 (LFA), are generally no different from foundations found in other jurisdictions where it is a separate legal entity that holds assets with the objective of managing the assets for the benefit of a class of persons on a contractual basis. Labuan Foundations are also typically used for private wealth management and charitable purposes. Labuan Foundations are in some aspects different from other jurisdictions such as Bahamas, Jersey and Seychelles. The following paragraphs discuss some similarities and certain distinctions.
Registered Office. Similar to the Bahamas and Seychelles, Labuan Foundations are required to have its registered office in Labuan where the address of the secretary is the registered address in which correspondence, notices and etc will be delivered.
Charter. Most jurisdictions require every registered foundation to have a charter where it will set out the parameters within which the foundation is to be managed and governed. In terms of legislative provisions, different jurisdictions will have its own requirements in relation to the content of the charter provided in the relevant legislation. Labuan Foundations are no different where the LFA mandate specific provisions to be included in the charter under the First Schedule.
Key Management. The Labuan Foundation key management model is separated into the council, the officers and a secretary. The council plays a supervisory role where it exercises reasonable care and skill in supervising the management of the foundation in accordance to the charter to ensure the purpose of the foundation is achieved. This is similar across various offshore jurisdictions. An officer's duty is to administer the foundation and there are express provisions in the LFA that require the officer to exercise reasonable care and skill in the conduct of affairs, management and investment of property. This duty is similar to the provisions in the Bahamas. A secretary to a Labuan Foundation provides secretarial functions such as filing and lodging documents to the LFSA. Furthermore, the LFA requires the secretary to be a licensed Labuan trust company.
Assets. In general, foundations across various offshore jurisdictions are separate legal entities that can hold assets on its own. The Labuan Foundation is different from some other jurisdictions such as Bahamas and Seychelles where initial asset value is not a mandatory requirement for registration. In order to set up a foundation in Bahamas, such foundation must hold assets to a value of not less than $10,000.00 Bahamian, US$10,000.00 or equivalent in any other currency.19 Failing such requirements, the Registrar is not allowed to register the foundation.20 Similarly, the Registrar in Seychelles is not allowed to register a foundation with an initial asset value of less than US$1 or equivalent in any other currency.
Beneficiaries. Unless provided in charters and articles, beneficiaries have no right to foundation assets. However, beneficiaries to Labuan Foundations are provided with the right to information and right to confidentiality under the LFA. Under the LFA, a beneficiary who has vested interest in the foundation property has a right to request for documents pertaining to his interest. Furthermore, the LFA ensures that the management of a foundation shall take reasonable steps to secure the rights to confidentiality of other beneficiaries while enabling a beneficiary's own entitlement and interest be determined. This is to ensure that while information is disclosed to the beneficiaries who request for information, the management will determine the confidentiality to be in the best interest of the other beneficiaries.
Dissolution. In relation to the dissolution of a foundation, the grounds for dissolution in Labuan reflect the common grounds across Bahamas, Seychelles, Panama and St. Kitts through the passing of resolution. The grounds are such as the definite period on which the foundation was set up has expired, the purpose of the foundation is fulfilled or becomes incapable of fulfillment, or the dissolution is required under the charter.
Entry Requirement. Foundations are required to register with the authorities of the respective offshore jurisdictions. However different jurisdictions require different persons to submit the registration documents. It is common for these persons to be licensed and regulated by local authorities in the respective jurisdiction such as Labuan, Bahamas, Jersey and Seychelles. Setting up foundations in Labuan would probably be more convenient as compared to other jurisdictions.
Clear Asset Protection Rules. The Labuan Foundation has the same statutory asset protection as the Labuan Trust and the Labuan Special Trust. Where a Labuan Foundation is validly established in accordance with its charter and articles, the Malaysian courts shall not vary it or set it aside or recognise the validity of any claim against the property of the Labuan Foundation pursuant to the law of another jurisdiction or the order of a court of another jurisdiction in respect of claims arising from, amongst others, marriage or its dissolution, succession and creditors.
CONCLUSION The wide range of wealth management tools offered in Labuan IBFC, together with the attractive tax rates applicable to a Labuan entity and the sophisticated set of legislation designed to regulate Labuan IBFC, gives Labuan IBFC a competitive edge as a midshore financial centre. Taking these together with LFSA's commitment to ensure compliance with international standards and best practices, Labuan IBFC has indeed developed into a reputable international business and financial centre in the region.
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Disclaimer: Whilst reasonable care has been taken in provision of information above, it does not constitute legal or other professional advice. INTERSHORES does not accept any responsibility, legal or otherwise, for any error omission and accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, readers are advised to take appropriate professional advice before committing themselves to any involvement in jurisdictions, vehicles or practice. |
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