Foreign investors can set up a trust in Labuan for the purpose of holding benefits for another party (the beneficiary) as well as for charitable purposes. Labuan is a special region of the country that provides numerous tax advantages to businesses registered here. Trusts in Labuan can be created for a number of purposes and the advantageous registration and operating requirements draw many investors to this particular jurisdiction. The main institution which regulates this type of entity is the Labuan Financial Services Authority (LFSA) and investors who want to operate on this market have to respect its rules regarding the incorporation or taxation.
Our team of company formation agents in Labuan can offer assistance on the legal aspects related to the registration of a trust.
|What is a trust?||An agreement through which a party gives the right to another party (the trustee) to manage various assets and properties, in the name of a beneficiary (or more beneficiaries).|
Institution regulating trusts
|Labuan Financial Services Authority (FSA)|
Law on trusts
– Labuan Trusts Act 1996 (LTA),
– Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001,
– Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA) – for Islamic trusts,
– Labuan Trusts Regulations 2010
|Statutory document||One can set up a trust in Labuan through the trust deed.|
|Parties representing the trust||
– the founder,
– the trustee,
– the beneficiary
|Provisions of the unilateral declaration||
– the person appointed as the trustee of the Labuan trust,
– the name of the trust,
– the terms under which the trust operates,
– the names and information regarding the beneficiaries of the trust
|Law regulating Islamic trusts||
Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA)
|Registered office required (yes/no)||
Yes, as per the Labuan Trusts Act 1996 Am. Act A1368:S.18
Those who will set up a trust in Labuan do not have any disclosure obligations.
|Duration of a trust||
Unlimited period of time, unless otherwise specified by the founder.
|Is the trust taxed? (yes/no)||
|Basic taxes for trusts||
3% tax on the net profits
If the trust holds Malaysian property, the rules of the Income Tax Act 1967 will apply.
Non-Malaysian property held by the trust will fall under the provisions of the Labuan Business Activity Tax Act 1990.
|Types of trusts||
One can set up a trust in Labuan as:
– a purpose trust,
– a charitable trust,
– protective trust,
– a Labuan special trust (according to the Labuan Trust Act 1996)
|Capital requirements (yes/no)||
|Activities permitted for charitable trusts||
– eradication of poverty,
– advancement of education,
– promotion of art,
– protection of the environment,
– advancement of human rights and freedoms,
– other purposes that can have a positive influence over a community (Labuan Trusts Act 1990, 11B)
Investors can set up a Labuan trust under the regulations of the Labuan Trusts Act 1996 and the Labuan Special Trusts and Labuan Foundations 2010. Those who are interested in company formation in Malaysia should know that the local legislation also recognizes the Islamic trust, under the regulations of the Labuan Islamic Special Trust.
Registration of a trust in Labuan
In order to open a trust in Labuan, Malaysia, the investors will have to draw a trust deed, which is the main statutory document of the entity. Our team of company formation representatives in Labuan can offer more details on the provisions of the document, but it is important to know that it establishes the rights and obligations of the trustee and the settlor (the person who establishes the trust). The trustee can be represented by a natural person or a legal entity which has received the right to manage assets in the name of a certain beneficiary. In Labuan, a trust can have any number of trustees, as long as one of them is represented by a Labuan trust company.
The unilateral declaration used to create the trust will include essential information about its scope. Some of the issues that are covered in writing in this document are the following:
- the name of the trust;
- the terms under which the trust will function;
- the names and identification details for all of the beneficiaries.
Proof of compliance with the requirements of the Labuan Trusts Act will also be provided upon creation. Moreover, when the trust is managed by a trust company, this will be highlighted accordingly. A Labuan Islamic trust will be registered under the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA). The objective, purpose, and activity of this trust must be in compliance with Shariah law. The trustee is required to appoint a Sharia law adviser in order to ensure that the trust is fully compliant with these principles. Our team of company formation agents in Labuan can give you more details about this type of trust and the manner in which it is regulated.
Any subsequent changes to the trust are to be indicated to the relevant authorities. These can include changes in the trust name, a change in the name or the address of the Labuan trust company that acts as the trustee (when applicable), a change of the address of the Labuan trust’s registered office.
The registration of the trust is submitted through the Labuan trust company that also acts as a trustee. The registered office of the newly formed trust is the same as the registered office of the Labuan trust company or the Labuan managed trust company (that was appointed as trustee). This address is the one where any service documents in relation to the trust will be sent.
Trusts in Labuan are required to comply with the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.
Key points of Labuan trusts
Confidentiality is the first thing to consider when setting up a Labuan trust. The owners’ personal information is protected and cannot be disclosed to the public. This is a guarantee of Labuan FSA, the institution in charge of Labuan trusts registration. Complete control of trusts is available if a Labuan trust company is set up privately. Owners of such trust have complete control and can decide on the ways in which the trust is organized, and on the duration of the trust in order to meet the business needs. It is good to know that a Labuan trust can be registered for a fixed period of time or for an indefinite time, as long as it respects the rules and regulations for setting up trusts in Malaysia.
The trust is considered valid only if it has beneficiaries. They must be identifiable and for this purpose, their names will be indicated in the incorporation deed. A trust in Labuan can have several classes of beneficiaries and their rights will also be indicated upon formation. Any beneficiary additions or exclusions will be indicated. The settlor or the trustee can also be a beneficiary. However, this does not apply in the case of sole trustees.
The staff involved in a Labuan trust
There are specific rules regarding the personnel of a Labuan trust company. Such an entity can be established if a settlor, a protector, a beneficiary and a trustee are appointed. The settlor can be a natural person or a company, in charge of creating the trust by transferring the assets. The protector or the enforcer is normally appointed by the settlor and he/she has to oversee the activities of the trustee. The enforcer can provide guidance and information to the trustee in the advantage of the beneficiaries. The trustee holds the trust and the obligations for its administration for the benefit of the Labuan trust beneficiaries. Corporations, charities or natural persons can be the beneficiaries of a Labuan trust. As for the operational conditions for setting up a Labuan trust, these refer to a registered office which will represent the service address for any kind of documents. All of the accounting documents need to be kept at the address connected to the trust company established in Labuan, Malaysia. Another important requirement which needs to be respected at the time the Labuan trust is established is to provide to Labuan FSA a status update about the trust, once in six months. We remind that Labuan trust companies need to activate in compliance with Anti-Money Laundering and Anti-Terrorism Financing Act 2001, an important set of laws in Malaysia.
How does the Labuan trust company function?
From the beginning, it is good to know that the Trust Deed is the main controlling document with complete information about the terms and conditions, and about powers of the trustee. A trustee needs to be appointed to the Labuan trust company at the time of registration. It is good to know that there is no limit regarding the number of trustees and no capital requirement. However, one should bear in mind that if the trust is involved in trading activities, a 3% tax rate is applicable to incomes. If properties from Malaysia are involved, the local tax of 24% rate is applicable.
One of our Labuan company formation agents can give you more details on the taxation of a trust and the issues investors should remember when setting up this structure.
What are the types of trusts in Labuan?
There are 5 common types of trusts according to the particular manner in which they are set up and managed:
- the discretionary trust lets the trustee exercise his/her own judgment about the assets involved. The beneficiaries have to legal rights to specific parts of the trust fund;
- the accumulation and maintenance trust is partly discretionary with the mention that it may be used where the settlor wishes to take advantage of a particular group of relations involving the family members;
- the fixed interest trust involves the trustees without any discretionary powers over the distribution of assets;
- the reserved powers trust involves the settlor who can establish specific powers to the trustee like appointing or removing a beneficiary;
- the purpose trust has no beneficiaries and it is created for charitable purposes in Labuan.
The Labuan Trusts Act 1996 recognizes four types of trusts:
- the purpose trust;
- the charitable trust;
- the protective trust;
- the Labuan special trust.
For charitable purposes, the legislation in force allows for the following purposes: the advancement of education, the relief/eradication of poverty, the promotion of art, science or religion, the protection of the environment, or any other purposes that are beneficial to the community.
It is extremely important to decide on the type of trust company you want to establish in Malaysia, and complete guidance in this sense can be provided by our team of company formation representatives in Labuan. Our team can also assist you when setting up an offshore in Malaysia in regards to the rules and regulations in this matter.
What are the main reasons to set up a Labuan trust?
Complete control and flexibility are provided by a Labuan trust company. Moreover, the distribution made to beneficiaries of a trust is exempt from taxation. However, it is best to observe local taxes involving the real estate properties in Malaysia. The duration of the trust can be indefinite or can be fixed, as agreed with the trustees and beneficiaries. Also, we remind that trusts are highly protected in Labuan, especially in the cases of marriage termination and divorce claims. Please do not hesitate to get in touch with our team of representatives and find out all the requirements in matters of Labuan trust companies.
What are the financial consideratons for a Labuan trust company?
Businessmen who are interested in the procedure of Labuan company formation under the form of trust must know that the Labuan legislation does not require investors to participate with a specific capital. If the trust is involved in trading activities, it will be imposed with an audit tax at the rate of 3% or RM 20,000. The investors can opt to pay the 3% tax rate when performing the audit, or they can choose to pay an annual sum established at RM 20,000 without performing the audit. Moreover, if the company’s management will choose to pay the RM 20,000, the trust will not be required to file the financial statements.
The Labuan trust company sector in figures
Labuan’s increasing popularity as an offshore center and the increase in the number of incorporated companies have also translated into a growth in the number of trust companies. This means that the financial center is now the location where numerous trust companies and trust services providers are based.
According to a market report issued by the Labuan International Business and Financial Centre in 2018, the following situation applied in case of trust companies:
- there were 59 trust companies; six companies were newly approved at that time;
- 63.8% of the companies were fully-fledge;
- 31% were managed trusts and 5.2% were private trust companies.
In Labuan, trust companies show a tendency to widen their professional services to serve the interests of international investors. Companies in this field may also choose to affiliate with international counterparts for the same purpose of offering services globally to interested international investors. A trust company in Labuan will focus on providing complete and professional services and clients who entrust their business to a Labuan trust company are guaranteed that the regulatory requirements will be met accordingly.
The same market report highlights the fact that the majority of the employees in trust companies were Malaysians who were Labuan-based. In 2018, 96.4% of the employees in these companies were Malaysians/ in 2018 the total number of employees was 576, out of which 112 were approved trust officers. In terms of total income, the trust company’s sector profitability increased in 2018 to 26.2 million USD from 24.6 million USD in 2017. The income was mainly gained from trusteeship and administrative activities, along with several others.
We invite businessmen to contact our team of Labuan offshore company formation agents for more details related to the Labuan trust and the taxation system available in this case.