Labuan IBFC Foundations: Truly One Of A Kind In Asia

Why Set Up A Labuan Foundation?

A Labuan Foundation is a legal entity administered by a charter and articles. A foundation has separate rights as an independent person and can enter into contracts, acquire properties, own a bank account or even own a share in its own name.  Having a foundation gives you both the benefits of a trust and the certainty of a company.

Labuan Conventional And Islamic Foundations

A Conventional Foundation is a way forward for facilitating succession planning and asset protection. As referred to in the Labuan Foundations Act, 2010, a Labuan Foundation is a corporate body with an independent legal entity that was formed to govern its own assets for any legitimate purpose, whether charitable or non-charitable.

Labuan Islamic Foundations can be established under Section 107 of the Labuan Islamic Financial and Securities (Amendment) Act 2022, and all provisions under the Labuan Foundations Act 2010 shall be applied accordingly. The purpose or the objective of setting up of Islamic foundation must comply with Shariah principles. Thus, an Islamic foundation is required to appoint a Shariah Adviser to advise on the Islamic matters that go along with the Shariah principles. Aside, the endowment may be facilitated by way of Hibah or Hadiah.

Labuan International Waqf Foundation (LIWF): The First Islamic Foundation In The Asian International Market

Waqf is a key aspect of Islamic wealth management where it is used to generate revenue towards countless charitable purposes such as education and welfare. The unique aspect of the LIWF is its flexibility to be utilised as an Islamic wealth management vehicle and at the same time it can be used for charitable purposes.

LIWF can be established for four different types of Waqf:

Charitable Waqf (al-waqf al-khai’ri): Where the main purpose is charitable.

Family Waqf (al-waqf al-ahli): Where the main purpose is for family members and relatives. However, if none of the family members or relatives are in existence, it will be used for charitable purposes.

Joint Waqf (al-waqf al-mushtarak): Where the income/usufruct is shared between the family members and for charitable purposes.

Self-Dedicated Waqf (al-waqf ala al-nafs): Where the income/usufruct is retained for the founder (waqif) and is used for charitable purposes after his death.

Advantages Of A Labuan Foundation

The various benefits of setting up a foundation in Labuan IBFC are set out below:

For Wealth Acquisition

• A foundation is a registered legal entity. Hence, foundations are able to enter into contracts.
• Having a foundation prevents delays in obtaining probate (both in Malaysia and overseas) or the registration of fractional interests in property.

For Wealth Preservation

• Fully protected against creditors after the fraud disposition period of two years from the date of registration.
• Unenforceability of foreign claim or judgment, i.e. succession rights, divorce, heirship, personal law, etc.
• Confidentiality is provided by the Labuan Foundation Act (Rights to who may have access to information are clearly explained).
• Provides more control to the Founder than a trust (e.g. the founder can appoint himself/herself as the sole Council member, hence ensuring the foundation is operated in accordance to the objectives of the foundation.
• Safeguards the Founder's interest, enabling legacy planning, succession, control and protection, thereby avoiding the break-up of family assets and ensuring the continuity of the family wealth over generations.

For Wealth Distribution

• Labuan IBFC’s tax system is simple and straightforward.
• A beneficiary can be added and removed by the Founder and Council seamlessly if provided under the charter.
• The Founder may designate himself as the sole beneficiary of the foundation.

Structure Of A Labuan Foundation/Labuan International Waqf Foundation

A Founder may form a Labuan Foundation by filing the foundation's charter, specifying the initial assets endowed for the foundation's establishment, and meeting all other applicable regulatory requirements by Labuan Financial Services Authority (Labuan FSA). Such assets are managed in the interest of beneficiaries who could really benefit from it despite the fact that foundation holds ownership to it. The Founder may also appoint the council member and officer for the foundation. The above picture is the common structure of a Labuan Foundation. There are three key members of management for a normal Labuan Foundation which are Council Member, Officer and the Secretary. However, for the purpose of LIWF, a Shariah adviser is one of the key members of management included.

Benefits Of A Labuan Foundation/LIWF

• Wealth Preservation: Helps to preserve wealth in a tax efficient manner.
• Confidentiality/Anonymity: Ownership is held under the name of the Foundation.
• Flexibility: Changes/updates/amendments can be made with minimal interruption.
• Protection: Provides protection against foreign claims, insolvency claims and marriage claims.
• Control: Founder will have the ability to dictate terms.
• Consolidation: Allows parties to structuralise their total asset worth and place it into a consolidated asset holding (minimise complication/parties).
• Certainty: Allows decisions to be made based on one holistic structure.
• Preservation: The Waqf properties are not for sale, mortgage, given away as gifts or even inherited.
• Honours: The conditions of the founder (waqif) after his death are honoured by distributing the income/usufruct for charitable purposes
• Legal certainty: As it was established based on legal guidelines issued by Labuan FSA and endorsed by its Shariah Supervisory Council which comprised leading Islamic scholars and practitioners.

Conclusion

The Labuan Foundation may be most helpful when clients know what their ideal goals and objectives are, given that it is officially registered, able to control the property, and is believed to be significantly more regulated than other wealth management products by having its own Charter and Articles of Regulations. A foundation can act as a comprehensive answer for high-net-worth individuals and families who desire to manage, maintain, and protect their wealth. As a way for wealth preservation and succession, the Labuan Foundation is designed to fulfil the wish of the founder.

For more details, please contact us at lmo@pacifictrustees.com

Mari-Len Ngu, TEP
Madam Mari-Len NGU who holds the Managing Director, Head of Group Regional Client Coverage position has 20 years’ experience in the Trust and Fiduciary industry and Corporate Governance, leading the Private Clients team in Hong Kong, Singapore and Jersey Channel Islands where she works physically and develops international workflows and processes within those jurisdictional applicable laws and practices. She subsequently Headed the Corporate Secretarial, APAC in 2014 where she worked with TMF Group (formerly Equity Trust). Her experience includes International Corporate Structure planning in cross border transactions and business expansion. She has been interviewed by Edge Magazine and has also been invited to be the keynote speaker at international events in HK, Ho Chi Min, Bangkok, to name a few, focused on Wealth Management/ Labuan IBFC’s structures, as well as its commercial and financial products and to promote Labuan IBFC as the preferred midshore jurisdiction in Asia.