A Comparative Analysis Of Labuan's Wealth Management Offerings

Author:Ms Chua Wei Min
Profession:Labuan IBFC Inc
 
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Chua Wei Min, a partner at ZICOLaw and a seasoned industry practitioner lays out the advantages of establishing trusts and foundations in Labuan IBFC, and draws practical comparison with other international financial centres.

Overview

Labuan is a Federal Territory of Malaysia and has its own laws and regulations for financial activities carried on within the Labuan International Business and Financial Centre (Labuan IBFC)1, separate from the domestic Malaysian laws. The Labuan Financial Services Authority (LFSA) is the sole authority of the Labuan IBFC and is empowered under legislation to administer all financial activities that take place within the Labuan IBFC and to enforce the Labuan laws. 

The Labuan IBFC was established on October 1st, 1990 and achieved the milestone of celebrating its 25th anniversary last year. During the last 26 years, it has grown steadily and at present, there are more than 11,000 Labuan companies registered, from more than 100 countries2. As at 26 November 2015, there are a total of 57 banks approved by the LFSA and 215 insurance (including insurance related) entities3.

Labuan Trusts have been statutorily recognised since the formal establishment of the Labuan IBFC in 1990, under the Labuan Offshore Trusts Act 1996. Under the amendments to the Labuan laws in February 2010, they now come under the Labuan Trusts Act 1996 (LTA). Labuan Special Trusts and Labuan Foundations are new, brought into being through the 2010 law amendments. 

Labuan Trusts

Creation of a Labuan Trust A Labuan Trust exists where it is created by a will or other instrument in writing (including a unilateral declaration of trust) and at least one trustee is a Labuan trust company. There are no restrictions on who can be settlor or beneficiary of a Labuan Trust. Notwithstanding that, a unilateral declaration of trust that does not contain the name of the settlor has to be accompanied with a statement by the trust company that the settlor is not a resident in Malaysia on the date of declaration. Save for purpose trusts and charitable trusts, a beneficiary must be identifiable and ascertainable. 

In addition to that, Labuan Trust shall not include any property which is situated in Malaysia unless prior approval from the LFSA is obtained (for such Malaysian property to be held under such trust) or unless the trust is a trust for charitable purposes. Labuan shares are not considered Malaysian property in this instance.

Settlor's retention of powers The LTA allows a settlor to retain certain rights without affecting the validity of the trust or the trust instrument. Such powers, in brief, include the power to amend the terms of a trust or powers arising under the trust, the advancement of income or capital of the trust property or to give directions on such advancement, to give binding directions as to the appointment or removal of an officer of any corporation owned by the trust, to appoint or remove any trustee, enforcer, protector, beneficiary, investment manager or investment advisor, to change the proper law of the trust and to restrict the exercise of powers of a trustee. 

Similar settlor's reserved powers can be found in Jersey4 and Guernsey5, while these type of provisions are absent in Singapore6 and Dubai International Financial Centre (DIFC)7.

Duration The duration of a Labuan Trust, which used to be limited to 100 years, can now (a) be expressed to be for a fixed duration, (b) continue for an unlimited period unless otherwise stated in the terms of the trust, and (c) in the terms of the trust set out that the trustee be authorised to appoint a fixed duration, convert a fixed duration to an unlimited period, or alter, by limiting or extending, the duration of the trust.

The Singapore Trust that is created on or after 15 December 2004 is subject to a fixed perpetuity period of 100 years or such shorter period as specified in the instrument by which the trust is created8.The Jersey Trust may continue in existence for an unlimited period unless its terms provide otherwise9.The DIFC Trust may continue indefinitely or terminate in accordance with the law or with the terms of the trust10. The Guernsey Trust may also be of unlimited duration subject to the terms of the trust11.

The Labuan...

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