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. In the more than 20 years that it has been operating, it has grown steadily and at present, there are more than 8,000 Labuan companies registered, from more than 100 countries2. As at 12 April 2012, there are a total of 60 banks approved by the LFSA and 174 insurance entities as at 3 April 20123.
Labuan Trusts have been statutorily recognized 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. In addition, the 2010 law amendments now recognize the Labuan Islamic Trust, the Labuan Islamic Special Trust and the Labuan Islamic Foundation.
This article seeks to provide some detail on what constitutes a Labuan Trust, a Labuan Special Trust and a Labuan Foundation and make some practical comparison between them and the trusts and foundations of other jurisdictions.
Creation of a Labuan Trust. A Labuan Trust exists where it is created by a will or other instrument in writing and at least 1 trustee is a Labuan trust company. There are no restrictions on who can be settlor or beneficiary of a Labuan Trust. The only restriction is that the Labuan Trust shall not include any Malaysian property 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 trust terms, and (c) provide that the trustee be authorized 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 is subject to a fixed perpetuity period of 100 years for trusts created on or after 15 December 20048.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 unlimited subject to the terms of the trust11.
The Labuan Trust can thus be distinguished in this as the trustee has the ability (if authorized under the deed) to determine the duration of the trust. Taken at its extreme, in the event that there are legal issues related to the perpetuity rule, the trustee ultimately has the statutory power and discretion to determine the trust period.
Purpose trusts and enforcers. The LTA also enhances the statutory recognition of purpose trusts for both charitable and non-charitable purposes. It is mandatory for an enforcer to be appointed for a Labuan purpose trust. The enforcer has statutory rights to take administrative actions, protection, indemnity and payment of expenses out of trust property, and the personal and proprietary remedies for breach of trust against a trustee and against third parties as a beneficiary.
There is no provision providing for non-charitable purpose trusts in Singapore. Express provisions allowing for non-charitable purpose trusts can be found in Guernsey, DIFC and Jersey all of which require the appointment of an enforcer or protector for such a purpose trust.
Protectors. The provision on protectors under the LTA was amended in 2010 to be more specific on the powers of protectors under the terms...