Labuan Trust Company
A Labuan Trust company refers to a company that is registered under the Labuan Companies Act 1990 (LCA) and licensed by the Labuan Financial Services and Securities Act 2010 (LFSSA) to carry out the operations of a trust company.
It is a requirement for any Labuan company to employ the services of a Labuan trust company to act as the agent to incorporate and register the companies under the LCA.
An asset owner set-up a Trust as a way to look after his/her assets. The owner in a Trust relationship is known as a Settlor, sets up a legal arrangement with one (or more) Trustee. The Trustee is made legally responsible, to hold and manage the assets for the Trust’s Beneficiaries, as according to the Trust Deed
Common purpose of Labuan Trust
Trusts are set up to safeguard and manage assets, such as money, properties and investments, as stated in the Trust Deed (by Settlor) to:
- Manage and protect family assets
- when child or successor is too young to manage the assets
- when someone is unable to manage due to incapacitation
- Transfer of wealth or succession planning
- to pass on the assets while alive or after death (according to terms and conditions as stated in the will
To know more about Labuan Trust companies, click on any of the links below
Usage and purpose of offshore trust companies
Labuan trust is a versatile legal structure and vehicle that can safeguard your wealth beyond the reach of creditors for claims arising from malpractice, accident or even a divorce just to name a few.
- Keep the wealth and money in the family, in the form of estate and succession planning
- Also known as a dynasty trust or a “family bank” to preserve the wealth for the family and the many generations to come in the future
- Setup to prevent a potentially spendthrift child from squandering the inheritance by establishing a certain structure
- Also in the context of estate and succession planning, this can save your heirs from potentially a large sum of inheritance and estate tax
- Set up a life insurance trust to preserve wealth and any proceeds will not be taxable
The mentioned above may or may not be applicable because people have different requirements and situations.
It would be best to contact us and allow us to advise you on the best way you can achieve your objectives by using a Labuan trust. Feel free to contact us today for a free consultation.
Advantages of setting up a Trust company in Labuan
Here are some benefits and advantages that you should know about setting up a Trust in Labuan
- When the assets are placed in a Trust, it is no longer considered to be in your possession
- If your Trust is set up as an irrevocable Trust, in the event of claims from creditors or external parties, the assets are protected.
- Since the assets are not in your possession, you do not have to pay income tax on any money generated from these assets
- Useful tool for estate planning
- Tax savings in international income and capital gain because in Labuan, no tax charges for non-trading activities
- If your Labuan Trust company is established to run business trading activities, the tax rate on net profit is 3% or RM20,000.
- Any distribution made to beneficiaries are tax exempted
Flexible and Recognition
- Flexibility to configure according to preference to cater to different family sizes, requirements and needs
- Full control on the structure of the trust company, type of assets to be held, election of trustees and validity period for the trust.
- The Settlor (the person who establishes the trust) can add/remove beneficiaries and change the term of the trust after the establishment of the Trust
- Protected by and recognized in all common law jurisdiction and plus increasing recognition in civil law jurisdictions
- Assets held by Trust is protected from creditors and cannot be enforced by foreign, termination or insolvency claims
- The confidentiality of your information is protected and enforced by the Labuan Financial Services Authority (FSA)
- Anyone found guilty of divulging information illegally shall be liable to fine not exceeding RM1m or imprisonment for up to 3 years.
Structure of a Labuan Trust Company
Trust company structure
Labuan Trust Structure and the Key Roles
Settlor – The person who creates and establishes the Trust and transfers its assets into the Trust. The settlor can be an individual or a corporate entity
Trustee – Manages the trust and responsible for the administration of the trust deed for the benefit of the elected beneficiaries
Beneficiaries – the selected people/party who are legally benefiting from the trust. Beneficiaries can be individuals, class of people, corporations, charities and even minors.
Protector/Enforcer – May be appointed by the Settlor, for the role of monitoring the Trustee in ensuring that they are acting for the benefit of the Beneficiaries as stated in the Trust Deed. The Settlor may elect itself to be the Protector and have the power to remove the current Trustee and appoint a new Trustee.
Characteristic of Labuan Trust
- Settlor must be a qualified person or a resident who can retain certain wide powers including revoking, amending or varying the terms of the trust.
- The beneficiaries of a Labuan trust must also be a qualified person or a resident.
- At least one of the trustees of a Labuan trust must be a Labuan Trust company
- Where a trust property includes Malaysian property, prior approval must be obtained from Labuan FSA
- The duration of a Labuan trust may be prescribed
- The Act allows the settlor to provide a letter of wishes, in addition to provisions contained in the Trust Deed.
Common types of Trust
Here are some common categories of Trust companies in Labuan
Private Use: For discretionary, accumulation and maintenance, life interest or fixed interest trusts.
Corporate Use: For pension and employee benefit trust
Charitable Purpose: Established for the benefit of charity organization
Specified Purpose: Established without a specified beneficiary but for a certain purpose
Commonly established for the purpose of wealth protection and tax saving and it is the most type of Trust in Labuan that offers the most flexibility. A discretionary trust allows the trustee to have the discretion to exercise its own judgment, including the ability to remove the existing beneficiaries or to appoint additional/new beneficiaries. It also offers the flexibility for the distribution to the beneficiaries in different amounts or timing at its own discretion.
The beneficiaries of a discretionary trust have no legal rights to any particular portion of the trust fund.
A “letter of wishes” is provided by the Settlor to the Trustee, to serve as a guide to the Trustee with regards to how the trust and its assets are to be managed and administered. The Trustee will manage with discretionary power but for the benefit of the beneficiaries.
Fixed Interest Trust
Trustee of such a trust does not have any discretionary powers in deciding on when and how the distribution is to be made to the beneficiaries.
However, it is possible to the Settlor to create a combination of fixed and discretionary trust.
The Settlor may give the trustee discretionary powers in deciding the distribution for a certain period of time. After which, the trustee is required to distribute in specified fixed amount proportions.
What types of Assets can be held by a Labuan Trust company?
Common Assets held by a Labuan Trust
Types of Asset
- Money in Bank Deposits
- Real Estate Properties
- Shares in listed and unlisted companies
- Investment Portfolio
- Intellectual Properties
- Life assurance policies (issued on the life of the Settlor)
- Most other forms of assets
Frequently Asked Questions (FAQ) about Labuan Trust company
What is a Labuan trust and what is it used for?
- A trust is commonly set up and used for different purposes but mainly focuses on managing and protecting people’s assets.
- Trusts are highly flexible and there are many types to suit one’s unique needs.
Are trusts required to register with Labuan FSA for their set up in Labuan IBFC?
- While trusts in Labuan do not have to register with Labuan FSA, it must use a Labuan trust company as one of their trustees.
Who can allowed to set up a trust in Labuan?
- Both Malaysian resident and non-resident can set up a trust in Labuan.
- For non-residents, Malaysia property can be injected into a Labuan trust.
- For Malaysian residents, international assets can be placed in to a Labuan trust. As for injection of Malaysian property, Labuan FSA (regulator) approval will be required.
Will I lose control over my assets?
In a way, “yes”. The ownership will be transferred to the trustee to be held on behalf of your nominated beneficiary.
To setup a trust arrangement, you will give up some control over the assets. And the more removed you are from the assets, the greater the protection.
But it is not that you lose entire control over your asset. Some trust can be structured in a way that you maintain control and the rights to receive income from your trust assets.
In order to know more about this and how your situation can benefit from a personalized trust structure based on your situation, contact us to find out.
What is the difference between a trust and a foundation?
How will the income derived from a Labuan trust be taxed?
- Taxation treatment is similar as other Labuan entities under the Labuan Business Activity Tax Act 1990 (LBATA).
- Labuan tax treatment
What is the tax implication for Labuan trust's distributions?
- Distributions from a Labuan trust to its beneficiaries are tax-exempted.
What is legislation governing the operations of a Labuan trust?
- Labuan Trusts Act 1996
What are the fees payable by a Labuan trust in Labuan IBFC?
Labuan trust company registration fees
The cost to set up and register a Labuan trust company is as such: