ZRC INTERNATIONAL TRUST INC

A. Introduction

 

Foundation has long been use in most civil law countries for estate and asset planning particularly in Europe. Liechtenstein is one of the prominent jurisdictions that have been developing Foundation for private wealth management and estate planning for wealthy individual and family across Europe. Foundations have since become popular across the globe, especially in civil law jurisdictions where the concept of ‘Anglo Saxon Trusts’ is less well known. Foundation is a hybrid between a trust and a company. In other words the elements of a trust and a company fuse or combine within one entity called Foundation. Thus, a Foundation has many similarities with a company or a trust. While there are many similarities between a foundation, a company and a trust, however there are certain characteristics which are unique and only viable to the foundations in comparison to the company and a trust. Many of the distinguishing features result from the fact that , having several aspects in common with one or the other.

 

 

B. Labuan Foundations

 

In the year 2010, Labuan Foundations Act (LFA) 2010 has been introduced in Labuan IBFC. The first of its kind legislation and products formulated and regulated within Asian common law jurisdiction. This new product offering in Labuan IBFC is mainly to promote and established Labuan IBFC as one of the leading international centre for wealth management. Since the introduction of new laws such as Labuan Foundation Act, 2010, Labuan IBFC presence and reputation continued to progress rapidly and at the forefront of the wealth management industry is largely due to its adaptable, flexible and innovative nature. This new innovation adds another new tool and spectrum of Labuan IBFC products offerings in terms of financial services to its global client. 

 

Labuan Foundation is a registered legal entity and corporate body with a separate legal entity, established and used to hold and manage wealth,including for charitable/philanthropic purposes, business succession, asset preservation, estate planning and other lawful purpose and activities. Labuan Foundation can be utilised high net worth individuals and families who want to manage, preserve and protect their wealth. A foundation can be the basis of a dynastic family wealth plan. Labuan offer the flexibility for the creator of the to establish the Labuan Foundation in accordance with the Shariah principles as and additional features apart from conventional Foundation. High net worth Muslim individual or family may opt to establish Labuan Islamic Foundation which has provisions in place that address the special issue of Shariah compliance. Conformation to Islamic principles pertaining to the objectives, purpose, content and the need for a Shariah adviser are catered for in the requirements. These provisions can be found in a separate Act, the Labuan Islamic Financial Services and Securities Act 2010 which brings together all the previous guidelines governing Islamic financial services on the island in one comprehensive legislation.

 

 

C. Practical Uses of Labuan Foundations 

 

The following are the key practical uses of conventional or Islamic Foundation:

 

• Wealth Management

• Estate Planning

• Assets Protection

• Succession Planning  

• Tax planning

• Avoidance of forced heirship rules

• Maintenance of corporate control

• Separation of voting and economic benefits

• Employee share option schemes

• Art collections

• Charitable purposes

• For employee benefit plans, retirement insurance plans and special financing arrangements

• As a vehicle for investing in time deposit accounts, stocks, bonds or other securities

• Vehicle for owning patents and intellectual property and for receiving royalties and other forms of associated income

• To avoid political or economic instability within the jurisdiction

 

 

Labuan Foundation also can be establish for the following charitable purposes;

 

• The prevention and relief of poverty;

• The advancement of religion, profession or education;

• The advancement of health including the prevention and relief of sickness, disease or of human suffering;

• Social and community advancement including the care, support and protection of the aged, people with a disability, children and young people;

• The advancement of culture, arts and heritage;

• The advancement of amateur sports, which promote health by involving physical or mental exertion;

• The promotion of human rights, conflict resolution and reconciliation;

• The advancement of environmental protection and improvement;

• The advancement of animal welfare; or

• The advancement of facilities for recreation or other leisure-time occupation in the interest of social welfare.

 

 

D. Legal status of Labuan Foundation

 

Labuan foundation is a legal entity, with a legal personality and has rights and status of a separate and independent person; the foundation can enter into contracts, sign agreements, own bank accounts, buy and sell properties, own shares or interest in other companies. It can do anything a human being can do (with the exception of trading in its own right). Any trade must be carried out through a subsidiary company, partnership or trust. Trade or commercial activities are incidental or ancillary to its main purpose which is the management of its property.

 

 

E. Type of Assets Can Be Retain or Held By Labuan Foundation 

 

Any kind of assets, tangible or intangible, movable or immovable, can be endowed to a Labuan Foundation. Typical asset classes include:

 

• Real property, land, houses, building etc

• Movable property - car, motorcycle, yacht, ship, aeroplane, helicopter etc

• Shares and stocks in both quoted and private companies

• Investment portfolios

• Real and intellectual property

• Bank deposits

• Life assurance policies

• Most other types of asset

 

 

F. Key Features and Elements of Labuan Foundations

 

1. Governing Laws

 

• Labuan Foundations Act, 2010

• Labuan Islamic Financial Services and Securities Act, 2010 

 

2. Principal Office of Labuan Foundations

 

• Labuan Foundation registered office must the principal office of the Trust company however charitable foundation may establish operational office within Malaysia or other jurisdiction

• A Labuan foundation shall have a registered office in Labuan which shall be the address of the secretary to that Labuan foundation, to which all communications, correspondences and notices may be addressed

 

3. Capacity and Powers of Labuan Foundation 

 

• A Labuan foundation is a corporate body with a separate legal entity, established to manage its own property for any lawful purpose which may be charitable or non-charitable.

• A Labuan foundation has the capacity, rights, powers, and privileges of an individual person and may sue and be sued in its corporate name. 

 

3. Establishment of Labuan Foundation

 

•  Any person may, by subscribing his name to a charter of a Labuan foundation as the founder and complying with the requirements of this Act, establish a Labuan foundation.

 

4. Purpose and object of Labuan foundation

 

•  The main purpose or object of a Labuan foundation shall be the management of its property

•  The purpose or object of a Labuan foundation may include any purpose or object which is not unlawful, immoral or contrary to any public policy in Malaysia and such purpose or object may be charitable or non-charitable

 

5. Property of Labuan foundation.

 

a. Property of a Labuan Foundation may includes;-

 

• assets of every kind, whether corporeal or incorporeal, movable or immovable, tangible or intangible, however acquired; and

• legal documents or instruments in any form, including electronic or digital, evidencing title to or interest in, such assets as described in paragraph (a), including bank cheques, money orders, shares, securities, bonds, bank drafts and letters of credit;

 

b. The property of the Labuan foundation shall not include any Malaysian property unless the prior approval of the Authority is obtained or the Labuan foundation is a foundation for charitable purposes

 

 

6. Registration of Labuan Foundations

 

• Labuan Foundation are required to be registered by the Labuan authority and the establishment of a Labuan foundation shall not be completed until a certificate of registration in respect of such Labuan foundation has been issued by the Labuan authority.

 

 

7. Name of Labuan Foundations

 

• The name of a Labuan foundation shall end with the words “Labuan Foundation” or “(L) Foundation

 

8. Constituent Documents

 

• Charter and the articles is the main constituent document of a Labuan foundation

• Every Labuan foundation must have a charter and the articles is not mandatory

• In the absence of articles of a Labuan foundation on any matter, the Labuan Foundations Act, 1990 shall apply.

 

 

9. Key Management of a Labuan Foundation 

 

  a. Founder

 

• Founder is the person or persons who establish the Labuan Foundation by subscribing his name to the charter establishing a Labuan foundation

• Founder may be a resident or a non-resident of Malaysia, individual or corporation 

• Founder also be a council member, officer, beneficiary or the Supervisory Person

 

  b. Secretary 

 

• The secretary of the Foundation must be a licensed Labuan Trust Company

• Additional Secretary maybe appointed 

 

  c. Officer 

 

• At least one or more officer must be appointed by the Founder prior to registration of the foundation

• Officer may be either an invidual or corporation

• The officer may be residents or non-residents of Malaysia

• The Founder or The Beneficiary of the Foundation may be appointed as Officer however they cannot be appointed as a council member 

• Officer also disqualified if he is a person connected to a council member

 

  d. Council 

 

• Council is not a mandatory appointment under the Act, however it is advisable to appoint minimum one Council Member

• Council can be an individual or corporation, Resident and non-Malaysian Resident

• Council member cannot be appointed as the Officer at the same time

• Generally the Foundation will supervise the Foundation line with the objectives and purposes for which the foundation was established

 

  e. Beneficiaries

 

• The beneficiaries of a Labuan foundation may be a resident or a non-resident. It can be either individual or corporation

• The charter and/or articles of the Foundation may lay down the beneficiaries rights and entitlement to the foundation’s assets

 

 

10. Initial Endowment 

 

• An initial asset is require to be endow to the foundation  at the time of establishment of a Labuan foundation and vested in and being the property of that Labuan foundation however there are no specific amount of minimum endowment require under the Act., thus the minimum endowment can be as minimum as USD 1.00

 

 

11. Secrecy and Confidentiality

 

• The LFA 2010 provides stringent confidentiality provisions. It is a criminal offence for anyone to wrongfully disclose information about the Foundation and there are strict safeguards in the Act to ensure that the privacy of the Founder is always protected

 

 

12. Fraudulent Disposition

 

• The LFA 2010 provides a robust statutory protection by safeguarding the Labuan Foundation’s assets from creditors’ claims or frivolous lawsuits. The firewalls provided in Section 58 of the Act makes it difficult for a creditor to assail the Labuan Foundation

 

 

13. Unenforceability of foreign claim or judgment

 

• Labuan Foundation afforded the protection foreign claim or judgment against a validly established Labuan Foundation cannot be enforced with regard to:-

 

  - The personal and proprietary consequences of marriage or the termination of marriage;

  - Succession rights, whether testate or intestate, including the fixed shares of spouses or relatives       (forced heirship claim or legitim);

  - The claims of creditors in an insolvency matter.

 

 

F. Advantages of Labuan Foundations

 

1. SEPARATION OF ASSETS AND OWNERSHIP

 

• A Labuan Foundation when registered is a distinct legal entity from the Founder and acquires a separate legal personality (Orphan Structure). The property of the Founder endowed to a Labuan Foundation becomes its property and is no longer the property of the Founder. However, the Founder may reserve rights or powers in the Charter to manage the Foundation’s property through the council. This, therefore, allows the Founder flexibility to exercise a degree of control over the management of the Foundation’s property and investment.

 

2. ASSET PROTECTION AND WEALTH PLANNING 

 

• Labuan Foundation can be utilised as an effective vehicle for asset protection and family wealth planning throughout the entire generation.

 

3. WEALTH PRESERVATION

 

• A Labuan Foundation protects the wealth of the family from the possibilities of extravagant generation of the Founder’s family who may dissipate the wealth. It also protects the family’s assets from the mismanagement of the Founder himself, for instance, where he is medically incapacitated or has a tendency to succumb from serious disease.

 

4. PROTECTION FROM CREDITOR AND FRIVOLOUS LAW SUITS

 

• The LFA 2010 provides a robust statutory protection by safeguarding the Labuan Foundation’s assets from creditors’ claims or frivolous lawsuits. The firewalls provided in Section 58 of the Act makes it difficult for a creditor to assail the Labuan Foundation. The claiming creditor bears the burden of proof to show that the Founder had a principal intent to defraud when he established, registered or disposed the property to the Labuan Foundation. 

 

5. SECRECY AND CONFIDENTIALITY  

 

• Labuan Foundation offers great protection of confidentiality. It is a criminal offence with a possible custodial penalty for any wrongful disclosure of information concerning the Foundation. Furthermore, Labuan is a ‘white listed’ jurisdiction that endorses the OECD ‘level playing field’ principle to the bilateral exchange of tax information with foreign tax authorities. Notwithstanding this, Labuan has safeguards in place and limitations on the sharing of information which ensures that no ‘fishing expeditions’ will be entertained