Labuan is a special region of Malaysia
, which provides an attractive taxation scheme available for foreign investors. Businessmen can open a company in Malaysia
or set up a foundation
, which is a type of legal entity in which the company’s management can start charitable or non-charitable activities. At the same time, businessmen should know that a Labuan foundation
will hold the rights on the company’s assets and our team of Labuan company formation representatives
can offer assistance for the incorporation requirements established for this business form.
Labuan is a convenient location to base a foundation as investors and high-net-worth-individuals will be able to use a private foundation incorporated here as a wealth management tool. Over the years, Labuan has developed a reputation as a business and financial center in the Asia Pacific Region and it offers a wide array of advantages to investors, having a good regulatory regime that observed high international standards and practices.
Investors who open a company in Labuan enjoy a simple tax structure and easy company formation. Moreover, the location is also favorable for establishing an Islamic foundation, in which case it will comply with Sharia principles.
Our team of experts answers some common questions about Labuan foundations and the manner in which these can be used, either for charitable or non-charitable purposes, such as wealth management.
What types of foundations are in Labuan?
The applicable legislation available in Labuan offers several categories of Labuan foundations. The foundations in Labuan can be set up for charitable or non-charitable purposes, but the vehicle can also be used for wealth management purposes or asset management.
The legal framework for foundations in Labuan is what makes this jurisdiction attractive compared to other locations. Below, we list some of the characteristics:
- Minimum capital: one important advantage is that in Labuan there is no minimum endowment needed for a foundation.
- Privacy: the foundation needs to be registered with the authorities, however, the founder is the one who has extensive control.
- Confidentiality: the articles of the foundation are registered with the authorities, however, the beneficiaries are anonymous.
- Nationality: there are no specific requirements regarding the nationality of the founder or the councilor.
- Capital: the capital transfer can take place once the foundation has been registered with the regulator.
- Language: any language is accepted provided that an English translation is included in the documents.
- Others: the foundation can be Sharia-law compliant and there is no requirement for an independent council member.
By comparison, the requirements for a foundation in other popular jurisdictions, such as Liechtenstein or Panama, can be more specific. For example, both of these two other jurisdictions will ask for a minimum endowment for the foundation, one of 30,000 USD for Liechtenstein and the other of 10,000 USD for Panama. Please remember that the details offered herein are not exhaustive and other jurisdictions may change their policies, making it advisable to check with a local expert for comparison. Our team can help investors who open a company in Labuan and are interested in knowing complete details about the legal framework in this jurisdiction.
One of our Labuan company formation specialists can give you more details about the foundation and the manner in which it can be used for charitable or non-charitable purposes.
What are the characteristics of the charitable foundation in Labuan?
As per the Foundations Act 2010, a Labuan foundation is a corporate entity separate from its founders (it is a distinct legal entity) that is used to manage its own property, for lawful charitable or non-charitable purposes. It is a flexible structure that can evolve and the changes will be included in its constitutive documents.
The general structure, that applies to foundations regardless of whether or not they are charitable, is the following:
- the founder;
- the constitutive documents;
- the officer, council members, secretary;
- the properties;
- the beneficiaries.
These elements are typical for a foundation in Labuan. Charitable foundations are allowed to hold Malaysian assets while non-charitable ones may do so only with the approval of the Financial Services Authority. The founder, council, officer and the beneficiary can also be another corporate body.
Foreign investors interested in company formation in Malaysia should know that a charitable foundation in Labuan can offer relevant tax exemptions. The Labuan legislation provides a 100% exemption from paying the tax on distributions received from foundations or inheritance.
However, it is important to know that the charitable foundation in Labuan
should perform one of the charitable purposes established for the entity under the local legislation. For example, it can conduct activities that will help reduce poverty, develop education, protect the environment and others. Our team of Labuan company formation agents
can offer more details on how to register a charitable foundation in Labuan.
How can investors register a private foundation in Labuan?
A private foundation in Labuan can be set up for wealth management purposes. The legal entity must be registered with the relevant authorities. When they open a company in Labuan that will be used for asset management purposes or will become a charitable foundation, investors must register it with the relevant authorities, for example the Financial Services Authority (FSA), which functions under the regulations of the Ministry of Finance in Malaysia. One of our specialists is able to provide investors with complete details on the registration requirements and the conditions set forth by the FSA, mainly including those in the Guidelines and the Labuan Foundations Act.
The taxation of the foundation will be performed under the rules of the Income Tax Act, as long as the foundation has assets which can be considered Malaysian property.
The foundation is exempted from paying the following:
• - withholding tax;
• - capital gains tax;
• - inheritance tax.
Investments in Labuan
According to a set of statistics published by the Labuan International Business and Financial Centre, last year there were:
- 1,059 newly incorporated companies, a 12.5% increase since the previous year.
- 6,031 companies functioning in the jurisdiction;
- out of the existing companies, 3,390 were trading companies and 2.024 were non-trading, with the rest being part of both categories.