A Labuan company:
- May be a company limited by shares or by guarantee or an unlimited company.
- May participate in business activities and enjoy attractive tax benefits provided under the Labuan Business Activity Tax Act 1990 (LBATA).
- May carry out any business that is permitted in Malaysia in, from or through Labuan.
- Require to be licensed if it intends to undertake specific businesses as defined under the Labuan Financial Services and Securities Act 2010 or the Labuan Islamic Financial Services and Securities Act 2010, which may includes banking, insurance/insurance-related, fund management, leasing, factoring and company management businesses.
Residents and non-residents of Malaysia are permitted to establish Labuan companies. Section 7(5) of the Labuan Companies Act 1990 (LCA) allows a Labuan company to deal with a resident subject to the filing of notification to Labuan FSA within 10 working days of the transaction.
Business transactions of Labuan companies dealing in currencies other than the Malaysian Ringgit, except for the purpose of defraying administrative and statutory expenses as well as receiving fees and commissions.
Labuan companies can own controlling stakes in a Malaysian Domestic Company(MDC) and are also allowed to undertake shipping operations with non-residents.
Characteristics of a Labuan Company
- Shall have at least one director.
- Shall have a resident secretary.
- There is no minimum capital and no authorized share capital requirements.
- The shares issued shall have no par or nominal value.
- Treasury shares are allowed.
- May issue shares of different classes and of different rights, but no bearer shares are allowed.
- Amalgamation by merging two or more companies into one is allowed.
- Shall have a registered office in Labuan which is the office address of the resident secretary.
- No person may divulge any information concerning the shareholding, management and any business, financial or other transactions of a Labuan company.
A Labuan Foundation is based on civil law structure and can be described as hybrid of a trust and corporation. Foundation is a corporate body with having an independent legal entity with its legal personality, capable of entering into legal relations and holding property in its own right.
Establishment of Labuan Foundation provides more clarity on legal issues such as assigning the rights of founder, more flexibility and stronger asset protection.
Foundation is designed for people who prefer to have control of their assets, business or otherwise, and it can be very useful in tax planning as well as providing significant legal protection to their assets.
The structure of a Labuan foundation consists of the following:
1) Registered Office
A Labuan foundation must be registered with Labuan FSA. The Foundation is governed by its governing documents, i.e. the charter and articles.
2) Charter and Article
The Charter and Article is the main constituent document of Labuan Foundation. Section 8 of Labuan Foundation Act 2010 makes it compulsory for every foundation to have a Charter which must be duly signed by each founder. Through the Charter of foundation, it is therefore sets out parameters, objectives and purpose of the establishment of Labuan Foundation.
A Labuan Foundation is established when the founder subscribe his or her name to the charter of a Labuan Foundation by complying all the requirement of Labuan Foundation Act 2010 and received a certificate of registration from Labuan FSA.
The certificate of registration issued by Labuan FSA shall be the conclusive evidence that the Labuan Foundation is registered by the name specified in the certificate with the Authority.
3) Key Management
The key management of a Labuan foundation consists of a founder, council member an officer and a secretary. The council is responsible for the general supervision of the foundation’s management and ensuring that the purpose for which the foundation was established is fulfilled in accordance with the charter, articles and the governing law. In effect, the council is similar to the board of directors of a company. The duties of the officer are primarily administrative as the officer is responsible for ensuring the proper administration of the foundation. The secretary acts as the service provider to the foundation and performs all secretarial functions including the filing and lodging of documents with Labuan FSA.
4) Initial endowment of assets
Labuan Foundation can be establish with the initial endowment of USD1.00. However, any property of a Labuan Foundation must not include any Malaysian property unless prior approval is obtained from the Authority or the Labuan Foundation is a foundation that meant for charitable purposed.
Beneficiaries may include individuals or corporate entity and may be resident or a non-resident and are those who have a vested interest in the assets of the foundation. Unless specifically provided in the charter or articles, beneficiaries have no rights to the foundation’s assets and not owed any fiduciary duties.
A Labuan foundation can be dissolved upon the passing of a resolution by the officer on the basis that the foundation is established for a definite period and that period has expired or when the purpose of the foundation is fulfilled or becomes incapable of fulfillment or the charter requires such dissolution.
After the dissolution, the ownership of the remaining assets will be transferred to the beneficiary in accordance with the constituent documents, and, as for Islamic Foundation, the ownership of the remaining assets will be transferred in accordance with Shariah principal.
The creation of a Labuan trust is generally for an individual or a settlor to give specific property to a third party to be held for the benefit of others, including charities. The Labuan Trust Act 1996 (LTA) allows the creation of the following types of trust:
- Charitable trusts;
- Spendthrift or protective trusts; and
- Labuan special trusts.
A Labuan trust may be created or established for a specific particular purpose which could be charitable or otherwise. A charitable purpose means and includes any of the following description of purposes:
- The relief or eradication of poverty;
- The advancement of education;
- The promotion of art, science and religion;
- The protection of the environment;
- The advancement of human rights and fundamental freedom; or
- Any other purposes which are beneficial to the community.