Malaysia: Slido Q&A Summary – Joint Masterclass on Wealth Management in Labuan IBFC

1. How much does it cost to open a Labuan Fund?

The cost varied depending on the type of fund (public or private) and structure (Labuan company, Labuan protected cell company, Labuan partnership or Labuan trust).

Typically, to set up a Labuan fund, there are regulatory fees, entity formation and setup fees, professional fees (lawyer, tax advisor) to be incurred. We have summarised the cost ranges (illustrative) for reference:

  1. Regulatory fees – (USD600 to USD3,500)
  2. Entity formation (setup) costs – (USD5,000 to USD15,000)
  3. Legal services (drafting fund documents) costs – (USD15,000 to USD30,000)

 

2. What are the different between a private funds and public funds?

Key differences between a Private Fund and a Public Fund mainly relate to the type of investor, offering of funds, supervision from regulator and ongoing compliance.

 

3. Comparing Labuan with other jurisdictions such as Cayman & SG, what Labuan is predominantly for? Eg Cayman is for US listing, SG due to its marketability.

 In general, choosing a jurisdiction to set up a fund has a number of factors to consider:

  1. Where the Investors are familiar with the structure and where they are located.
  2. Where the professional advisers understand the legislation and the implementation.
  3. Where the jurisdiction complies with the various assessments by the various competent assessors such as EU, OECD, and so forth.
  4. Where the costs of setting up fund structures are costs efficient

Based on the above, Labuan fits into the above categories stated.

 

4. The 1 million investments by individuals from peninsular is in ringgit terms as well as the maximum amount. Correct me?

A) We are unaware on the above parameters.

B) Please refer to our Product Sheet on Funds for general information.

 

5. Bank Negara allows individuals without domestic ringgit borrowings to invest abroad without limit. Any other approval needed to set up funds/trust in Labuan.

No prior approval is required to set up private funds or trusts in Labuan. As for Labuan public funds where securities are offered for subscription to any member of the general public are required to submit an application for registration with Labuan FSA before commencing business.

 

6. Is establishing the SPVC mandatory before launching a private fund in Labuan, and what is its purpose in this context?

A) In general, when establishing a Fund Structure, it may include the following:

  • Fund Manager
  • Fund entity – which may be a Company, or Limited Partnership or a Unit Trust
  • Investors
  • Fund Administrator
  • And so forth

B) Based on the limited information provided, we are unable to comment further.

 

7. There are so many scams, AMLA breaches and investment frauds. What is LIBFC doing to ensure the new investment schemes based in Labuan can protect investors?

 We are unable to comment except that Kensington adopt stringent guidelines on our Compliance policies on our clients.

 

8. How is a private fund’s cash pool structured in an SPVC in Labuan—are investor funds at the SPVC level or managed by the investment bank?

You may refer to our answer in question 6.

Typically, investors funds should be managed by the appointed fund manager.

 

9. Could using a Special Purpose Vehicle Company (SPVC) reduce investor confidence, and how can we mitigate this under the Labuan regulatory framework?

You may refer to our answer in question 6.

Typically, the promoter is required to assess and design the most suitable structure for the proposed funds, taking into account the relevant legal, tax, and regulatory considerations, that are accepted by the targeted investors.

 

10. As Malaysia is globally known as market leader in Islamic finance, how could a Labuan based waqf foundation market its services as a family office

 Generally, the concept remains the same as a conventional foundation within a family office structure. However, a waqf foundation is required to operate as a Shariah-compliant platform.

In this regard, Labuan FSA has issued relevant frameworks and maintains a publicly available list of approved Shariah advisers to facilitate compliance and provide guidance to market participants.

 

11. In a Labuan private fund with limited SPVC shareholders, how are multiple investors registered and represented?

A) In general, in a Private Fund, there are 2 types of structures

  • First time investment of RM500,000 with unlimited investors
  • First time investments of RM250,000 with 50 investors

B) We need to understand the structure at hand before we can comment further. In general, only the named subscriber is registered as an investor with the Private Fund.

 

12. when you are endowing assets to the foundation, what are the tax issues particularly stamp duty and other taxes

The Founder should take into consideration the type of assets and the location of the assets in order to assess the potential tax implications when endowing assets into a Labuan Foundation.

It is advisable for the Founder to work closely with a tax adviser to evaluate any tax implications, potential exposures, and ongoing compliance requirements arising from the endowment.

 

13. differences between using private trusts vs foundations in Labuan

The main difference between trusts and foundation lies in the legal structure, ownership and control.

 

A. Legal Structure

  • Trust is a legal arrangement
  • Foundation is a separate legal entity (similar to a company)

B. Ownership

  • In a Trust arrangement, assets are legally owned by the trustee
  • In a Foundation, assets belonged to the foundation itself

C. Control

  • A trust is governed by a trust deed and managed by a trustee, who owes fiduciary duties to beneficiaries
  • A foundation is governed by constitution (Charter and Articles) and managed by the officer(s).

 

14. Are there specific requirements for shariah compliant PE or family investment funds?

Typically, Shariah-compliant private equity (PE) or family investment funds are required to comply with specific Shariah governance and operational requirements, in addition to the general regulatory requirements applicable to Labuan funds.

It is best to appoint a Shariah advisor to work together in designing the shariah compliance PE or family investment funds.

 

15. In a Labuan Fund, how many intermediaries involved, either private or public, what are their roles and which is mandatory to have under Labuan FSA?

A) Please refer to the attached Product Sheet to provide you with general guidance

B) If you wish to discuss further, please do contact us for more specific discussion

 

16. Is a private fund under a foundation subject to d RM10k exchange control?

The RM10,000 exchange control threshold is a policy imposed by Bank Negara Malaysia and applies across the board to Labuan entities, which are treated as non-resident entities for foreign exchange control purposes.

 

17. Nowadays, Labuan funds are structured using Labuan limited liability partnership structure which is garnered attention from the SPV structure, comment pls?

Based on our observation, promoters are leaning towards Labuan Limited Partnership structure mainly due to its flexibility and cost efficiency.

 

18. How mature and well-established are the fund admin service providers in Labuan? For example, in Cayman, we can easily find fund admin vendors for that region

 A) Labuan is a relatively younger jurisdiction of 35 years, as compared with Cayman, whereas it has existed for more than 70 years.

B) However, there are certain service providers in Labuan, who are able to provide fund admin services, especially on Private Equity funds.

 

 19. How much is the minimum investment that IBFC prospecting at present.

  • Unable to comment

 

20. Can IBFC get BNM lift the RM10k per transaction ex control that complicates banking for foundations?

The RM10,000 exchange control threshold is a Bank Negara Malaysia policy, driven by considerations relating to capital flow management, AML/CFT regulatory requirements, and the monitoring of fund movements between resident and non-resident entities.

– We are unable to comment further on this matter. –

 

21. What is the difference between the Labuan Foundation entity and the Foundation incorporated with SSM?

A Labuan Foundation, established under the Labuan Foundations Act 2010 and regulated by Labuan Financial Services Authority is a purpose-built wealth and succession planning vehicle.

An SSM foundation is essentially a company limited by guarantee (CLBG) regulated by Companies Commission of Malaysia for charitable or local purposes activities.

 

22. What are the benefits of a Foundation being a separate legal entity for the purposes of legacy planning?

a) Promotes continuity and long-term preservation of family assets and values

b) Protect assets and reduce exposure of assets to creditor claim, matrimonial claim or risk of forced heirship

c) Certainty in governance and control of assets based on Charter, By-laws and regulations

 

23. What is the current uptake and intent behind Islamic Labuan Foundations?

We are unable to comment further on this without statistical data.

 

24. What is the different between council members and protector

 Council members form part of the governing body of the Foundation and are responsible for making decisions and oversee operations (general supervision) of the management of the Foundation by the appointed officers as well as ensuring compliance with the Charter, By-laws, and applicable regulations.

The Protector (or supervisory person) acts as an oversight and safeguard role and does not manage the day-to-day administration of the Foundation. Typically, the supervisory person is appointed to monitor the actions of the Council and to ensure that actions taken by council are in line with the objectives and intentions of the Foundation.

 

25. Why is there such a high percentage of cash endowed into Labuan foundations according to Labuan FSA stats? Is there an issue with injecting other asset types?

A) In general, there are no issue in endowing assets into a Foundation, such as cash and shares

B) For legacy planning, the Founders will normally endow assets on a step by step basis, rather than in a 100% basis.

C) In addition, endowing assets such as properties will involve planning on potential tax liability to pay and any banking requirements.

 

26. Can the foundation incorporate in Labuan be used as an avenue to buy properties in the peninsula as well as other jurisdictions?

There is no restriction for a Labuan foundation to own properties in the peninsula. However, the endowment or purchase of the said property is subject to compliance with the applicable local laws, regulations, and approval requirements in the relevant state.

 

27. Cheng Bock, thank you for being practical about the concept of substance. Able body is the right legal aspect of balancing between substance vs onerous theory

  • Thank you for the comment

 

28. What is Labuan FSA’s long-term strategic direction?

  • Unable to comment on behalf of Labuan FSA.

 

29. How do Labuan Foundations and trusts relate to each other? Which can exist in perpetuity?

A) A Foundation and a Trust do not relate to each other and are governed by separate legislation.

B) However, each type of structure may be used for legacy planning.

C) A Foundation and a Trust (under different Labuan laws) may exist in perpetuity.

 

30. when you endow the assets from a holding company to a foundation – what are specific taxes you have to face or will transfers will be tax exempted

  • Please seek official tax advice.

 

31. Is Labuan a good place to issue sukuk for a non-resident company. LIBFC doesn’t seem to promote it much, is there a reason

Labuan has in place the necessary legal structures and legislative framework to facilitate sukuk issuance. However, sukuk issuance in Labuan has not been actively promoted by Labuan IBFC, primarily due to Malaysia’s policy positioning and the evolution of its capital market strategy, rather than any limitation or unsuitability of Labuan as a sukuk issuance platform.

 

32. Are there any tax exemptions for transferring of assets into a foundation? Eg Stamp duty or RPGT exemption of transferring properties into the foundation.

a) No withholding tax in Labuan

b) No inheritance tax in Labuan

c) Stamp duty exemption for the following instruments (subject to compliance with substance requirements in Labuan):

  • All instruments which are executed by a Labuan entity in connection with a Labuan business;
  • All Memorandum and Articles of Association, statute, charter, rules, by-laws, partnership agreement or other instrument, under or by which a Labuan entity is established and the scope of that entity’s function, business, powers and duties are set out, whether contained in one or more documents; and
  • All instruments of transfer of shares in a Labuan entity

Please seek official tax advice, if you need confirmation and further elaboration on the tax exemptions applicable for transferring of assets into a foundation.

 

33. Is Labuan Foundation subject to RPGT for properties owned in the event of disposal of its properties?

If the property is owned directly by the Labuan Foundation, and in the event of disposal, this property will be subject to the provisions of Real Property Gains Tax Act 1976 in Malaysia.

 

34. Is it possible for Labuan jurisdiction to apply in financial zones like Forest City in Johor?

Labuan structures can form part of a wider group or investment structure that seeks to benefit from incentives or exemptions offered in designated financial or special financial zones (e.g. Forest City in Johor), provided that the applicable regulatory, tax, and substance requirements are complied with and approvals are obtained from the relevant authorities.

 

35. Now that there are CGT on unlisted shares, how would that work out for Labuan foundations holding shares and transacting these shares?

Generally, Labuan Foundations are taxed under the Labuan Business Activity Tax Act 1990 whereas CGT is imposed under Income Tax Act 1967. Accordingly, if a Labuan Foundation makes an irrevocable election to be taxed under the Income Tax Act 1967, the CGT rules will apply to any disposal of unlisted shares.

Notwithstanding the above, it is advisable for the Labuan Foundation to seek guidance from a qualified tax consultant or advisor to assess the overall tax implications, taking into account the nature of the assets, transaction profile, and the Foundation’s objectives.

 

36. For UHNW families comparing options, what are the factors to be considered in choosing Labuan-based structure regulated by LFSA over the SFO structure (SC)?

Some of the factors to be considered as follow:

  • Robust legislative and regulatory framework for wealth structuring and cross-border asset management
  • Legal structures options; i.e. options for Labuan Private Trust Company, Labuan Foundation
  • Location of assets and investments; i.e. foreign versus onshore
  • Secrecy provisions in Labuan legislations.

 

Disclaimer:

The information provided in this document is for general informational purposes only and does not constitute tax, legal, or accounting advice. All information provided is based on our best of knowledge but we make no representation or warranty of any kind regarding its accuracy, adequacy, validity, reliability, or completeness. Consultation with a qualified tax and legal advisor should be sought, before making any financial decisions or taking any action based on the information provided.