The offshore private foundations are getting more and more popular, so there is no surprise, that offshore center of Malaysia, Labuan offers one of these tax free options as well. On the other hand, Malaysia is not included in the OECD’s “list of shame”, and the local regulations, based on English law can help the orientation.
Our previous articles: Liechtenstein, Belize, St. Kitts and Nevis, were introducing popular places for founding private foundations. Perhaps it’s worth to remember, that a private foundation is hybrid structure, what combines the most important advantages of a company and a trust. That means, it is a legal entity independent of its owner, and capable of producing profit.
In Labuan we can found four types of foundations:
– charity foundation
– private foundation
– corporate foundation
– the fourth is a special form of foundation, the Islam foundation – and it’s regulated by the sharia law.
More and more business man chooses the various beneficial forms of Islam financing, and one of these, is the Islam foundation.
– The goal of a charity foundation is, to give financial or other form of support for a non-profit reason.
– The most common use of private foundations are, individual tax planning, managing real estate and managing or demising family assets with ease. Private foundations are not collecting subsidies from uninvolved natural persons or legal entities, and not necessarily practicing charity.
– Corporate foundations are mostly private foundations sponsored by a business. By the help of the private foundation, they tend to reach common goals, like corporate responsibility.
Like other locations offering great opportunities to found private foundations, in Labuan private foundations are separate legal entities, and they are not affected by an accidental bankruptcy of the beneficiaries. The Labuan private foundations can have their own assets, and can trade, or do other type of business, for the sake of the beneficiaries. These Labuan offshore private foundations has no time limit to operate, and they led by an advisory board. There is no need for an owner, and capital contribution is not mandatory either. Also worth to know, that the structure of the Labuan private foundation is pretty flexible, therefore it can be changed fast and efficiently if it’s necessary. Since the related law came into force in 2010, the foundation became the owner of its assets. However if the foundation stops operating in a way appointed in its memorandum, the assets falls back on the founder, or on the beneficiaries previously nominated by the founder. With this, the owner of the foundation can wield full control over the assets and actions of the private foundation, but the money and the managed assets are in the possession of a separate legal entity. In addition, the connection in between the founder and the foundation is protected by strict privacy laws.
Anybody can found a foundation in Labuan, whether or not he/she is a foreigner. It’s Malaysia’s huge advantage, that foreign law decisions and court decisions are practically inexecutable. This helps to ensure safeguarding. According to the law, private foundations in Labuan are inviolable to foreign divorce, enforced transfer of ownership, and bankruptcy. Not to mention, there is no way to get access to any legal documents of the Labuan private foundation without the permission of the advising board. The founder keeps all rights to make crucial decisions, such as disbanding or transforming the foundation arbitrarily, or appointing new beneficiaries, etc. It is possible to transfer registered foundations to Labuan, or migrate private foundations from Malaysia, to some other place.
Offshore private foundations are free from taxes in Labuan, except if they engaging business activities, in that case they have to pay 3% after their turnover. But, if the private foundation doing its business through a foreign company, than it’s considered as foreign trade activity, which is completely tax-free.
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