IIp25-27_0909.qxd 26/8/09 17:57 Page 4
26 | International investment
For the truth of the matter is that in the have a permanent home in Malaysia but not
new world order of the OECD with its in the other contracting state.
Exchange of Information standard, secrecy In addition to the DTA access, Labuan
will not be tolerated, nor will obfuscation. In IBFC’s tax benefits under the Labuan
their place, confidentiality (as in ‘need to Offshore Business Activity Act 1990 (LOBATA
know’ which rules out ‘fishing expeditions’ 1990) include 0% tax on passive income (a
and unauthorised prying eyes) and boon for the expatriate with a pension or
transparency will be the rules of the day. retirement plan); tax exemptions on
Nothing will be lost for those who conduct distributions; no tax on gifts, inheritance,
legitimate business activities or wealthy estate or capital gains; no exchange controls
individuals who use Labuan International or stamp duties.
Business and Financial Centre (Labuan Depending on the individual’s wishes, Trust
IBFC). The domicile has been sticking to its structures in Labuan IBFC can take various
guns over the last 18 years that only real, forms such as interest in possession trust;
legitimate business would be welcome. In discretionary trust; accumulation and
other words, only substance makes good maintenance trust; protection or ‘spendthrift’
business sense. trust.
Even though there is no exhaustive The trend of setting up a Family Office is
definition of ‘substance’ it is worth checking catching on and Labuan IBFC provides for
out some of the criteria normally associated those who desire wealth accumulation to be
with the term. From a Malaysian tax managed professionally under its soon-to-be-
perspective, these criteria include the passed new Trusts Act and Foundations Act.
following: The provisions clearly spell out the role of the
Effective place of management should be professional advisers as providing investment
the country of residence. This means business functions which are separate from the
activities such as management or commercial custodian role of Trustees. Should a settlor
decisions are actually conducted in the desire greater or more direct control over
jurisdiction. So too are the main activities of assets in the Trust, he has recourse through
the entity. another provision.
Similarly, accounts should be maintained in This separation of roles balances the inter-
the jurisdiction. generational needs of the family members,
While the legal entity’s registered office acknowledging the contribution of each as
could be located in Labuan, it must not also being beneficial. The older, more conservative
be regarded as a tax resident in another generation that built the family fortune has
country. (The advantage of this sole residency sway in managing the family legacy while the
will be elaborated below). younger, next generation can make
All relevant requirements pertaining to investment decisions to maximixe returns.
submission of tax returns should be complied In achieving the latter goal, the younger
with, when due. generation may choose to become more
Shareholding needs to be adequate based involved in managing the investments or
on the functions performed, taking into appoint a professional investment adviser,
account the assets used and the risks whether located in Labuan IBFC or in some
assumed. other global city.
But as substance becomes increasingly the For Muslim families, trust structures such 1996. The regulator is committed to, and
focus, so will the cost of establishing as discretionary trusts, charitable trusts, practices, international standards set by the
substance go up and this is where Labuan trading trusts and testamentary trusts (Inter various international multilateral bodies of
IBFC can offer real savings. As a low risk, low Vivos) can easily be made Shariah compliant which it is a staunch member.
tax jurisdiction with a full complement of by ensuring the Shariah Adviser approvals are In keeping with its stringent entry policies,
service providers supported by modern obtained certifying that Shariah principles are extensive due diligence is conducted and no
infrastructure, operational costs in Labuan met. Labuan has specific laws governing bearer shares or cash transactions are allowed
IBFC can often be up to 40% lower than its Shariah-compliant structures while the as part of the operational restrictions.
nearest neighbour, Singapore. Malaysian judicial and arbitration system is The regulatory framework in Labuan IBFC,
Furthermore, for HNW individuals or well versed in Islamic finance matters. while robust, is nevertheless business-friendly
family offices whose country of origin is When all these considerations have been and totally supportive of the OECD standards
outside Malaysia, setting up a trust or weighed, other points to consider are the which, more and more, stress substance as the
foundation in Labuan IBFC brings with it the infrastructure support and the regulatory way of the future.
benefits of access to the country’s double environment. Labuan’s telecommunications
taxation agreements network (DTAs) with 69 system includes fibre optic cable, voice and
countries, one of the largest in the world. data links, air services, highways with a well
The principal advantage of Malaysia’s DTA developed services sector comprising legal,
network is under the Article 4 tie breaker tax, accounting and secretarial professionals. For more information on Labuan IBFC’s wealth
rule. This deems ‘sole residence’ for both a As for regulating the jurisdiction, Labuan management or other estate planning services,
company and the individual tax payer who Offshore Financial Services Authority please visit www.LabuanIBFC.my.
would otherwise be dual tax residents, if they (LOFSA) has been the one-stop agency since
September 2009 Investment International www.investmentinternational.com
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36