Offshore trust


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Offshore trust

  2. 2. 05/14/14 2 Learning Objectives  Students will be able; i) to know what is trust company ii) To learn how to set up a trust company iii) To apply the duties of trust company iv) Top understand the concept of Labuan Offshore Trust v) To learn some features of Labuan Offshore Trust. vi) To understand the advantages & misconception of of offshore torust
  3. 3. 05/14/14 3 Introduction  The island of Labuan was declared by the Malaysian Government as an International Offshore Financial Centre (IOF) in October 1990  Objectives of developing Labuan into IOFC i) Complement the Malaysian onshore domestic financial system in Kuala Lumpur ii) To enhance Malaysia as an investment centre and iii) To promote the economic development of Labuan and its vicinity
  4. 4. 05/14/14 4 Offshore Services  Since the declaration, Malaysia has been involved mainly in the following offshore services; i) Offshore Trust companies ii) Offshore Banking iii) Offshore Insurance and Insurance Related Business
  5. 5. 05/14/14 5 What is a Trust Company  Qualified Malaysian can establish Labuan trust companies under the Labuan Trust Companies Act 1990.  Labuan Trust companies facilitate the establishment of ; - offshore trust companies - Offshore trusts - Offshore limited partnership and - Offshore funds
  6. 6. 05/14/14 6 Who can established LTC  Qualified Malaysian who are; i) Advocates and solicitors or persons who possess a degree in law ii) Members of the Malaysian Inst. Of Accountants or any assoc of accountant approved by the Registrar. iii) Associates or fellows of any association of bankers, insurer or company secretaries or similar body recognized by the Registrar iv) Persons who have served for an uninterrupted period of not less than 10 years in any public service or a statutory body or in both, or person who holds a position of trust equivalent to the person aforesaid. v) Persons recognized by the Registrar as a person comparable to any of the persons above mentioned.
  7. 7. 05/14/14 7 Types  Owned by one of three types of structures; (1) An independent partnership (2) A bank or (3) A law firm, each of which specialize in being a trustee of various kinds of trusts, and managing estates
  8. 8. 05/14/14 8 Duties of Trust Companies  Among the duties as trustee - manage investments - keep records - manage assets and prepare court accountings - paying bills and (depending on the nature of the trust) medical expenses - manage charitable gifts, inheritances or other distributions of income and principal.
  9. 9. 05/14/14 9 TRUST COMPANIES S. 4 LTCA  Trust company" means a company registered under the Labuan Trust Companies Act 1990 (LTCA) to carry on business as a trust company business.
  10. 10. 05/14/14 10  Any company that is incorporated or registered under Offshore Companies Act 1990 (OCA) may apply for registration as a trust company.  The trust company must provide a registered office, Resident Secretary and performs the secretarial duties of the offshore company
  11. 11. 05/14/14 11  With regards to physical presence, a trust company shall establish a functional office in Labuan and have at least two approved trust officers domiciled in Labuan.  The trust officers are employees of the trust company who have been approved by LOFSA as trust officers.
  12. 12. 05/14/14 12 Managed Trust Company  A trust company may also apply to be registered as a managed trust company.  This is a trust company registered under the LTCA, but is managed by a fully operational trust company in Labuan.  A registered trust company in other jurisdictions is eligible to register as a managed trust company in Labuan.
  13. 13. 05/14/14 13 Continue  For a managed trust company, the requirement to establish its own physical office is not applicable, but it must appoint a manager and at least two trust officers in Labuan, who can be the employees of the appointed manager.
  14. 14. 05/14/14 14 Other Activities? S 12,13,14 LTCA  A trust company may carry out activities such as a trustee, agent, executor or administrator pursuant to the objects of the trust company.
  15. 15. 05/14/14 15 Trust Companies  The continued growth in the number of offshore companies contributed to the increase in total profit before tax of the offshore trust companies by 17.4% to USD2.7 million, compared with USD2.3 million in 2003.  As at 31 December 2004, all trust companies in Labuan had completed the exercise to convert their status to offshore entities in accordance with the amended Labuan Trust Companies Act 1990.  The conversion facilitated strategic affiliations of offshore trust companies with international institutions, making Labuan more accessible as an IOFC to potential offshore companies and investors
  16. 16. 05/14/14 16  To compete in the global offshore environment, attention has to be given to providing useful information to potential investors. In July 2004, LOFSA launched a web-based document submission and processing application known as mylofsa. The application allows trust companies to submit documents to LOFSA through the Internet, at anytime and from anywhere in the world.  LOFSA is also upgrading its ICT infrastructure to enhance business operations in Labuan IOFC. These include the setting up of centralised data storage system, disaster recovery centre and upgrading statistic and database management system.
  17. 17. 05/14/14 17 Incentives for Offshore Financial Service  Under Income Tax (Exemption) Order (No 12) 2000: LTC are exempt from the payment of income tax on 65% of the statutory income from a source consisting of the provision of qualifying professional services in Labuan by LTC to an offshore company.  An offshore company which has no basis period for a year of assessment is taxed at a fixed rate of RM20,000.
  18. 18. 05/14/14 18 Labuan Offshore Trust  Regulated under the Labuan Offshore Trust Act 1996 (LOTA).  Gazzetted and commenced operation on 31st October 1996.  An offshore trust is validly created in accordance with the Act, whether in Labuan or abroad may be registered with the Labuan Offshore Financial Services Authority  A registered offshore trust is subject to the provisions of the Act.
  19. 19. 05/14/14 19 Definition under LOTA  A trust which complies the following criteria; i) It is settled by a person who is neither a citizen or permanent resident of Malaysia at the time of the creation of the trust ii) It does not own any real estate in Malaysia iii) The beneficiaries are all persons who are neither citizens nor permanent residents of Malaysia, at the time of the creation of the trust iv) Atleast one of the trustees is a company registered under the Labuan Trust Companies Act 1990 to carry on business as a trust company
  20. 20. 05/14/14 20 Key Features of LOTA  Recognised and enforceable in accordance with its terms by the Malaysia courts situated at Labuan.  The Act provides for the establishment of charitable and purpose trust (s 4 of LOTA) as well as spendthrift or protective trust. (s 5 of LOTA)  An offshore trust must be created by a will or other instrument in writing for it to be valid. (s8(1) of LOTA)  The governing law of offshore trust need not be Malaysian law. ( it can based on Malaysian law of abroad
  21. 21. 05/14/14 21 Trust Pillars Under Offshore Trust  Settlor  Trustee  Beneficiaries  Trust Properties  Protector  Letter of Wishes
  22. 22. 05/14/14 22 Settlor  S2 of LOFTA : a persons who makes a trust and includes a person who provides trust property or makes a testamentary disposition on trust or to a trust, but does not include a person who contributes to a unit trust.  S 7(1) (a) A trust is an offshore trust where –  the settlor is a qualified person at the time the trust is created.
  23. 23. 05/14/14 23 Trustee of Offshore Trusts  PART IV of LOFTA.  S 26 : Deals with the appointment of trustee.  No restriction but i) if there is only one trustee, the trustee shall be a trust company  If there is more than one trustee, one of the trustee shall be a trust company  S27 of LOFTA ; Acceptance of appointment as a trustee  S28 : Resignation of trustee
  24. 24. 05/14/14 24 Trustee of Offshore Trusts  S 29: Vacancy in a trust  S 30 : Duties of trustees  S 31 : Duties of co- trustee  S33 : Powers of trustee  S 34 : Letter or memorandum of wishes  S 35 : Appointment of protector  S36 : Delegation of powers by trustee  S37 : Power of Attorney
  25. 25. 05/14/14 25 Trustee of an offshore trust :Confidentiality in relation to trust S 41  Trustee is under an obligation not to disclose to any person any document or information as to : i) His delibrations as to how he should exercise or has exercised his functions as trustee ii) The reasons for any decision made in the exercise of those functions iii) Any material in which such a decision was or might have been base on any part of the accounts of the trust iv) Any letter of wishes given by the settlor or beneficiary.
  26. 26. 05/14/14 26 Trustee of an offshore trust s 41(3)  Every trustee and every person shall at all times regard and deal with all documents and information elating to trust as secret and confidential  No trustee nor other person shall at any time be required to produce to or before any court, tribunal, board, board, committee of inquiry or any other authority or to divulge to any such matter or thing coming to his notice or being in his possession for any reason, where such matter relates to a trust.
  27. 27. 05/14/14 27 Who are the Beneficiaries?  all beneficiaries under the trust are qualified persons at the time the trust is created or at the time they become entitled to be beneficiaries under the trust; and  Beneficiary? –s.2  Qualified person? –s.2  S. 7(2), (3), (4), ss. 22, 23, 24, 25, 4(3)
  28. 28. 05/14/14 28 Who are the Beneficiaries? s 22 LOTA  Beneficiary shall be identifiable by name or ascertainable by reference to a class or to a relationship to some person, whether living or not at the time.  If unidentifiable, trust shall not be valid unless the purpose is a charitable purpose
  29. 29. 05/14/14 29 Letter of Wishes s 34 of LOFTA  A letter to the trustee indicating how the settlor would have managed the trust assets if he had continued to control them  Such letter does not bind the trustee to a particular course of action.  Letter of Wishes does not comprise the validity of the trust.  Although not binding, trustee would be reluctant to handle the property contrary to the wishes of the settlor.
  30. 30. 05/14/14 30 Protector  Appointed by the settlor as another means of alleviating the settlor’s fear of losing control to the trust property.  Usually appointed among the family member or close fried.  Protector usually been given negative power as too much control would disturb the task of a trustee.  Appointment of protector : s 35 of LOFTA
  31. 31. 05/14/14 31 How to Create ? s 8 LOTA  By a will or other instrument in writing – including a unilateral declaration of trust, in writing. Stating-  the trustee is an offshore trust  name of the trust  terms of the trust  names or information identifying all the beneficiaries. Take Note: Settlor’s name is not in the list
  32. 32. 05/14/14 32 What is the law? S. 6 LOTA  The governing law of a Labuan offshore trust need not be Malaysian law – the proper law- the law chosen by the settlor  Validity – recognised & enforced by the courts in Malaysia. – s. 9 LOTA
  33. 33. 05/14/14 33 Unenforceability of foreign claim or judgment : s10 of LOTA)  If an offshore trust is validly created, the court will not vary or or set it aside nor recognise the validity of any claim against the trust property, pursuant to the law or an order of a court of another jurisdiction in respect of; a) the personal and proprietary consequences of marriage or the termination of marriage. b) Succession rights, whether testate or intestate, including the fixed shares or spouses or relatives c) Any claims or court orders with regards to matters referred to in paragraph a. or b. or in reference to the personal laws of the settlor or the beneficiaries or d) The claims of creditors in an insolvency
  34. 34. 05/14/14 34 Fraudulent disposition? s 11 LOTA A creditor must prove beyond reasonable doubt that:  offshore trust was created with principal intent to defraud that creditor; and  at the time such creation, registration or disposition took place, render the settlor, insolvent or without property by which that creditor’s claim could have been satisfied
  35. 35. 05/14/14 35 HOWEVER Disposition is not fraudulent as against creditor if creation or disposition of property:  took place before the creditor’s cause of action accrued or had arisen;  took place after the expiration of two years from the date the creditor’s cause of action accrued; or  took place before the expiration of 2 years from the date, which the creditor’s cause of action accrued but he fails to commence such action before expiration of one year from the date of such creation, disposition or registration
  36. 36. 05/14/14 36 Must we Register? S 12 LOTA  Registration of an offshore trust is optional. An offshore trust validly created under the Act may be registered with LOFSA.  The trustee is responsible for registering the offshore trust  If it is registered, a certificate of registration shall be issued upon paymet of the prescribed fees. If any subsequent changes are made, it must be registered within one month of the change and shall have no effect until it is registered.
  37. 37. 05/14/14 37 What type of Trust?  Purpose Trust - s 4 LOTA  Charitable Trust – s 4 LOTA  Protective Trust - s 5 LOTA  It could either be Fixed Trust or Discretionary Trust
  38. 38. 05/14/14 38 How long? S 16 LOTA  Duration not exceeding 100 years unless otherwise specified in the terms of the Trust.  However, it may be terminated at any time in accordance with the provisions of the law.
  39. 39. 05/14/14 39 Variation ? s 17  Trust Deed may provide that the terms are capable of variation or a power exercisable under the trust is revocable, either in whole or in part.  Where an offshore trust is revoked, either in whole or in part, the trustee shall hold the trust property affected by revocation for the settlor absolutely
  40. 40. 05/14/14 40 Can Trust be Transferred? s 20 & 21 LOTA  A foreign trust if authorized by the laws of that country or jurisdiction, or the terms of the trust and its proper law, be enforceable, recognized or registered as if it had been created under this Act  An offshore trust may be transferred to a foreign jurisdiction
  41. 41. 05/14/14 41 Confidentiality? S 41 LOTA  Trustee or any other person cannot disclose any information relating to the trust, or the exercise of his functions as trustee or accounts of the trust  Except when a request is made by a beneficiary of the trust for disclosure of information relating to the accounts of the Trust.  This rule is also subject to the terms of the Trust and to any order of the Court given on special and exceptional grounds.
  42. 42. 05/14/14 42 Secrecy s 15 LOTA  All documents filed with or kept by the Authority in relation to offshore trusts shall not be open to the public for inspection, and the Authority shall not disclose to any person any such documents or any information which may have come to its knowledge in the performance of its duties under this Act
  43. 43. 05/14/14 43 BUT….  Anti-Money Laundering Act 2001, s 14 & 20  If is gives rise to suspicion, the Offshore Authority has a duty to disclose all the relevant information.  Reporting obligations shall have effect notwithstanding any obligations as to secrecy or other restrictions on the disclosure imposed by any written law or otherwise
  44. 44. 05/14/14 44 Advantages of Offshore Trust  1) Asset Protection  Effective way to protect asset if the settlor experienced bankruptcy, financial difficulties, a divorce or adverse court decision.  Offshore trust has initiated “asset protection legislation” which guarantee the maximum security for trust assets.
  45. 45. 05/14/14 45  2) Tax planning  Assets no longer belong to settlor.  Hence income and capital gains generated by those assets are taxed according to the rules in the country of residence of the legal owners-trustee.  Inheritance tax/ estate duty will be eliminated. will be eliminated.
  46. 46. 05/14/14 46 3) Avoiding the expense and delay of probate.  Probate may be avoided as death will not affect the trust property 4) Confidentiality 5) Avoiding force heirship 6) Estate planning 7) Protecting the weak 8) Preserving family assets 9) Continuing a family business 10) Gaining flexibility