06/14/13 1OFFSHORE TRUSTSETTING –UP TRUST COMPANY INLABUANLABUAN OFFSHORE TRUST
06/14/13 2Learning Objectives Students will be able;i) to know what is trust companyii) To learn how to set up a trust companyiii) To apply the duties of trust companyiv) Top understand the concept of Labuan OffshoreTrustv) To learn some features of Labuan Offshore Trust.vi) To understand the advantages & misconception ofof offshore torust
06/14/13 3Introduction The island of Labuan was declared by theMalaysian Government as an InternationalOffshore Financial Centre (IOF) in October 1990 Objectives of developing Labuan into IOFCi) Complement the Malaysian onshore domesticfinancial system in Kuala Lumpurii) To enhance Malaysia as an investment centre andiii) To promote the economic development of Labuanand its vicinity
06/14/13 4Offshore Services Since the declaration, Malaysia has beeninvolved mainly in the following offshoreservices;i) Offshore Trust companiesii) Offshore Bankingiii) Offshore Insurance and Insurance RelatedBusiness
06/14/13 5What is a Trust Company Qualified Malaysian can establish Labuantrust companies under the Labuan TrustCompanies Act 1990. Labuan Trust companies facilitate theestablishment of ;- offshore trust companies- Offshore trusts- Offshore limited partnership and- Offshore funds
06/14/13 6Who can established LTC Qualified Malaysian who are;i) Advocates and solicitors or persons who possess a degree inlawii) Members of the Malaysian Inst. Of Accountants or any assocof accountant approved by the Registrar.iii) Associates or fellows of any association of bankers, insurer orcompany secretaries or similar body recognized by theRegistrariv) Persons who have served for an uninterrupted period of notless than 10 years in any public service or a statutory body orin both, or person who holds a position of trust equivalent tothe person aforesaid.v) Persons recognized by the Registrar as a person comparableto any of the persons above mentioned.
06/14/13 7Types Owned by one of three types of structures;(1) An independent partnership(2) A bank or(3) A law firm, each of which specialize inbeing a trustee of various kinds of trusts, andmanaging estates
06/14/13 8Duties of Trust Companies Among the duties as trustee- manage investments- keep records- manage assets and prepare courtaccountings- paying bills and (depending on the nature ofthe trust) medical expenses- manage charitable gifts, inheritances or otherdistributions of income and principal.
06/14/13 9TRUST COMPANIESS. 4 LTCA Trust company" means a companyregistered under the Labuan TrustCompanies Act 1990 (LTCA) to carry onbusiness as a trust company business.
06/14/13 10 Any company that is incorporated orregistered under Offshore CompaniesAct 1990 (OCA) may apply forregistration as a trust company. The trust company must provide aregistered office, Resident Secretaryand performs the secretarial duties ofthe offshore company
06/14/13 11 With regards to physical presence, a trustcompany shall establish a functional office inLabuan and have at least two approved trustofficers domiciled in Labuan. The trust officers are employees of the trustcompany who have been approved byLOFSA as trust officers.
06/14/13 12Managed Trust Company A trust company may also apply to beregistered as a managed trust company. This is a trust company registered underthe LTCA, but is managed by a fullyoperational trust company in Labuan. A registered trust company in otherjurisdictions is eligible to register as amanaged trust company in Labuan.
06/14/13 13Continue For a managed trust company, therequirement to establish its own physicaloffice is not applicable, but it must appoint amanager and at least two trust officers inLabuan, who can be the employees of theappointed manager.
06/14/13 14Other Activities?S 12,13,14 LTCA A trust company may carry out activities suchas a trustee, agent, executor or administratorpursuant to the objects of the trust company.
06/14/13 15Trust Companies The continued growth in the number of offshorecompanies contributed to the increase in total profitbefore tax of the offshore trust companies by 17.4% toUSD2.7 million, compared with USD2.3 million in2003. As at 31 December 2004, all trust companies inLabuan had completed the exercise to convert theirstatus to offshore entities in accordance with theamended Labuan Trust Companies Act 1990. The conversion facilitated strategic affiliations ofoffshore trust companies with international institutions,making Labuan more accessible as an IOFC topotential offshore companies and investors
06/14/13 16 To compete in the global offshore environment,attention has to be given to providing usefulinformation to potential investors. In July 2004,LOFSA launched a web-based documentsubmission and processing application known asmylofsa. The application allows trust companies tosubmit documents to LOFSA through the Internet, atanytime and from anywhere in the world. LOFSA is also upgrading its ICT infrastructure toenhance business operations in Labuan IOFC.These include the setting up of centralised datastorage system, disaster recovery centre andupgrading statistic and database managementsystem.
06/14/13 17Incentives for Offshore FinancialService Under Income Tax (Exemption) Order (No12) 2000: LTC are exempt from the paymentof income tax on 65% of the statutory incomefrom a source consisting of the provision ofqualifying professional services in Labuan byLTC to an offshore company. An offshore company which has no basisperiod for a year of assessment is taxed at afixed rate of RM20,000.
06/14/13 18Labuan Offshore Trust Regulated under the Labuan Offshore TrustAct 1996 (LOTA). Gazzetted and commenced operation on 31stOctober 1996. An offshore trust is validly created inaccordance with the Act, whether in Labuanor abroad may be registered with the LabuanOffshore Financial Services Authority A registered offshore trust is subject to theprovisions of the Act.
06/14/13 19Definition under LOTA A trust which complies the following criteria;i) It is settled by a person who is neither a citizen orpermanent resident of Malaysia at the time of thecreation of the trustii) It does not own any real estate in Malaysiaiii) The beneficiaries are all persons who are neithercitizens nor permanent residents of Malaysia, atthe time of the creation of the trustiv) Atleast one of the trustees is a companyregistered under the Labuan Trust Companies Act1990 to carry on business as a trust company
06/14/13 20Key Features of LOTA Recognised and enforceable in accordance with itsterms by the Malaysia courts situated at Labuan. The Act provides for the establishment of charitableand purpose trust (s 4 of LOTA) as well asspendthrift or protective trust. (s 5 of LOTA) An offshore trust must be created by a will or otherinstrument in writing for it to be valid. (s8(1) ofLOTA) The governing law of offshore trust need not beMalaysian law. ( it can based on Malaysian law ofabroad
06/14/13 21Trust Pillars Under Offshore Trust Settlor Trustee Beneficiaries Trust Properties Protector Letter of Wishes
06/14/13 22Settlor S2 of LOFTA : a persons who makes a trustand includes a person who provides trustproperty or makes a testamentary dispositionon trust or to a trust, but does not include aperson 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 thetrust is created.
06/14/13 23Trustee of Offshore Trusts PART IV of LOFTA. S 26 : Deals with the appointment of trustee. No restriction but i) if there is only onetrustee, the trustee shall be a trust company If there is more than one trustee, one of thetrustee shall be a trust company S27 of LOFTA ; Acceptance of appointmentas a trustee S28 : Resignation of trustee
06/14/13 24Trustee 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
06/14/13 25Trustee of an offshore trust :Confidentiality inrelation to trust S 41 Trustee is under an obligation not to disclose toany person any document or information as to :i) His delibrations as to how he should exercise orhas exercised his functions as trusteeii) The reasons for any decision made in the exerciseof those functionsiii) Any material in which such a decision was ormight have been base on any part of the accountsof the trustiv) Any letter of wishes given by the settlor orbeneficiary.
06/14/13 26Trustee of an offshore trust s 41(3) Every trustee and every person shall at all timesregard and deal with all documents and informationelating to trust as secret and confidential No trustee nor other person shall at any time berequired to produce to or before any court, tribunal,board, board, committee of inquiry or any otherauthority or to divulge to any such matter or thingcoming to his notice or being in his possession forany reason, where such matter relates to a trust.
06/14/13 27Who are the Beneficiaries? all beneficiaries under the trust are qualifiedpersons at the time the trust is created or atthe time they become entitled to bebeneficiaries under the trust; and Beneficiary? –s.2 Qualified person? –s.2 S. 7(2), (3), (4), ss. 22, 23, 24, 25, 4(3)
06/14/13 28Who are the Beneficiaries?s 22 LOTA Beneficiary shall be identifiable by name orascertainable by reference to a class or to arelationship to some person, whether living ornot at the time. If unidentifiable, trust shall not be valid unlessthe purpose is a charitable purpose
06/14/13 29Letter of Wishes s 34 of LOFTA A letter to the trustee indicating how thesettlor would have managed the trust assetsif he had continued to control them Such letter does not bind the trustee to aparticular course of action. Letter of Wishes does not comprise thevalidity of the trust. Although not binding, trustee would bereluctant to handle the property contrary tothe wishes of the settlor.
06/14/13 30Protector Appointed by the settlor as another means ofalleviating the settlor’s fear of losing control tothe trust property. Usually appointed among the family memberor close fried. Protector usually been given negative poweras too much control would disturb the task ofa trustee. Appointment of protector : s 35 of LOFTA
06/14/13 31How to Create ?s 8 LOTA By a will or other instrument in writing –including a unilateral declaration of trust, inwriting.Stating- the trustee is an offshore trust name of the trust terms of the trust names or information identifying all thebeneficiaries.Take Note: Settlor’s name is not in the list
06/14/13 32What is the law? S. 6 LOTA The governing law of a Labuan offshore trustneed not be Malaysian law – the proper law-the law chosen by the settlor Validity – recognised & enforced by thecourts in Malaysia. – s. 9 LOTA
06/14/13 33Unenforceability of foreign claim or judgment :s10 of LOTA) If an offshore trust is validly created, the court will notvary or or set it aside nor recognise the validity of anyclaim against the trust property, pursuant to the law oran order of a court of another jurisdiction in respect of;a) the personal and proprietary consequences ofmarriage or the termination of marriage.b) Succession rights, whether testate or intestate,including the fixed shares or spouses or relativesc) Any claims or court orders with regards to mattersreferred to in paragraph a. or b. or in reference to thepersonal laws of the settlor or the beneficiaries ord) The claims of creditors in an insolvency
06/14/13 34Fraudulent disposition? s 11 LOTAA creditor must prove beyond reasonable doubtthat: offshore trust was created with principalintent to defraud that creditor; and at the time such creation, registration ordisposition took place, render the settlor,insolvent or without property by which thatcreditor’s claim could have been satisfied
06/14/13 35HOWEVERDisposition is not fraudulent as against creditor ifcreation or disposition of property: took place before the creditor’s cause of actionaccrued or had arisen; took place after the expiration of two years from thedate the creditor’s cause of action accrued; or took place before the expiration of 2 years from thedate, which the creditor’s cause of action accruedbut he fails to commence such action beforeexpiration of one year from the date of suchcreation, disposition or registration
06/14/13 36Must we Register? S 12 LOTA Registration of an offshore trust is optional.An offshore trust validly created under the Act maybe registered with LOFSA. The trustee is responsible for registering theoffshore trust If it is registered, a certificate of registration shall beissued upon paymet of the prescribed fees. If anysubsequent changes are made, it must beregistered within one month of the change and shallhave no effect until it is registered.
06/14/13 37What 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 DiscretionaryTrust
06/14/13 38How long?S 16 LOTA Duration not exceeding 100 yearsunless otherwise specified in the termsof the Trust. However, it may be terminated at anytime in accordance with the provisionsof the law.
06/14/13 39Variation ? s 17 Trust Deed may provide that the terms arecapable of variation or a power exercisableunder the trust is revocable, either in whole orin part. Where an offshore trust is revoked, either inwhole or in part, the trustee shall hold thetrust property affected by revocation for thesettlor absolutely
06/14/13 40Can Trust be Transferred?s 20 & 21 LOTA A foreign trust if authorized by the laws ofthat country or jurisdiction, or the terms of thetrust and its proper law, be enforceable,recognized or registered as if it had beencreated under this Act An offshore trust may be transferred to aforeign jurisdiction
06/14/13 41Confidentiality? S 41 LOTA Trustee or any other person cannot disclose anyinformation relating to the trust, or the exercise of hisfunctions as trustee or accounts of the trust Except when a request is made by a beneficiary ofthe trust for disclosure of information relating to theaccounts of the Trust. This rule is also subject to the terms of the Trust andto any order of the Court given on special andexceptional grounds.
06/14/13 42Secrecy s 15 LOTA All documents filed with or kept by theAuthority in relation to offshore trusts shallnot be open to the public for inspection, andthe Authority shall not disclose to any personany such documents or any informationwhich may have come to its knowledge in theperformance of its duties under this Act
06/14/13 43BUT…. Anti-Money Laundering Act 2001, s 14 & 20 If is gives rise to suspicion, the OffshoreAuthority has a duty to disclose all therelevant information. Reporting obligations shall have effectnotwithstanding any obligations as to secrecyor other restrictions on the disclosureimposed by any written law or otherwise
06/14/13 44Advantages of Offshore Trust 1) Asset Protection Effective way to protect asset if the settlorexperienced bankruptcy, financial difficulties,a divorce or adverse court decision. Offshore trust has initiated “asset protectionlegislation” which guarantee the maximumsecurity for trust assets.
06/14/13 45 2) Tax planning Assets no longer belong to settlor. Hence income and capital gains generatedby those assets are taxed according to therules in the country of residence of the legalowners-trustee. Inheritance tax/ estate duty will be eliminated.will be eliminated.
06/14/13 463) Avoiding the expense and delay of probate. Probate may be avoided as death will notaffect the trust property4) Confidentiality5) Avoiding force heirship6) Estate planning7) Protecting the weak8) Preserving family assets9) Continuing a family business10) Gaining flexibility