Guide to Start Labuan Charitable Foundation
Labuan Charitable Foundation is a foundation established by the founder for charitable purposes only and is non-profit oriented. Labuan Charitable Foundation’s function will be typically donating funds and support other non-profit organisations, or provide the source of own funding for its own charitable purposes. The purpose is usually to promote public benefits or other purposes generally beneficial to the community.
Labuan Charitable Foundation permits the following purpose only:
* The prevention and relief of poverty;
* The advancement of religion, profession or education;
* The advancement of health for sickness, disease or of human suffering;
* The community advancement for the aged, disability, children and young people
* The advancement of culture, arts and heritage;
* The advancement of an amateur sport that involves on physical or mental exertion;
* The promotion of human rights, conflict resolution and reconciliation;
* The advancement of environmental protection and improvement;
* The advancement of animal welfare; or
* The advancement of recreation facilities or leisure-time occupation for social welfare.
5 Key Benefits of Labuan Charitable Foundation:
* Asset Protection-it is the only Foundation entity that protects assets, unlike other charitable entity in Malaysia.
* Reservation of Powers-the founder reserve full powers to dictate and control the way the assets being managed even though Founder has transferred the assets are to the Foundation and the reservation powers can be included in the Charter.
* Full administration and control-clear cut delegation of authority and concise operating rules can be embodied in the Charter which will make managing the Foundation easier, more effective and less divisive.
* Tax and exemptions-100% tax exempt on distributions, no inheritance tax, no service tax. However, income derived from holding Malaysia properties will be subjected to Malaysia local tax and property gain tax.
* Secrecy and Confidentiality-there is strict regulation in place to ensure the privacy of the founder and the Foundation are protected and it is a criminal offense for anyone to wrongfully disclose information of the foundation.
Key Features and Operation Requirement of Labuan Charitable Foundation
1. To maintain a Registered Office in Labuan
2. No capital requirements, only with a minimum endowment of USD1.00 as an initial asset at the time of establishment
3. Legal Status
a. It is a legal entity with rights and status of a separate and independent person
b. It can be the shareholder of a company
c. It can enter into contracts, buy and sell properties, own bank accounts or own shares or interest in other corporations
d. For purposes of minimizing risk, it is encouraged that all trade activities (if any) should be carried out through an underlying company or partnership. Trade or commercial activities are incidentals or ancillary to its main purpose which is the management of its property.
4. Duration of the Labuan Charitable Foundation may be fixed or infinite lifespan
5. Carry on business in any currency other than Malaysian Ringgit except as permitted by the relevant authorities
6. Types of property, assets permissible to be endowed into Labuan Charitable Foundation
a. Assets of every kind whether corporeal or incorporeal, tangible or intangible, movable or immovable, however, acquired may be endowed to a Labuan Charitable Foundation; and
b. Legal documents or instruments in any form, including electronic or digital, evidencing title to or interest in, such assets as described in the above (a) including bank cheques, money orders, shares, securities, bonds, bank drafts and letters of credit.
c. Property of the Labuan Charitable Foundation is owned legally and beneficially by the foundation and is to be utilised solely for the purposes and objects stated in the charter of the foundation.
d. Property of the Labuan Charitable Foundation can be Malaysian and/or non-Malaysian property.
7. Malaysian properties endowed to Labuan Charitable Foundation need not seek prior approval from Labuan FSA. Malaysian founders are free to endow Malaysian property to the foundation as permitted by Foreign Exchange Administration (FEA). However, Labuan charitable foundations are required to provide in the charter that any subsequent conversion or transfer of the endowed property for investment abroad would need to comply with FEA rules.
8. Creditors’ claims
Being a separate legal entity, if the transfer of assets was completed prior to the claim arising, the assets are beyond the reach of a creditor’s claim against the Founder. It is important that the transfer of assets:
a. takes place before the creditor’s cause of action is accrued
b. takes place two (2) years from the date of registration
c. must not render the Founder’s insolvent; and
d. must be made without any intent to defraud the creditor
9. Accounts of Labuan Charitable Foundation
All accounting records and other records shall be maintained in Labuan. They must be made available for inspection by the council members, supervisory person, officers and the approved auditor if appointed
10. The operations of a Labuan Islamic Charitable Foundation shall be in compliance with the Syariah principles.
Redomiciliation of Labuan Charitable Foundation
A foundation established in another jurisdiction may be legally redomiciled to Labuan and vice versa, provided that the other corresponding jurisdiction permits.
Dissolution of Labuan Charitable Foundation
The foundation may be dissolved upon the passing of a resolution by the officer on the promise that:
a. the foundation is established for a definite period and that period has expired
b. the purpose of the foundation is fulfilled or becomes incapable of fulfillment; or
c. the Charter requires such dissolution. After the dissolution, the ownership of the remaining assets will be transferred to the beneficiary
Six Key Personnel for Labuan Charitable Foundation
The Founder – a person who establishes the foundation
a. The main controller who retains all power of the Foundation reserves the right to change the Charter of the Foundation
b. Minimum one, either a natural person or corporate entity
c.Subscriber to the Charter
d.Maybe residents or non-residents of Malaysia
e. May also be a council member and one of the beneficiaries
a.May include individuals, corporate entities or charities and are those who have vested interest in assets of the foundation
b.Maybe residents or non-residents of Malaysia
c. Unless specifically provided in the charter or articles, beneficiaries have no rights to the foundation’s assets and are not owed any fiduciary duties
b.One or more must be appointed by Founder prior to registration of the foundation
c. Maybe either a natural person or corporate entity
d.Maybe residents or non-residents of Malaysia
e. Founder or Beneficiary may be appointed as Officer (but not be a council member at the same time)
f.Duties are inter alia to ensure proper administration of the foundation and to carry out decisions of the Council
The Council Members
a.Not a compulsory appointment, at the discretion of the Founder
b.If appointed, one or more, either a natural person or corporate entity
c.Maybe residents or non-residents of Malaysia
d.Cannot act as Officer at the same time
e.Council is similar to the Board of Directors in a company context. The council is responsible to manage and oversee operations (general supervision) of the foundation by its officer and to ensure compliance by the Labuan foundation and its officer with the charter of the foundation and provisions of the LFA.
f.Council members supervise Officers of the foundation. The council’s decision must be in line with the objectives and purposes for which the foundation was established
g. Council members do not owe the fiduciary duty to beneficiaries and hence, this eliminates competing beneficiaries interests
a. A compulsory appointment must be a licensed Labuan Trust Company
b. Acts as a service provider to the foundation and perform a compliant agent function and acts as a conduit between the foundation and Labuan FSA
The Protector / Supervisory Person
A protector or supervisory person may be appointed by the founders. These parties may monitor the Council’s decision, the power to add or remove Officers, Council members etc.
Fees payable to Labuan FSA annual fee for Labuan Charitable Foundation is RM750 payable by 15th January each year. Application to register a Labuan Charitable Foundation: 1 to 2 months.
Please contact us at +603-2161 0354 or email email@example.com. We “simplify the complexities” of starting a Labuan Charitable Foundation.