Guide To Use Labuan For Your Wealth Protection
How important is it to protect your assets? For most people, it is extremely important. This is especially for those who have dependents and a large number of assets. When you have assets worth a lot of money, it is important to make sure your assets do not end up in the wrong hands, or that it does not hang in limbo as your family battles it out in court on who gets what.
A typical example:
A Mr. X has many business ventures managed by different family members for different business segments with different business strategies. He also has a business venture in Hong Kong Off-Shore Financial center.
His problems are:
When one of his businesses fails, there is a risk that all the other businesses may not be protected from the creditors in the event of litigation.
His Hong Kong Offshore Company (HKOC) is not getting the tax advantage that he is supposed to get, because this HKOC did more than 50% sourcing from the local markets. As such, his company is not deemed to be an offshore company and hence it is taxed as a local Hong Kong company. He also has 2 Malaysian companies under his business empire. He has 2 wives and 5 children. Although they get along well now when he is still alive, there is no guarantee that his children may not split his business empire after he has passed on.
He needs 3 kinds of objectives to be met:
- Asset Protection
- Tax Efficiency
- Heritage Protection
To get protection from the one bad business that may affect the rest of the businesses, he can set Labuan Private Foundation structure in Labuan. Some call this the Family Office Structure. Have the Labuan Private Foundation own all the shares of all the companies and become the ultimate holding company of the businesses. Each of the businesses under this holding company has their own separate accounts and its assets are all ‘ring-fenced’ within the individual cell company from creditors of the cell in the event of litigation. The benefits of protection from creditors are priceless! Profits from each of the companies are paid out as a dividend to the Foundation and all distributions to beneficiaries from the Foundation attract no tax.
He can move his HKOC to a Labuan International Company for a low tax regime. This structure helps to reduce his tax liabilities from 16.5% to 3%. Moreover, all business activities can be traded in any foreign currencies including HKD: with a foreign currency account, he does not suffer exchange loss as well. Creation of commercial substance for the business in Labuan is very much cheaper compared to Hong Kong.
For Labuan Private Foundation, he will be the founder and his dependents can be the officer, council members and beneficiaries of his choice to make up the Family Office to ensure a long-lasting legacy for everyone to enjoy. To further enhancement, a Family Corporate Governance can be erected for peaceful dealing at all times and individual interests are well protected.
There are other structures you can deploy for your wealth planning offered by Labuan Jurisdiction. Here is the comparison between the different structures:
|Key Elements||Labuan Foundation||Labuan Trusts||Labuan Company|
|Power||The Foundation itself||Trustees own assets||Shareholder|
|Legal Entity||Yes||No legal personality|
A trust is a relationship
|Legal Personality||Council of Officers||Trustee||Board of Directors|
|Control By||Charter and Articles of Registration||Trust Deed||Articles of Association and Memorandum & Articles|
|Governance||Protector or Supervisory Board||Protector may be appointed||None|
|Validity||Fixed or perpetual||Usually limited||Perpetual until dissolve|
|Objectives||Assets, business holding, making distributions to beneficiaries, able to build/leave a legacy||Asset, business holding, distribution for beneficiaries only||Trading investing, etc to earn profits and pay dividends to shareholders|
|Tax Rate on Net Gain||Investment Holding - zero tax. Trading Activities- 3% or pay flat fee of RM20,000||Not applicable||Investment Holding - zero tax. Trading Activities- 3%|
|Accounting Record||To be kept at Registered Address||To be kept at Registered Address||To be kept at Registered Address|
|Other Officers||Trust Company as Resident Secretary||Trust Company As Trustee||Trust Company as Resident Secretary|
|Registered Address in Labuan ||Yes||Yes||Yes|
Call on us at +603-2783 9191 for a private consultation or email us to guide you on the use of the correct vehicles for your wealth planning!