A Guide to Private Foundations for Wealth Management

A Labuan Private Foundation, as established under the Labuan Foundations Act 2010, is a separate legal entity with the primary purpose of managing assets and wealth for designated beneficiaries. Unlike trusts, foundations can combine both corporate and trust features, allowing for greater control and flexibility.

Labuan private foundations can serve charitable or non-charitable purposes, making them ideal for both philanthropic endeavors and private wealth management. Foundations are set up by a founder, and the assets are managed by a council and officers. The foundation's structure is designed to ensure that assets are protected, managed, and distributed according to the founder’s wishes.

1. Asset Protection: Foundations offer unparalleled protection against creditors and legal claims. Assets transferred to a foundation are no longer part of the founder’s personal estate, meaning they cannot be seized by creditors or through legal disputes.

2. Wealth Preservation: Labuan foundations are designed for dynastic wealth planning, allowing families to preserve their wealth across multiple generations. With minimum initial assets as low as USD 1, foundations provide a tax-efficient and legally sound structure for asset transfer.

3. Confidentiality: Foundations provide privacy in asset management. Beneficiaries can remain anonymous, ensuring that sensitive financial and personal information is not publicly disclosed.

4. Control and Flexibility: The founder can retain control over the foundation’s assets and management through reserved powers. This level of control ensures that the foundation evolves according to the family’s changing needs and circumstances.

5. Shariah-Compliant Option: Labuan IBFC offers Shariah-compliant foundations, allowing Islamic wealth management practices to be incorporated into the foundation’s operations, ensuring full compliance with Islamic law.

6. Cross-Jurisdictional Wealth Planning: As an international financial hub, Labuan IBFC provides a strategic location for cross-border wealth management. Foundations established here benefit from Labuan’s OECD white-list status, making them recognized and respected globally.

• A foundation is a registered legal entity, providing legal certainty and protection.

• Foundations can be re-domiciled to or from other jurisdictions.

• There is no minimum asset requirement, and a foundation can be established with as little as USD 1.

• Charitable and non-charitable foundations may hold Malaysian assets with Labuan FSA’s approval.

• Foundations can exist for a fixed or perpetual duration, offering flexibility in wealth planning.

• Confidentiality is assured, with no requirement to disclose beneficiaries publicly.

• Arbitration is allowed to settle disputes, ensuring private and efficient resolutions.

• Founder’s rights and powers can be enshrined in the foundation’s charter, offering control over how assets are managed.

• Foundations allow for reserved powers by the founder, providing a mechanism for continued involvement in decision-making.

Private foundations operate with three key components:

• Founder: The individual or entity that establishes the foundation and sets the terms for managing and distributing the assets.

• Council and Officers: The council manages the foundation’s day-to-day operations, while officers ensure compliance with the foundation’s charter.

• Beneficiaries: The individuals or groups who will benefit from the foundation’s assets, either during the founder’s lifetime or after their death.

Setting up a private foundation in Labuan is straightforward and requires the registration of the foundation’s charter with the Labuan Financial Services Authority (Labuan FSA). A foundation can be structured for either a fixed or perpetual duration, and re-domiciliation from or to other jurisdictions is possible, providing significant flexibility in managing international wealth. 

Labuan’s status as a premier international financial center, coupled with its robust regulatory framework, makes it an ideal jurisdiction for establishing private foundations. Key factors include:

• Tax Efficiency: Non-trading income (e.g., investment holding income) is not taxable, while trading income is taxed at a competitive rate of 3%.

• Flexibility: The foundation’s charter can be updated over time to reflect changing circumstances or family needs.

• Inheritance Planning: Labuan private foundations offer a seamless way to manage inheritance, ensuring that wealth is transferred according to the founder’s wishes, free from disputes or legal claims.