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OFFSHORE TRUST
SETTING –UP TRUST COMPANY IN
LABUAN
LABUAN OFFSHORE TRUST

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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

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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

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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

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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

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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.

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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

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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.

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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.

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 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

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 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.

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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.

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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.

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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.

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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

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 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.

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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.

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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.

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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

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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

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Trust Pillars Under Offshore Trust
 Settlor
 Trustee
 Beneficiaries
 Trust Properties
 Protector
 Letter of Wishes

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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.

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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

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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

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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.

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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.

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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)

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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

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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.

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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

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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

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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

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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

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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

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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

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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.

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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

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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.

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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

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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

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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.

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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

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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

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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.

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 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.

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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