Labuan: Law of Offshore
Labuan trusts are regulated under the Labuan Offshore Trusts Act 1996 ("the Act"). The Act was gazetted and commenced operation on 31 October 1996. An offshore trust which 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.
An "offshore trust" is defined in the Act as a trust which complies with all the following criteria:
- 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;
- It does not own any real estate in Malaysia;
- The beneficiaries are all persons who are neither citizens nor permanent residents of Malaysia;
- At least one of the trustees is a company registered under the Labuan Trust Companies Act 1990 to carry on business as a trust company.
Some of the key features of the Act are as follows:
- A Labuan offshore trust is recognised and enforceable in accordance with its terms by the Malaysian courts situated at Labuan. The Act provides for the establishment of charitable and purpose trusts as well as spendthrift or protective trusts.
- An offshore trust must be created by a will or other instrument in writing for it to be valid.
- The governing law of a Labuan offshore trust need not be Malaysian law.
If an offshore trust is validly created, the courts will not vary it 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:
- the personal and proprietary consequences of marriage or the termination of marriage;
- succession rights, whether testate or intestate; including the fixed shares of spouses or relatives;
- any claims or court orders with regard to matters referred to in paragraph a. or b. in reference to the personal laws of the settlor or the beneficiaries; or
- the claims of creditors in an insolvency (see, however, below).
- If it is proved beyond reasonable doubt that a Labuan offshore trust has been created or registered in Labuan or property disposed of to such a trust:
- with the principal intent to defraud a creditor of the settlor; and
- at the time such creation, registration or disposition took place, it had the effect of rendering the settlor insolvent or without property by which a creditor's claim, if successful, could have been satisfied; then
- the creditor's claim may be satisfied out of the property which but for the creation, registration of the trust or disposition of property would have been available to satisfy the creditor's claim.
- The liability extends only to the interest which the settlor had in the property prior to the creation, registration or disposition and any accumulation to the property, if any, subsequent thereto. Moreover, it is important to note that the onus of proof (being "beyond reasonable doubt") is on the creditor.
An offshore trust created or registered in Labuan and a disposition of property to such a trust shall not be fraudulent as against a creditor of the settlor if:
- its creation or registration, or the disposition takes places after the expiration of two years from the date that the creditor's cause of action arose; or
- its creation or registration, or the disposition, takes place before the expiration of two years from the date the creditor's cause of action arose and that creditor failed to commence such action before the expiration of one year from the date of such creation, registration or disposition.
A settlor will not have imputed to him an intent to defraud a creditor solely by reason that the settlor has created or registered an offshore trust or has disposed of property to such trust within two years from the day that creditor's cause of action accrued.
An offshore trust shall, unless otherwise stated in the terms of the trust, continue to exist for a period not exceeding 100 years. A foreign trust may redomicile to Labuan and, if so, may be registered in Labuan. An offshore trust may migrate from Labuan.
The trustee of an offshore trust is under an obligation not to disclose to any person any document or information as to:
- his deliberations as to how he should exercise or has exercised his functions as trustee;
- the reasons for any decision made in the exercise of those functions;
- any material upon which such a decision was or might have been based. any part of the accounts of the trust; or
- any letter of wishes given by the settlor or beneficiary.
Moreover, the Act requires that every trustee and every other person shall at all times regard and deal with all documents and information relating to a trust as secret and confidential; and that no trustee nor other person shall at any time be required to produce to or before any court, tribunal, board, committee of inquiry or any other authority or to divulge to any such authority any matter or thing coming to his notice or being in his possession for any reason, where such matter or thing relates to a trust.