Labuan Foundations provide a high degree of flexibility and legal protection for wealthy individuals
As the East has developed it has seen a boom in the number of wealthy individuals emerge from all over the region. The number of High Nett Worth Individuals (HNWIs) from Indonesia, Malaysia, Thailand and other Asian nations has increased significantly with the region taking centre stage as a global economic powerhouse.
Serving these HNWIs is a Family Office industry, usually concentrated in a few financial centres such as Singapore and Hong Kong. According to the Monetary Authority of Singapore (MAS), the number of family offices in Singapore rose five-fold between 2017 and 2019 and this has spurred a growth in related services from legal firms and trusts to concierge services.
The character and make up of Asian Family Offices differs to those of the West. In Asia, Family Offices tend to be younger, first or second generation, and often rely on one family business as the wealth generator. Importantly, over the next 15 years or so we expect to see significant intergenerational wealth transfer as the Patriarchs, who are now aging, start to move on.
The challenges for Family Office administrators and service providers are twofold. Firstly, as the COVID-19 pandemic has proven, businesses can be vulnerable to global and regional economic shocks and should one business get into trouble, creditors may be able to seize other assets (property, equity, side businesses etc) unless they are properly protected.
Secondly, intergenerational wealth transfer can be a wealth destroyer if not planned for correctly. However, while we have seen some change in attitudes as a result of the pandemic, Asian HNWIs are still reticent to openly discuss the ‘moving on’ of the Patriarch.
Added challenges are the regulatory landscape in the region and internationally, as well as the complexity of the different options and tools available. International transparency laws are being introduced requiring compliance and the nature of the modern HNWI family is international, often spread across multiple markets. Furthermore, traditional legacy planning tools may be ill-suited to the Asian market as they are either too costly, are bound up by red tape and regulations or do not adequately protect the assets.
Why a Labuan Foundation?
Labuan Foundations are corporate bodies that exist as legal entities, set up to manage their own property for any lawful charitable or non-charitable purpose. There also exists Labuan Islamic foundations, whose operations must be in compliance with Shariah principles.
Labuan Foundations are ideal for wealthy individuals, families, companies and non-profit organisations who wish to control their assets and business while enjoying legal protection. Typically, Labuan Foundations are used for asset protection, charitable purposes, business succession, wealth management and other legal activities.
One of the main benefits of a Labuan Foundation is the fact that foreigners are able to form a foundation, alongside foreign founders, management, beneficiaries and with assets from around the world. Furthermore, the names of the founder(s), beneficiaries, council members and officers are lodged with the Registrar Of Companies (ROC) of Labuan FSA, but are not available to the wider public.
While there may be some Economic Substance requirements to adhere to, Labuan Foundations provide flexibility and legal protection for both corporations and wealthy individuals. Legal teams working with Family Offices should consider a Labuan Foundation for their clients.
For more information on Labuan Foundations, and how to set one up, contact Alpadis Group.