ONSHORE VS. OFFSHORE FEATURES AND BENEFITS. by Datin Isharidah Ishak, TEP First Fiduciary (Labuan) LLP

Transcription

1 ONSHORE VS. OFFSHORE FEATURES AND BENEFITS by Datin Isharidah Ishak, TEP First Fiduciary (Labuan) LLP

2 Datin Isharidah Ishak, TEP First Fiduciary (Labuan) LLP LLB (Hons) London University Barrister-at-Law Lincoln s Inn Dip. In Shariah Law & Practice, IIU Datin Isharidah, as a Trust and Estate Practitioner (TEP), in international wealth structuring and the procurement and provision of fiduciary services. Through First Fiduciary (Labuan) LLP, she advises her HNW and UHNW clients on the establishment of entities such as trusts, foundations (both private beneficiary and charitable), limited liability partnerships and/or a combination of the said legal entities out of Labuan IBFC. This is mainly in respect of their family and business succession planning as well as asset protection, both for Muslims as well as non-muslims. She holds a Diploma in Shariah Law and Practice besides an LLB (Hons). She has been in legal practice for the past 27 years. 2

3 Offshore Financial Centres Provide HNWIs and UHNWIs access to special products and services In their home jurisdictions they may have limited or no access to these In view of heightened need for transparency and high regulatory standards, which is the more flexible investment environment onshore, offshore or midshore? 3

4 Wealth Creation and Distribution Wealth creation vs accumulation and distribution Succession planning Asset protection Alongside investment and taxation efficiencies 4

5 Planning Concerns Concerns to take into account :- The 4Ds: Death, Disability, Divorce and Dispute Probate process takes time Cross-border assets and beneficiaries Fiscal efficiency Inequality in talents and differing characters of family members Family expansion Multiple families Forced heirship laws 5

6 Avoidable Consequences Avoidable Consequences :- Family dispute Inaccessibility of assets due to legal process Breakdown of family Legal costs Negative publicity Breakdown of family business 6

7 Separation of Ownership Separation of ownership to be balanced with client s required measure of control Need for flexible vehicles Bespoke to each client s needs To preserve wealth Amidst social (family), economic and political changes For the passing down of not only wealth but also family values Family discipline 7

8 Types of Assets Real property - land, house, condo Company Shares Bank Accounts Intellectual Property Insurance Policies Art Collection, Jewellery Ships, Aeroplanes, Yachts 8

9 Asset Holding Structures used to hold assets other than by way of holding in the individual s name : Companies Trusts Partnerships, Limited Liability Partnerships Foundations 9

10 Asset Holding Onshore or Offshore Such assets can be held by such structures onshore or offshore. For a Malaysian client, if such asset-holding structures are held onshore then their transactions are subject to Malaysian law and governed by the Malaysian authorities. If held offshore, typically in an offshore financial centre, then their transactions are subject to the laws of that jurisdiction, and supervision by the authorities in that jurisdiction. 10

11 Offshore or International Financial Centres 11

12 Reasons for Holding Assets Offshore Such jurisdictions enjoy minimal or zero tax in respect of the financial transactions conducted there. Structures set up in these jurisdictions can benefit from the choice of tax treaties (Double Taxation Agreements) available. This enables them to structure their investments into that jurisdiction s treaty partner countries in order to minimize their tax. Greater confidentiality and secrecy in these jurisdictions. There will generally be no register open to public searches. These offshore structures are subjected to less rigid legal requirements and are easier to administer. For example ease of transfer and disposal of investments. Procedure for liquidation, winding up or transfer to another jurisdiction (redomiciliation) is generally easier. Less reporting requirements - they may keep their own books and regulate activities as they see fit. For example :- no requirement to file tax returns, submit annual accounts. Asset protection provisions embedded in the laws some allowing for a shorter limitation period for legal actions to be commenced and where the burden of proof is on the creditor. There are also heirship provisions. 12

13 Wealth Management Structures In Offshore Jurisdictions Main wealth management structures available in offshore jurisdictions : The offshore company The offshore trust The foundation 13

14 General Features of a Company Separate legal entity from its shareholders where the company can own assets in its own name and sue and be sued in its name Shareholders enjoy limited liability ie no recourse against shareholders for liabilities of the company 14

15 The BVI International Business Company The British Virgin Island traditionally known as offshore company formation specialist. Salient features of BVI International Business Company (IBC) ( The BVI Business Companies Act 2004) Minimum of one director only, individual or corporate No need for resident director Need to appoint a registered agent and registered office will be at registered agent s office No necessity to maintain books of account No audit or tax filing required No requirement for holding AGM or file annual return 15

16 General Features of a Trust A trust exists when a Settlor settles property upon a trust to be held by a Trustee on behalf of a Beneficiary It is not a separate legal entity Legal ownership of assets lie with the Trustee while beneficial ownership is with the Beneficiary Trust administered by the Trustee in accordance with the Trust Deed The Trustee owes a very high standard of fiduciary duties to the Beneficiary There is a rule against perpetuities except in the case of charitable trusts Wide reservation of powers by the Settlor may give rise to allegations of the trust being a sham which may result in the courts setting aside the Trust Very confidential private wealth planning vehicle 16

17 The Cayman Islands STAR Trust The Cayman Island Special Trust (Alternative Regime) (STAR TRUST) No requirement for registration Trustee must be or must include a licensed Cayman Islands trust company or a registered private trust company Allows for the creation of non-charitable purpose trusts with the main purpose of holding family assets and preserving shares in the family business Enforcer has to be appointed. This ensures that beneficiaries cannot enforce the trust and cannot seek disclosure of information regarding the trust and its administration Allows for trusts to exist in perpetuity 17

18 General Features of a Foundation TRUST COMPANY FOUNDATION It is a combination of the best features of a trust with the best features of a company No shareholders / owners Foundation run in accordance to the Foundation Charter and Articles and also the Founder s Letter of Wishes Most foundations situated onshore are charitable in nature. Private wealth planning vehicle 18

19 The Labuan Private Beneficiary Foundation Separate legal entity Can hold property in Foundation's name Founder endows assets to a Foundation, it becomes the legal owner of the asset separation of ownership Allows for reservation of powers/rights by the Founder in the individualised constituent documents A body corporate that has no owners/shareholders Managed by Foundation Council and supervised by a Supervisory Person Can act, sue and be sued in its own name Duration can be in perpetuity or for a fixed duration Labuan Islamic Foundation can also be established where the aims and operations of the Islamic Foundation has to be in conformity with Syaria principles 19

20 Management of Labuan Foundation Founder (can be joint Founder or nominee Founder) the person who subscribes his name to the Foundation Charter Beneficiaries the people who will benefit from the Foundation Supervisory Person monitors and safeguards the Foundation's affairs Council Members ensure compliance of the Foundation and its officers Officer administers the Foundation to achieve its purpose of managing the Foundation's assets Secretary a Labuan trust company 20

21 The Labuan Private Beneficiary Foundation (contd) SUPERVISORY PERSON COUNCIL MEMBER OFFICER SECRETARY FOUNDATION (new legal owner of assets ) MANAGEMENT OF ASSETS Benefits distributed to BENEFICIARIES Endows property (transfers ownership) FOUNDER 21

22 Further Features Founder can assign some or all of his rights and powers to a third party revocably or irrevocably Foundation can be redomiciled to another jurisdiction which has foundation laws Arbitration can be provided for by the constituent documents Confidentiality Criminal offence to divulge information of foundation Fine of up to RM1,000,000 and imprisonment Dissolution Voluntary or by court order 22

23 Statutory Firewall Section 58 of the Labuan Foundations Act fraudulent disposition Test of solvency Burden of proof Crucial timing of accrual of cause of action and disposition of property to the Foundation Limitation period Presumption Effect of disposition 23

24 Immunity Section 61 of the Labuan Foundations Act 2010 against foreign claims or judgments Divorce Forced heirship Creditor claims in insolvency 24

25 Advantages of a Labuan Foundation Effective succession planning and asset protection vehicle Separation of asset and ownership Founder able to reserve powers and rights Can be established for charitable or non-charitable purposes Unenforceability of foreign claims or judgements Confidentiality Fiscal efficiency 25

26 Labuan - A Midshore Jurisdiction Labuan as a midshore jurisdiction In view of mounting international calls for greater transparency, a new jurisdiction has emerged combining both onshore and offshore characteristics - the midshore jurisdiction. on the OECD white list skilled wealth management industry as part of Malaysia, Labuan follows the English legal system with a highly developed legal infrastructure stable legal and political systems with the regulatory authority committed to promoting a strong financial services industry furthermore, Labuan is strategically located, same time zone as many major Asia Pacific cities 26

27 Datin Isharidah Ishak, TEP First Fiduciary (Labuan) LLP LLB (Hons) London University Barrister-at-Law Lincoln s Inn Dip. In Shariah Law & Practice, IIU For any enquiries please contact Datin Isharidah,TEP Tel : isharidahishak@gmail.com 27

28 Thank You

29 Disclaimer This presentation should not be regarded as offering a complete explanation of the matters referred to and is subject to changes in law. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Labuan IBFC cannot accept any responsibility for loss occasional to any person acting or refraining from action as a result of any material in this presentation. The republication, reproduction or commercial use of any part of this presentation in any manner whatsoever, including electronically, without the prior written permission from Labuan IBFC Inc. is strictly prohibited. LABUAN IBFC INC SDN BHD IS THE OFFICIAL AGENCY ESTABLISHED BY GOVERNMENT OF MALAYSIA TO POSITION LABUAN IBFC AS THE PREFERRED INTERNATIONAL BUSINESS AND FINANCIAL CENTRE IN ASIA PACIFIC