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WEALTH MANAGEMENT BEYOND LEGAL TRADITIONS: A STUDY OF FOUNDATIONS VS TRUSTS

Thursday, 20 October 2016 9.00AM - 12.00PM

Renaissance Hong Kong Harbour View Hotel


WELCOME REMARKS

YBHG DATUK CHIN CHEE KEE EXECUTIVE CHAIRMAN, NOBLEHOUSE INTERNATIONAL TRUST LTD.


THE ASIAN WEALTH LANDSCAPE: A BRIEF OVERVIEW

by Hiu Chee Fatt

Director, Business Development, Labuan IBFC Inc.

Asian Wealth is Growing

4 Source: BCG Global Wealth Market-Sizing Database, 2016

• Capgemini’s World Wealth Report 2016: There are about 5.1 million HNWIs with wealth amounting to USD17.4 trillion in Asia Pacific.

• BCG: The highest growth in private wealth

was seen in the Asia Pacific region (13% to USD37 trillion in 2015).

• The only region to post double-digit growth in 2015.

• Asia Pacific will continue to gain share in total global wealth through 2020, from 22% in 2015 to an estimated 27% in 2020.

• And driven mostly by the creation of new wealth.

28.3 32.3

36.6

59.8

2013 2014 2015 2020E

Private Financial Wealth (USD Trillions)

ASIA PACIFIC

14.1 13.4

10.3

Asia Pacific: The Top Source of Offshore Wealth

5

Labuan

Offshore Centres as Wealth Management Hubs

6 Source: BCG Perpectives,2016

• 65% of offshore wealth originates from the new world, compared with 57% five years ago

• Factors that encourage and promote the use of Asian financial centres: The demand for better service quality Product diversity Economic stability Tighter regulatory measures

Business Success due to Succession?

7

Our own research with The Economist Intelligence Unit (EIU) found:

• Although family firms have proven their resilience, they often suffer from insufficient planning for the future.

• Lack of understanding that succession is more than picking who the next CEO is, though that is a key decision.

• So there is a lack of appreciation that having structures in place to address succession, even beyond the next generation, is essential for business continuity and stability.

Labuan IBFC - EIU Findings

8

• 2/3 of family businesses surveyed say they have made succession plans. However, formal structures such as family offices, foundations and trusts are not widely adopted.

• Retaining control is paramount. Only 2% of respondents say their management would choose a successor from outside the family.

• 50% of respondents said removing family members from positions of power causes stress and tension.

• Investors value having a succession plan, it’s a key consideration when making investment decisions.

There Maybe A Plan, BUT …

9

Does your company have a succession plan? (% respondents)

Has your company’s succession plan been reviewed by the board? (% respondents)

66%

58%

78%

74%

60%

20%

32%

16%

20%

24%

14%

10%

6%

6%

16%

Yes No Not sure

Malaysia

Singapore

Indonesia

Thailand

Philippines

73%

59%

77%

70%

73%

21%

31%

18%

24%

27%

6%

10%

5%

5%

Yes No Not sure

Malaysia

Singapore

Indonesia

Thailand

Philippines

A Solution in Labuan’s Array of Wealth Management Structures

• Labuan IBFC offers a array of wealth creation and preservation structures in both conventional and Islamic forms.

• Strong and growing number of intermediaries

• Complements the financial hubs of Singapore and Hong Kong

Protected Cell

Companies

Trusts, special trusts and purpose

trusts

Private Client

Foundations

Private Trust Company

What is Labuan IBFC?

Our Vision To be Asia Pacific’s leading midshore international business and financial centre

Striking an ideal balance between client confidentiality and international best standards

• International business and financial centre

• A tax-efficient jurisdiction to facilitate businesses, trading, investments

and etc., through financial services and legal structures

• Well-balanced legal and regulatory framework

11

Where is Labuan?

Off the coast of Sabah, East Malaysia Federal Territory About 100,000 population Common time zone with major cities Where business meets leisure

12

Connecting Asia’s Economies

70% of Labuan Companies are Asian-based

(as at 2015)

13

Internationally Recognised

Positive assessment on Labuan FSA’s standards and practices in 2001 IMF & FATF

Malaysia, including Labuan IBFC reported as well developed with strong legal & regulatory framework, exhibited & implemented Financial Action Task Force’s standards against ML/FT. Accepted as a member of FATF in Feb 2016

APG Mutual Evaluation Exercise

Assessment

Labuan IBFC was recognized as a low risk jurisdiction in money laundering assessment in 2007

APG

Assessment in 2011 on legal provisions pertaining to availability and access to information

Global Forum Peer Review Assessment

Phase I

Rated Largely Compliant in 2014 on availability & access of information including mechanism for exchange of info for tax purposes had been largely in place

Global Forum Peer Review Assessment

Phase II

A full signatory to the IOSCO Multilateral Memorandum of Understanding concerning consultation and cooperation and the exchange of info since 2012 14

IOSCO

Comprehensive Legislation

Labuan Financial Services and Securities Act 2010

Labuan Islamic Financial Services and Securities Act 2010

Labuan Foundations Act 2010

Labuan Limited Partnerships and Limited Liability Partnerships Act 2010

Labuan Business Activity Tax Act 1990

Labuan Financial Services Authority Act 1996

Labuan Trusts Act 1996

Labuan Companies Act 1990

15

An Ecosystem of Solutions

Services

• Banking

• Insurance – Risk Management

• Corporate secretarial

• Legal services

• Administrative activities

• Trusteeship

• Accounting

Structures

• Holding company

• Trading company

• Protected cell companies

• Captive Insurance

• Company limited by shares and guarantee

• Limited partnership

• Limited liability partnership

• Trusts, including purpose trusts

• Foundations

Available in conventional and Shariah-compliant forms

Marketing offices may be located in Kuala Lumpur or Iskandar Malaysia (north of Singapore)

16

Business Activities

Source: Statistics from Labuan FSA’s Annual Report 2015

Banking (54)

•Wholesale banking

•Investment banking

•Loans/deposit

•Financial guarantees

•Trade finance

Leasing (374)

Companies (12,470)

• Investment holding

• Trading

•Life/general

•Broking

•Captives

•Re-insurance

Insurance (209)

•Company incorporation

•Company administration

•Corporate secretarial

•Trustee services

Trust Cos. (43)

•Aviation

•Shipping

•Heavy machinery

Wealth Management

(more than 300)

Commodity Trading

(43)

•Business succession

•Estate management

•Legacy planning

•Oil and gas

•Agriculture

•Minerals

Unique Tax Systems

Flexibility

0% Investment

holding

3%

RM 20,000

Election for Income Tax Act

1967

Irrevocable election

18

Labuan IBFC - Fiscal Incentives

Withholding tax exemption on dividends, interest, royalties, service fees, lease payments

50% exemption on gross employment income of non-Malaysian professional, managerial staff

100% exemption on director fee paid to non-Malaysian director

Stamp duty exemption

No exchange control

Access to most of Malaysia’s 80 double taxation agreements 19

Double Taxation Agreements Network

ALBANIA ARGENTINA AUSTRALIA AUSTRIA BAHRAIN BANGLADESH BELGIUM

CROATIA

IRAN IRELAND ITALY JAPAN JORDAN KAZAKHSTAN KOREA KUWAIT KYRGYZ LAOS LEBANON LUXEMBOURG

MALTA MAURITIUS MONGOLIA MOROCCO MYANMAR NAMIBIA NETHERLANDS

POLAND QATAR ROMANIA RUSSIA

BOSNIA HERZEGOVINA

BRUNEI CANADA CHILE CHINA

DENMARK EGYPT FIJI FINLAND FRANCE GERMANY HONG KONG HUNGARY INDIA INDONESIA CZECH REPUBLIC

NEW ZEALAND

NORWAY PAKISTAN PAPUA NEW GUINEA

PHILIPPINES

SAN MARINO

SAUDI ARABIA

SEYCHELLES SINGAPORE SOUTH AFRICA

SPAIN SRI LANKA SUDAN

SWEDEN SWITZERLAND SYRIA THAILAND TURKEY TURKMENISTAN UAE UK USA UZBEKISTAN VENEZUELA VIETNAM

Why Labuan IBFC?

• Developed legal framework providing a wide array of products and services

• Tax efficiency and flexibility; e.g. Labuan or onshore tax option

• Malaysia is ranked 18th/ 189 - World Bank's Ease of Doing Business Report 2015

• Cost effective, One third the cost of Singapore/Hong Kong

• Professional expertise and services

• Re domiciliation to or from Labuan IBFC of companies and structures allowed

• Ability to create economic substance on Labuan island or Malaysia, onshore

• Same time zone as all key Asian cities, including Singapore, Hong Kong

• Labuan Companies accepted as a listing vehicle on: National Stock Exchange of Australia, Hong Kong Stock Exchange and Singapore Stock Exchange

21

Meeting Asia’s Wealth Management Needs

22

25 Years and Growing…

• Reputation and Track Record

• Connecting Asia’s Economies

23

Thank You


WEALTH MANAGEMENT BEYOND

LEGAL TRADITIONS

A STUDY OF FOUNDATIONS VS. TRUSTS

Millie Chan

2016

Unauthorized Reproduction, Disclosure or Use Strictly

Prohibited © Borden Ladner Gervais LLP, 2014

VAN01: 4456025 v1

Origin of Foundations and Trusts

26

Concept of Foundations

Originated from civil law tradition.

Concept of Trusts

Originated from English common law tradition.

Overview of Civil Law Tradition vs. Common Law Tradition

27

1. Historical Development

Civil law: Developed in Continental Europe; invested with Roman law.

Common Law: Developed in England.

2. Status of Legislations and Judicial Decisions

Civil law: Legislations form the basis of law.

Common law: Judicial decisions form the main basis of law, although there are also legislations.


28

Overview (cont’d)

3. Role of Court

Civil law: To apply the law and adjudicate on disputes.

Common Law: Judges’ decision bind parties to the dispute but also become a source of law.

4. Statutory Construction

Civil law: Liberal interpretation of statutes.

Common law: Narrow and strict interpretation of statutes.


29

Overview (cont’d)

5. Doctrine of Stare Decisis

Civil law: Previous judicial decisions are not binding on the courts.

Common Law: The rule of binding precedents apply.

Characteristics of Foundations

30

1. Distinct Legal Personality.

2. No Shareholders.

3. Absolute Ownership of Assets.

4. Limited Liability.

5. Founder’s Reservation of Rights and Control.

Characteristics of Foundations

31

Characteristics (cont’d)

6.Management and Control.

7.Beneficiary / Purpose.

8.Indefinite Duration.

Overview of Foundations vs. Trusts

32

1. Status:

Foundation: A juridical person.

Trust: A legal relationship recognized by law and represented by the trustee.

2. Ownership of Assets:

Foundation: Owns its assets absolutely.

Trust: Involves the concept of split ownership of assets.


33

Overview (cont’d)

3. Rule against Perpetuity

Foundation: Unlimited duration.

Trust: The original common law trust imposes a rule against perpetuity in respect of ownership of trust assets.

4. Contracting

Foundation: Contracts in its own name.

Trust: As trust is not a legal entity; trustee contracts personally.


34

Overview (cont’d)

5. Mobility

Foundation: Immobile; legislation may permit re-domiciliation.

Trust: Individual trustee can move across jurisdictions; trust document can also provide for continuation of trust.

6. Operational and Structural Framework

Foundation: Shaped by provisions of governing statute.

Trust: Determined by trust law as amended by legislation.


35

Overview (cont’d)

8. Position of Founder / Settlor

9. Position of Beneficiary

Foundation: Beneficiary has no beneficial interest in foundation assets.

Trust: Beneficiary has equitable interest in trust assets.


36

Overview (cont’d)

10. Position of Governing Body / Trustee

Foundation: Owes duty to foundation.

Trust: Owes fiduciary duty to beneficiaries.

11. Validity of Structure

Foundation: Certainty; piercing of veil.

Trust: Judicial determination; sham trust.

Comparative Table of Labuan Foundation vs. Labuan Trust

37

Labuan Foundation Labuan Trust

Applicable Laws Labuan Foundations Act 2010. Labuan Trusts Act 1996.

Legal Structure Foundation is a legal entity. There is no shareholder and Foundation is managed by Officers who may be made subject to oversight of Council/Supervisory Person.

Trust is a legal relationship recognized by law.

Name Must end with “Labuan Foundation” or “(L) Foundation”.

No specific requirement.

Registration Mandatory for establishment of Foundation. Optional

Documentation Constituent documents include Charter (mandatory and must be registered) and Articles (optional and can remain private) .

Created by a will or other instrument in writing.

Minimum Capital Must have initial assets but no prescribed minimum.

Must have trust property but no prescribed minimum.

Comparative Table of Labuan Foundation vs. Labuan Trust

38


Duration May have limited or perpetual existence. May have limited or indefinite duration.

Ownership of Property Foundation is the legal and beneficial owner of property endowed to it. Foundation is bound to manage property according to its Charter, Articles and the Act.

Separation of legal and beneficial ownership. Trustee is the legal owner of trust property but manages it for benefit of Beneficiary.

Rights of Beneficiary to Property

Beneficiary has no interest in property of Foundation unless the property is distributed to Beneficiary.

Beneficiary has equitable interest to trust property.

Rights of Beneficiary to Obtain Information

Beneficiary has certain information rights as provided by the Act.

Beneficiary has certain information rights according to trust laws.

Nature of Duty of Governing Party / Trustee

Officers are responsible to properly administer the Foundation to achieve its purposes or objects.

Trustee must administer the trust in the best interest of beneficiaries.

Comparative Table of Labuan

Foundation vs. Labuan Trust

39


Confidentiality

Registration of Charter is required but not Articles. The Founder is named in the Charter but Founder may be a nominee for purpose of confidentiality.

No public registration of trust or trust instrument is required.

Enforceability of foreign order or claim including forced heirship claim

Provisions are in place to render such order or claim unenforceable.

Provisions are in place to render such order or claim unenforceable.

Taxation Labuan Business Activity Tax Act 1990 or Malaysian Income Act 1967. Founder should always consider taking separate tax advice.

Labuan Business Activity Tax Act 1990 or Malaysian Income Act 1967. Settlor should always consider taking separate tax advice.

Transferability Transfer is restricted to jurisdictions which recognize the concept of Foundation.

Transfer to other jurisdictions is possible due to wide international recognition.

Termination/Liquidation

Formal process of dissolution.

By deed of termination or by Court.

Practical Considerations in Choice of Structure

40

Concept of trust is steeped in established jurisprudence.

Taxation treatment of foundations / trusts.

Uncertainty as to how common law judges would interpret foundation legislations.

Flexibility in the structuring of foundations.

Reception of foundations and trusts in different jurisdictions.

Example of Estate Plan: Status Quo

41

Labuan

Singapore

Family

Holdco

Hong Kong

Labuan

Malaysia

Sibling #4 Sibling #3 Sibling #2 Sibling #1

100%

Example of Estate Plan: New Structure

42

Labuan

Labuan

Holdco

Beneficiaries

Family

Holdco

Main Labuan

Foundation

Sibling #4 Sibling #3 Sibling #2 Sibling #1

Main Structure

Sub-

Structures

Labuan

Sibling #1

Family

Foundation

Sibling #2

Family

Foundation

Sibling #4

Family

Foundation Sibling #3

Family Trust

Example of Estate Plan: Optional Distribution Trust

43

Malaysia

Labuan

Malaysia

Labuan

Holdco

Beneficiaries

Family

Holdco

Labuan

Distribution

Trust Beneficiary

Beneficiaries: All

members of the four

branches of the

Family

Main Labuan

Foundation Main Structure

Sub-

Structures

Sibling #1

Family

Foundation

Sibling #2

Family

Foundation

Sibling #4

Family

Foundation Sibling #3

Family Trust

Wealth Management Beyond Legal Traditions

44

Some concluding observations.

45

Borden Ladner Gervais LLP

Contact Information

Millie Chan Wai Yen, Lawyer, Senior Consultant, Asia Pacific Markets Direct Tel: + 1.604.632.3411 Direct Fax: +1.604.662.5324

Email: [email protected]

Vancouver Office: 1200 Waterfront Centre 200 Burrard Street P.O. Box 48600 Vancouver, British Columbia Canada V7X 1T2 Website: www.blg.com

Thank You

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 and BLG cannot accept any responsibility for loss occasioned 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 and BLG 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

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