Labuan was declared an international offshore financial center in 1990 and was later renamed Labuan International Business and Financial Center. It is directly managed by the Federal Territories Department of the Federal Government of Malaysia. The legal system of Labuan, like the rest of Malaysia, is derived from English common law. Labuan foundations are governed by the Labuan Financial Act (LFA) and Securities Act 2010. It is mandatory for Labuan foundations to be registered with Labuan Financial Services Authority (FSA).

Labuan foundation, like a company, is a corporate body with a separate legal entity, established to hold assets in its own names with the objective of managing the assets for the benefit of its beneficiaries, or particular purposes, or both. It is typically used for private wealth management and/or charitable.

The Labuan foundation is an orphan structure where they do not have shareholders. Labuan foundations are managed by one or more officers and operate in accordance with the constituent documents comprising of charter and articles.

The Structure of a Labuan Foundation  

Charter - sets out the parameters within which a Labuan foundation is managed and governed.

Officer - primarily administrative as the officer is responsible for ensuring the proper administration of the foundation.

Secretary - acts as the service provider to the foundation and performs all secretarial functions including filing and lodging of documents with Labuan FSA.

Council member - For charitable foundations which soliciting public donations, it is mandatory to appoint council members and supervisory person who are responsible for the general supervision of the foundation management and ensuring that the purpose for which the foundation was established is fulfilled in accordance with the charter, articles and the law. In effect, the council is similar to the Board of Directors of a company. The supervisory person is to ensure the council members act in accordance with the charter as well as safeguard the Labuan foundation’s properties in line with its purpose and object.

Assets - assets endowed to a Labuan foundation become the assets of that foundation with full legal and beneficial title. The assets shall cease to be the property of the founder. These assets are to be applied only for the benefit of the identified purpose(s) of the foundation.

Beneficiaries - include individuals, corporate entities or charities and are those who have vested interest in the assets of the foundation. Unless specifically provided in the charter or articles, beneficiaries have no rights to the foundation’s assets prior to the distribution of assets and are not owed any fiduciary duties.

The Advantages of Labuan Foundations

• Legal Personality – The feature of a separate legal entity means that all liabilities remain as the corporate liabilities of the foundation. The Labuan foundation is also protected from foreign claims and cannot be forcefully liquidated to satisfy other obligations such as claims arising from a divorce, lawsuit or creditors.
  
  
• Initial endowment – Although no minimum amount of assets is stipulated for an endowment, it is expected that a registration of Labuan foundation would be accompanied by an endowed asset of at least USD1.
  
  
• Reserve powers of a founder – a founder may retain certain powers in the Labuan foundations e.g. for the purpose of amendments of charter, appointment and removal of beneficiaries. A founder can also be a council member so as to enable him to manage the foundation and its assets.
  
  
• Life span of Labuan Foundations – Labuan foundations may exist ‘in perpetuity’ as there is no finite period limitation stipulated under the Labuan Foundation Act. This provides for the continuity of the Labuan foundation as needed by the founder.
  
  
• Continuity - A foundation established in another jurisdiction can be legally redomiciled to Labuan and vice versa provided that the other jurisdiction permits and recognize such redomiciliation.
  
  
• Confidentiality - The officer, council member, supervisory person and secretary are restricted from disclosing any information relating to the foundation unless otherwise required or provided for by law, the court, or the charter.
  
  
• Tax exemption - Labuan Foundation’s investment income from non-trading activities such as dividends and interest are not subject to tax under the Labuan Business Activity Tax Act 1990.
  

See also：
Labuan Company Incorporation Complete Package