Labuan Foundation Setup
- Roger Pay
- Jul 20
- 15 min read
Updated: Jul 21
Labuan Foundation Setup
Setting up a Labuan Foundation can be an attractive option for wealth management, succession planning, and asset protection. Here's a comprehensive overview:
What is a Labuan Foundation?
A Labuan Foundation is a corporate body with a separate legal personality, distinct from its founder and beneficiaries. Unlike companies, foundations do not have shareholders or owners. Instead, they are established by a founder who endows the foundation with an initial asset and defines its purpose in a document called the "Charter." Labuan Foundations are governed by the Labuan Foundations Act 2010.
They are often seen as a hybrid between a trust and a company, combining the asset protection features of a trust with the familiar corporate structure of a company.
Key Parties in a Labuan Foundation:
Founder: The individual or entity who establishes the foundation and endows assets to it. The founder can be a resident or non-resident of Malaysia and may retain certain reserved powers.
Beneficiaries: Individuals, corporate entities, or charities who have a vested interest in the foundation's assets. Unless specified in the charter, beneficiaries generally have no rights to the foundation's assets prior to distribution and are not owed fiduciary duties.
Officer: A compulsory appointment, responsible for the day-to-day administration of the foundation. The officer ensures proper administration and carries out decisions of the Council.
Council: The body responsible for managing and administering the foundation's affairs, similar to a board of directors. A council is not always compulsory, but if appointed, it oversees the foundation's management. For charitable foundations soliciting public donations, appointing a council and a supervisory person is mandatory.
Secretary: A mandatory appointment. This must be a licensed Labuan trust company, acting as a service provider, compliant agent, and liaison between the foundation and Labuan FSA.
Supervisory Person (optional/mandatory for charitable foundations): Appointed to oversee and supervise the council, adding an extra layer of governance.
Benefits of a Labuan Foundation:
Asset Protection: Offers strong asset protection features against creditors, lawsuits, divorce claims, and forced heirship laws. Assets endowed to the foundation legally belong to the foundation, not the founder or beneficiaries.
Wealth Succession Planning: Provides a structured mechanism for the transfer of wealth across generations, potentially bypassing probate and reducing inheritance disputes.
Confidentiality: Information concerning the Labuan Foundation (including the identities of the Founder and Beneficiaries) is not publicly available and is known only to the Secretary (Labuan Trust Company). The Labuan Foundations Act 2010 also provides for secrecy clauses.
Flexibility: Can be established for various lawful purposes, whether charitable or non-charitable. The founder can define specific guidelines in the charter.
Tax Efficiency:
100% tax exemption on distributions by a Labuan Foundation to its beneficiaries in Labuan. (Beneficiaries will need to satisfy their own tax liabilities in their respective jurisdictions of tax residence).
No inheritance tax or capital gains tax in Labuan.
If the foundation engages in "Labuan business activity" and meets economic substance requirements, it may elect to be taxed at 3% of net profits or, in certain cases, a fixed rate. Non-trading activities are generally not taxed.
Legal Entity: It is a separate legal entity that can enter into contracts, own property, hold bank accounts, and own shares in other corporations.
Continuity: Can have a fixed or infinite lifespan, ensuring the continuity of family wealth and legacy.
No Capital Requirements: While no minimum capital is stipulated, an initial endowment of at least USD 1 is expected at the time of registration.
Redomiciliation: The Labuan Foundations Act 2010 permits the redomiciliation of foundations established in other jurisdictions to Labuan.
Labuan Foundation vs. Labuan Trust:
While both are excellent wealth management tools, they have key differences:
Feature | Labuan Foundation | Labuan Trust |
Origin | Civil law origins | Common law origins |
Legal Personality | Separate legal entity (can sue or be sued) | Not a legal entity |
Asset Ownership | Foundation legally owns assets upon endowment | Trustee legally owns assets on behalf of trust |
Relationship | Contractual relationship among parties | Fiduciary relationship among parties |
Registration | Mandatory with Labuan FSA | Optional with Labuan FSA |
Key Document | Charter (and optionally Articles) | Trust Deed |
Key Role | Council/Officer administers the foundation | Trustee holds and administers trust assets |
Founder's Rights | Founder generally does not retain ownership rights | Settlor may have certain reserved powers |
Beneficiaries' Rights | Generally no rights to assets before distribution | Entitled to enforce and benefit from the trust |
Requirements for Setup:
Founder: Minimum one, can be a natural person or corporate entity, resident or non-resident.
Officer: Minimum one, natural person or corporate entity.
Secretary: Mandatory appointment of a licensed Labuan trust company.
Registered Office: Must maintain a registered office in Labuan (typically the address of the Secretary).
Charter: A foundational document outlining the foundation's name, registered office, founder's particulars, purposes, initial endowment, beneficiaries, and procedures for council appointment.
Initial Endowment: Although no minimum is stipulated, at least USD 1 is expected.
Assets: Assets endowed to the foundation become its property and cease to belong to the founder. These assets must be applied only for the foundation's stated purposes.
Compliance: Adherence to Labuan FSA's "fit and proper person" requirements for all key parties and compliance with Anti-Money Laundering and Anti-Terrorism Financing Act 2001.
Process of Setup:
Define Purpose and Structure: The founder must determine the purpose of the foundation (charitable or non-charitable) and its intended structure and operations.
Appoint Labuan Trust Company: Appoint a licensed Labuan trust company to act as the secretary of the proposed foundation. This is mandatory.
Draft Documents: The trust company will assist in preparing the Charter and any Articles, outlining the foundation's rules, management, and beneficiaries.
Submit Application: The appointed secretary submits the application for registration to Labuan FSA, along with the required documentation (Charter, particulars of officers, statutory declaration of compliance by the secretary).
Due Diligence: Labuan FSA reviews the application and conducts necessary due diligence (CDD) on the applicant.
Payment of Fees: Upon approval, the required registration fee is paid to Labuan FSA.
Issuance of Certificate: Labuan FSA issues a certificate of registration.
Costs:
Government Registration Fee: Approximately RM750 (around USD 160 as of July 2025).
Annual Government Fee: Approximately RM750 (around USD 160) payable annually.
Secretary Fees: Fees charged by Bestar for our services (incorporation, ongoing secretarial services, compliance, etc.) will vary.
Other Potential Costs: Legal fees for drafting complex charters, audit fees (if applicable, especially for charitable foundations or those electing 3% tax), and other administrative expenses.
Secretary Fees Fees charged by Bestar for services (incorporation, ongoing secretarial services, compliance, etc.)
The secretary fees form a significant portion of the cost of setting up and maintaining a Labuan Foundation.
Here's a breakdown of what those fees cover and what to expect:
Components of Secretary Fees:
Incorporation/Setup Fees (One-time):
Professional Services for Registration: This covers Bestar's time and expertise in preparing and filing all the necessary documents with Labuan FSA to register your foundation. This includes drafting the Charter, preparing statutory declarations, and submitting the application.
Due Diligence/KYC: Bestar conducts thorough background checks on the Founder, Beneficiaries, Officer(s), and Council members (if applicable) to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. This is a significant part of our initial work.
Name Search and Reservation: Checking the availability of your desired foundation name and reserving it with Labuan FSA.
Initial Advice and Consultation: Providing initial guidance on the Labuan Foundation structure and its suitability for your needs.
Government Registration Fee Payment: While the actual government fee (RM 750 / approx. USD 160) is separate, Bestar will handle the payment on your behalf and includes it in our overall incorporation package.
Annual Secretarial Fees (Recurring):
Registered Office Services: Providing a physical address in Labuan, which is a legal requirement for the foundation. This includes mail handling and forwarding services.
Ongoing Statutory Compliance: Ensuring the foundation adheres to the Labuan Foundations Act 2010 and other relevant regulations. This includes maintaining statutory records (e.g., register of officers, council members).
Annual Filings: Preparing and submitting annual returns and any other required documents to Labuan FSA.
Maintenance of Records: Keeping all the foundation's official records as required by law.
Liaison with Labuan FSA: Acting as the primary point of contact with the regulatory authority.
Basic Administrative Support: General administrative tasks related to the foundation's maintenance.
Government Annual Fee Payment: Similar to the registration fee, Bestar will pay the annual government fee (RM 750 / approx. USD 160) on your behalf and include it in our annual service fee.
Factors Influencing Secretary Fees:
Complexity of the Foundation:
Simple vs. Complex Charter: A standard, templated charter will cost less than a highly customized one, which Bestar then implements.
Number of Parties: More founders, beneficiaries, or complex layers of officers/council members can increase the due diligence and administrative workload, leading to higher fees.
Nature of Assets: Foundations holding complex or diverse asset portfolios (e.g., real estate, intellectual property, private equity) may incur higher fees due to increased administration.
Level of Service Required:
Nominee Services: If Bestar provides a professional Officer or Council Member (instead of the Founder appointing their own), there will be additional annual fees for these services.
Jurisdiction of Founder/Beneficiaries: If the parties involved are from high-risk jurisdictions, Bestar's due diligence burden increases, which can reflect in higher fees.
Additional Services:
Bank Account Opening Assistance: Bestar assists with opening bank accounts for the foundation, for an additional fee (USD 500 - USD 1,500).
Accounting and Tax Services: If the foundation engages in trading activities and elects to pay 3% tax, it will require audited financial statements and tax filings, which Bestar can facilitate for additional fees (can be substantial, USD 1,000 - USD 6,000+ annually depending on activity).
Work Permit Applications: If the founder or staff require Labuan work permits, Bestar can assist for a fee.
Estimated Fees (Illustrative):
It's difficult to give precise figures without a specific case, but generally, you can expect:
One-time Incorporation/Setup Fee (including initial year's secretarial services and government fees):
Basic/Standard Foundation: USD 3,000 - USD 5,000
More Complex Setup: USD 5,000 - USD 8,000+
Annual Secretarial Fees (from the second year onwards, including annual government fees):
Basic/Standard Maintenance: USD 1,500 - USD 3,000 per year
More Complex/Active Foundations (excluding specific accounting/audit fees): USD 3,000 - USD 6,000+ per year
Request a detailed fee proposal from Bestar based on your specific requirements. Bestar will provide a transparent breakdown of all costs, including government fees and our professional charges, upfront.
Other Costs
Beyond the core secretary fees charged by Bestar, there are several other potential costs that a Founder should anticipate when setting up and running a Labuan Foundation. These can significantly impact the overall expense, especially for more complex structures or those engaged in active business.
1. Professional Fees for Drafting Complex Charters and Advisory
When Needed: If your foundation has highly specific or intricate objectives, multiple layers of beneficiaries, complex distribution mechanisms, reserved powers for the founder, or requires integration with other international wealth planning structures (e.g., trusts, companies in other jurisdictions), you will likely need to engage Bestar.
What it Covers:
Bespoke Charter Drafting: Beyond a standard template, Bestar will draft a custom Charter (and potentially Articles) tailored to your precise intentions, ensuring legal soundness and enforceability across jurisdictions.
Structuring Advice: Comprehensive professional and tax advice on the most appropriate structure, comparing foundations with other vehicles (e.g., trusts, private trust companies) based on your specific needs, domicile, and assets.
Cross-Border Legal Analysis: Advice on the interaction of the Labuan Foundation with the laws of other jurisdictions where the founder, beneficiaries, or assets are located (e.g., forced heirship, divorce laws, creditor claims).
Tax Advisory: In-depth analysis of the tax implications not just in Labuan, but also in your country of residence and the beneficiaries' countries, including double tax treaties and reporting obligations. This often involves working with Bestar.
Cost: Professional fees are highly variable.
For basic advice or review of a standard charter, it might be a few thousand USD.
For complex, bespoke drafting and comprehensive multi-jurisdictional structuring advice, fees can range from USD 5,000 to USD 25,000+, depending on the complexity, and the time involved. Bestar charges hourly rates (which can be USD 250 - USD 800+ per hour for senior specialists), while offering fixed project fees for defined scopes of work.
2. Audit Fees
When Required:
Charitable Foundations Soliciting Public Donations: These foundations are explicitly required by Labuan FSA to submit annual audited accounts.
Foundations Electing 3% Tax: If a Labuan Foundation engages in "Labuan business activity" (e.g., active trading) and elects to be taxed at 3% of its net profits, it must comply with economic substance requirements, which generally includes submitting audited financial statements.
Specific Provisions: The Founder may also stipulate in the Charter that the foundation's accounts must be audited annually, even if not legally required.
What it Covers: The fees paid to a Labuan-approved auditor for examining the foundation's financial records and expressing an opinion on whether the financial statements are presented fairly, in accordance with applicable accounting standards.
Cost: Audit fees depend heavily on the volume and complexity of transactions and the nature of assets held.
For a relatively dormant or simple foundation with minimal transactions, audit fees might range from USD 1,000 to USD 3,000 annually.
For a foundation with active trading, numerous transactions, or complex investments, the fees could be USD 3,000 to USD 10,000+ annually, or even higher for very large or intricate structures.
3. Bank Account Opening Fees / Transaction Costs
Initial Setup: While Bestar usually assists with bank account opening, some banks may charge an account opening fee.
Cost: Initial fees for bank account opening assistance from Bestar might be USD 500 - USD 1,500. Ongoing bank charges are variable.
4. Asset Transfer Costs
Stamp Duty/Transfer Fees: When transferring assets to the foundation (e.g., real estate, shares in companies), there may be stamp duties, transfer taxes, or legal fees associated with perfecting the transfer of title, depending on the type and location of the asset.
Valuation Fees: For certain assets (e.g., private company shares, unique collectibles), a professional valuation may be required for transfer purposes, especially if the assets are significant.
Cost: Highly variable based on the asset, its value, and jurisdiction. Could be negligible for cash, or thousands to tens of thousands of USD for real estate or significant share transfers.
5. Other Administrative Expenses
Postage and Courier: For physical documents, international courier costs can add up.
Translation Services: If documents are not in English or Malay, translation by a certified translator may be required for regulatory filings or banking.
Notarization/Apostille: Certification of documents for international use.
Professional Fees for Specific Needs:
Investment Advisory Fees: If the foundation hires an external investment manager.
Property Management Fees: If the foundation holds real estate that requires ongoing management.
Consultancy Fees: For specialized advice related to the foundation's activities.
Travel Costs: If the founder or other parties need to travel to Labuan for meetings or to open bank accounts (less common now with remote options).
Cost Range: These are generally minor compared to the main fees but can accumulate depending on activity and specific requirements. Expect a few hundred to a few thousand USD annually for these types of miscellaneous expenses.
When budgeting for a Labuan Foundation, it's essential to consider all these potential "other costs" in addition to the secretary fees. Obtain clear, itemized fee schedules from Bestar to avoid surprises.
Work Permit Application Fees
It's important to differentiate between fees charged by the government/immigration authorities and professional service fees charged by Bestar who assists with the application process.
Here's a breakdown:
Government/Immigration Fees for Labuan Work Permits (Employment Pass)
These are the fees you pay directly to the Malaysian Immigration Department and Labuan FSA:
Labuan FSA Processing Fee:
Normal Processing: USD 350
Fast Track Processing: USD 1,550 (This is an additional fee on top of the normal processing fee, meaning a total of USD 1,900 for fast track from Labuan FSA).
Note: The fast track processing is subject to acceptance by Labuan FSA.
Immigration Department Fees (ESD - Expatriate Services Division): These fees vary based on the duration of the Employment Pass. The "ESD APPLICATION FEE" is typically paid by the company/employer.
Employment Pass (EP) Application Fee: RM 800 (RM 848 with 6% SST) per application.
EP Fee for Endorsement:
1 to 12 months: RM 200 (or RM 300 for MIDA Key Post, but this is less common for Labuan-only entities)
13 to 24 months: RM 400 (or RM 600 for MIDA Key Post)
25 to 36 months: RM 600 (or RM 900 for MIDA Key Post)
37 to 48 months: RM 800 (or RM 1200 for MIDA Key Post)
49 to 60 months: RM 1000 (or RM 1500 for MIDA Key Post)
EP Processing Fee: RM 125 per application.
Visa (if applicable): This varies significantly by nationality. For example, for a Danish national, it could be RM 6 for 1-12 months. This is an additional cost if your nationality requires a visa to enter Malaysia.
Dependant Pass (DP) / Long Term Social Visit Pass (LTSVP) Fees: If you are applying for your spouse and children (under 21), there are separate fees:
DP/LTSVP Application Fee: RM 450 (RM 477 with 6% SST) per dependent.
DP/LTSVP Fee for Endorsement: RM 90 per year (e.g., RM 180 for 2 years).
DP/LTSVP Processing Fee: RM 50 per application.
Visa (if applicable): Varies by nationality.
Professional Visit Pass (PVP) Fees: (For short-term assignments)
PVP Application Fee: RM 800 (RM 848 with 6% SST).
PVP Fee for Endorsement: RM 90 per quarter (e.g., RM 360 for 10 - 12 months).
Visa (if applicable): Varies by nationality.
"Journey Performed" Fee:
RM 500 (approx. USD 106). This fee may be required if the applicant is already in Malaysia on a different type of visa and needs to switch to an employment pass without leaving the country.
Professional Service Fees Charged by Bestar
In addition to the government fees, you will incur fees from Bestar assisting with your application. These fees cover our professional services, advice, and handling of the entire process.
These services include:
Pre-application advisory: Assessing eligibility and requirements.
Document preparation and compilation: Ensuring all necessary forms and supporting documents are correctly prepared and submitted.
Liaison with Labuan FSA and Immigration Department: Handling communications and follow-ups.
Assistance with company requirements: Ensuring the Labuan company meets the criteria for sponsoring work permits (e.g., minimum paid-up capital of RM 250,000 for non-licensed entities, physical office).
Post-approval assistance: Arranging for visa stamping in Labuan.
Renewal assistance: Assisting with the bi-annual renewal process.
Service Fee:
For a single Employment Pass application: USD 1,500 - USD 3,000+ per applicant. This includes initial application and processing.
For Dependant Pass applications: USD 500 - USD 1,000+ per dependent.
Renewal fees: Lower than initial application, USD 1,000 - USD 2,000+ for an EP.
Important Considerations:
Minimum Salary: A key requirement for a Labuan Employment Pass is a minimum monthly salary of RM 10,000 or its equivalent in foreign currency.
Company Requirements: The sponsoring Labuan company must be operational, have a physical office, and meet certain paid-up capital requirements (e.g., RM 250,000 for non-licensed entities).
Processing Time: While the official processing time can vary, estimate 2-3 months from company registration to work permit approval and endorsement, provided all documents are complete.
Renewable: Labuan work permits are typically granted for 2 years and are renewable.
Request a detailed quote from Bestar. We should be able to provide you with a comprehensive cost estimate for your specific situation.
How Bestar can Help
Labuan Foundation Setup
When setting up a Labuan Foundation, Bestar plays crucial roles. Here's how we can help:
Role of Bestar
Bestar helps set up and maintain a Labuan Foundation. Our involvement is central to the entire process. Engaging Bestar is highly recommended, especially for complex cases. We provide specialized professional advice and drafting services. Here's what we do:
Mandatory Secretary: By law, every Labuan Foundation must appoint a licensed Labuan Trust Company to act as its Secretary. This is their primary and non-negotiable role.
Application and Registration: Bestar is responsible for preparing and submitting all necessary application documents to the Labuan Financial Services Authority (Labuan FSA) for the foundation's registration. This includes the Charter, particulars of officers, and the statutory declaration of compliance.
Compliance and Regulatory Filings: We ensure the foundation complies with all relevant Labuan laws and regulations, including the Labuan Foundations Act 2010, and perform all required annual filings and submissions to Labuan FSA.
Registered Office: Bestar provides the registered office address for the Labuan Foundation in Labuan, which is a legal requirement.
Administrative Services: We handle the ongoing administrative tasks of the foundation, such as maintaining statutory records, preparing minutes of meetings (if a council is appointed), and managing official correspondence.
Due Diligence (CDD/KYC): As regulated entities, Bestar conducts comprehensive customer due diligence (CDD) and Know Your Customer (KYC) checks on the Founder, Beneficiaries, Officers, and Council members to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.
Guidance on Structure: While not typically providing legal advice in the same way a law firm does, Bestar can offer practical guidance on standard foundation structures, common provisions in charters, and best practices for administration.
Liaison with Authorities: We act as the primary point of contact between the Labuan Foundation and Labuan FSA.
Professional Officer/Council Member (Optional): In some cases, Bestar or its affiliated professionals can also be appointed as the Officer or a Council Member of the foundation, providing professional oversight and administration.
Tailored Charter and Articles Drafting: Bestar can draft a bespoke Charter and any accompanying Articles that precisely reflect the Founder's unique intentions, complex succession plans, specific asset management rules, and desired reserved powers. This goes beyond standard templates.
Structuring Advice: We provide expert advice on the optimal structure of the foundation, including whether a foundation is indeed the most suitable vehicle compared to a trust or other entities, given the Founder's objectives and domicile.
Tax Implications Analysis: Bestar can analyze the tax implications of establishing and operating the Labuan Foundation in both Labuan and the Founder's/Beneficiaries' jurisdictions of residence, ensuring tax efficiency and compliance.
Asset Protection Strategies: We can advise on how to effectively structure the transfer of assets to maximize asset protection benefits, considering potential challenges from creditors, divorce, or forced heirship laws in other jurisdictions.
Cross-Border Considerations: For Founders with international assets or multi-jurisdictional beneficiaries, Bestar can provide critical advice on how the Labuan Foundation interacts with laws in other countries.
Dispute Resolution and Enforcement: We can advise on the legal framework for dispute resolution within the foundation and the enforceability of the foundation's provisions.
Due Diligence on Founder's Side: We can assist the Founder in understanding the due diligence requirements and preparing the necessary documentation for the LTC and Labuan FSA.
Review of Documents: Bestar can review all documents prepared (e.g., the Charter, application forms) to ensure they accurately reflect the Founder's instructions and protect their interests.
Complex Issues: For situations involving complex assets (e.g., intellectual property, illiquid investments), multiple layers of entities, or sensitive family dynamics, Bestar is invaluable in crafting robust and legally sound solutions.
Bestar provides the strategic professional and tax structuring advice, drafts the sophisticated elements of the Charter, and ensures the foundation aligns with the Founder's overarching objectives and international legal landscape.
Bestar handles the operational, administrative, and regulatory compliance aspects within Labuan, acting as the mandatory secretary and ensuring smooth interaction with Labuan FSA.
Bestar's in-house capabilities are sufficient for simple foundations with straightforward objectives, basic charter drafting, or projects of any complexity. It's also ideal if the Founder needs comprehensive legal and tax planning across multiple jurisdictions. In these situations, Bestar is a wise and often necessary investment.
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