Using Labuan as an Offshore Centre - The Benefits to Singapore & Asean Businesses

LEE SWEE SENGAdvocate & SolicitorLLB. LLM, MBACertified Mediator, Notary PublicPatent and Trademark Agentsweeseng@tm.net.mywww.leesweeseng.com©copyright

Legislations

Offshore Banking Act 1990Offshore Companies Act 1990Offshore Insurance Act 1990Labuan Offshore Business Activity Tax Act 1990Labuan Trust Companies Act 1990Labuan Offshore Trusts Act 1996 (LOTA)

Legislations

Lembaga Pembangunan Labuan Act 1992Labuan Offshore Financial Services Authority Act 1996Labuan Offshore Limited Partnerships Act 1997Labuan Offshore Securities Industry Act 1998Perbadanan Labuan Act 2001

Topics:

TrustInheritanceLimited PartnershipIntellectual Property

Trust – Reasons for creating one

Tax Planning - mitigating taxes, either entirely or by way of deferral.  In some jurisdictions the scope for tax planning may be limited, in other jurisdictions opportunities remain.

Trust – Reasons for creating oneEstate Planning - Wealthy individual will normally wish to provide income for his spouse, education for his children and also make gifts to charities and perhaps for other public purposes. While a will can achieve some of these objectives, a trust involving the legal transfer of ownership of assets to trustees with defined objectives as to how and for whose benefit the assets are to be held and administered is probably the ideal medium.

Trust – Reasons for creating oneEstate Planning - Some countries may be governed by laws which dictate how assets are to pass to relatives at death, ie ‘forced heirship’. A trust can be a useful way of overcoming forced heirship rules.Avoiding disruption on death – With several properties in several countries mean several probates need to be obtained in the various jurisdiction.

Trust – Reasons for creating oneProtecting certain beneficiaries – providing the needs of individual who are minors or those who suffer from mental or other disabilities Protection from potential creditors – driven by widespread litigation in the USA, with huge awards of damages sometimes handed down by juries in civil cases, trust has been used to provide protection from future creditors.

Trust - LOTA – Creation of trust : s 8

Must be created by a will or other instrument in writing including a unilateral declaration of trust .

Stating-that it is the trustee of an offshore trust;name of the trust;terms of the trust; andnames or information enabling the identification of all the beneficiaries.

Trust - LOTA– Criteria : s 7the settlor must not be a resident of Malaysia; trust property does not include any immovable property situated in Malaysia;beneficiaries under the trust must not be a resident of Malaysia at the time the trust is created; at least one of the trustees is a trust company.

Trust – Various Trusts

Purpose TrustCharitable TrustProtective TrustSpendthrift Trust

Trust - LOTA – Various Trusts : s 4

Purpose / Charitable TrustWhere the trust is made for the benefit of the community or a substantial section of the community such as the relief or eradication of poverty; advancement of education; promotion of art, science and religion; protection of environment; advancement of human rights and fundamental freedom

Trust - LOTA – Various Trusts : s 5

Spendthrift / Protective TrustWhere the trust made in which the interest of a beneficiary is subject to termination, restriction or diminution in the event the beneficiary becoming insolvent or any of his property becoming liable to seizure or to sequestration for the benefit of his creditors.

Trust - LOTA – Unenforceability of Judgment : ss 9 & 10

An offshore trust, validly created shall be recognized and enforceable in accordance with its termsthe Court shall not vary it or set it aside or recognize the validity of any claim against the trust property pursuant to the law of another jurisdiction or the order of a court of another jurisdiction

Trust - LOTA – Fraudulent disposition : s 11Where claiming creditor can prove

beyond reasonable doubt that:offshore trust was created with principal intent to defraud that creditor; andat the time such creation, registration or disposition took place, render the settlor, insolvent or without property by which that creditor’s claim could have been satisfied

Trust - LOTA – Fraudulent disposition : s 11

Disposition not fraudulent as against creditor if creation or disposition of property:took place before the creditor’s cause of action accrued or had arisen;took place after the expiration of two years from the date the creditor’s cause of action accrued; ortook place before the expiration of 2 years from the date, which the creditor’s cause of action accrued but he fails to commence such action before expiration of one year from the date of such creation, disposition or registration.

Trust - LOTA – Registration : s 12

Offshore trust whether validly created in Labuan or abroad, may be registered with the Authority. Statement to contain name of offshore trust; date of creation; name and address of trust company acting as trustee; address of registered office of the offshore trust and proper law of the offshore trust.

Trust - LOTA – Secrecy : s 15

All documents filed with or kept by the Authority in relation to offshore trusts shall not be open to the public for inspection, and the Authority shall not disclose to any person any such documents or any information which may have come to its knowledge in the performance of its duties under this Act

Trust - LOTA – Anti-Money Laundering Act 2001 (AMLA)

Reporting institutions, (as defined in Schd 1 AMLA ie solicitors, Offshore financial services) are under obligation to report where the transaction or any other circumstances concerning that transaction gives reason to suspect that the transaction involves proceeds of an unlawful activity – s 14 AMLA

Trust - LOTA – AMLA – Overriding obligations : s 20

Reporting obligations shall have effect notwithstanding any obligations as to secrecy or other restrictions on the disclosure imposed by any written law or otherwise

Trust - LOTA – Duration : s 16

An offshore trust shall … continue to exist for a period not exceeding one hundred years; but it may be terminated at any time in accordance with the provisions of this Act.

Trust - LOTA – Variation : s 17

Trust may expressly provide that its terms are capable of variation; or that the trust itself or a power exercisable under the trust is revocable, either in whole or in part.Where an offshore trust is revoked, either in whole or in part, the trustee shall hold the trust property affected by revocation for the settlor absolutely.

Trust - LOTA – Termination : s 17

Where all beneficiaries are in existence and ascertained and none of them is a minor or person under any legal disability, they may require the trustee to terminate the trust and distribute the trust property among them.

Trust - LOTA – Transferability : s 20 & 21A foreign trust may, if it is so authorized by the laws of that country or jurisdiction, or the terms of the trust and its proper law, be enforceable, recognized or registered in as if it had been created under this Act – s 20 orAn offshore trust may be transferred to a foreign jurisdiction – s 21

Trust - LOTA – Beneficiaries: s 22Beneficiary shall be identifiable by name or ascertainable by reference to a class or to a relationship to some person, whether living or not at the time. If unidentifiable, trust shall not be valid unless the purpose is a charitable purpose.

Trust - LOTA – Trustees: s 26

No restrictions imposed on the number of trustees that may be provided but if there is only one trustee, the trustee shall be a trust company; and if there is more than one trustee, one of such trustee shall be a trust company

Trust - LOTA – Confidentiality : s 41

Subject to the terms of the trust or Court order, a trustee shall not be required to disclose to any person any document or information which discloses his deliberations as to how he should exercise or has exercised his function as trustee, reasons for his decision or any material upon which his decision was based upon.

Trust - LOTA – Liability of trustee : s 42

A trustee who commits or concurs in a breach of trust shall be liable for any loss or depreciation in value of the trust property resulting from the breach; and any profit which would have accrued to the trust had there been no such breach.

Trust - LOTA – Non-Applicability

Provisions of the Trustee Act 1949 [Act 208] , the Trustee (Incorporation) Act 1952 [Act 258] and section 9 of the Government Proceedings Act 1956 [Act 359] shall not apply to an offshore trust validly created or enforced or registered under this Act – s 62

Inheritance

Where trust is created, whether local law will uphold it. C/f with countries with “forced heirship” such as those that occurs under Syariah law."Forced heirship" is a rule that applies to an individual whereby, on his death, his assets must be distributed in a particular way.

InheritanceSee Re Man bin Mihat, decd [1965] 1 LNS 211, where a muslim took out an insurance policy naming his wife as beneficiary. Question arises whether the money payable under the policy belongs to her beneficially or forms part of her husband's estate in which event it falls to be distributed among his heirs of whom there are two, his widow and a minor son.

InheritanceIt was held that Muslim law rigidly prescribes the share of every heir and no alteration of these shares may be made by will, for a bequest to an heir requires the consent of all co-heirs and a bequest to strangers may not take effect beyond 1/3 of the testator's estate, but there are no restrictions beyond these two limitations.

Inheritance So it is lawful for a Muslim to alter the prescribed shares of his heirs by disposing outright during his lifetime part or the whole of his property to a favoured wife, either directly by way of a gift inter vivos or indirectly through trustees. If there is no legal objection to a Muslim altering his heir's share by himself during his lifetime making a gift through trustees to a favoured wife, equally there should be no objection in principle to the validity of a similar gift made not by himself but by statute.

InheritanceExamples of other jurisdictions which have strict rules relating to distributions are found, amongst others, in the civil law countries of Europe, Japan and the Arab world.A disposal of property by an individual during his lifetime to trustees could defeat or diminish the rights of his heir under the law affecting his succession. The validity of a transfer to the trust could be put into question, which may prevent the trust from being effective and the trustees might find that they did not have title to the assets.

Partnership - Labuan Offshore Limited Partnerships Act 1997 (LOLPA)

not less than two partners and not more than twenty partners

one at least a general partner and one at least a limited partner. A person may be both

Partnership – Types - LOLPA

3 types of partnership:1. Offshore professional partnership –

formed only by professionals who carry on practice in accounting, actuarial science, engineering, law or such other fields as may be prescribed by the Authority and must have in force professional indemnity insurance cover. Partners must be individual - s 3 (4)

Partnership – LOLPA - Types

2. Offshore project partnership - Solely for the purpose of undertaking the project or business specified in its partnership agreement and incorporate in its partnership agreement a provision providing that the offshore project partnership shall be dissolved after the completion of the project or business. Partners must be body corporate – s 3(5)

Partnership – LOLPA - Types

3. Offshore general limited partnership - may consist of any persons as partners. Persons may be individual or a body of persons, corporate or unincorporate – s 3 (6)

Partnership – LOLPA – Application : s 4An application

made in prescribed form and accompanied by the prescribed fee.One of partners must be either a registered offshore company, a trust company acting as trustee or nominee of a non-resident or a non-resident.filed a partnership agreement. (c/f with Jersey where no partnership agreement need to be filed)

Partnership – LOLPA – Agreement : s 4The agreement would contain particulars such as the name of the offshore limited partnership, intended address of its registered office, the full name and address of each general partner (place of incorporation and its registered or principal office in the case of a company), duration of existence of the partnership, its nature of business and other relevant particulars.

Partnership – LOLPA – Certificate : s 4

A certificate of registration will be issued and effective for a period not exceeding one year and may be renewed upon application being made to the Authority in the prescribed form and accompanied by the prescribed fee.

Partnership – LOLPA – Change in partnership : s 5

Any change to the partnership agreement the offshore limited partnership shall within 30 days file with the Authority a notice signed by a general partner, specifying the nature of the change. – s 5(1)Failure to do so is an offence. – s 5(4)

Partnership – LOLPA – Enforcement of Judgments : s 10

Enforcement of judgments against property of offshore limited partnershipNo judgment shall be enforced against any property of an offshore limited partnership unless such judgment has been granted against a general partner in his capacity as a general partner of that offshore limited partnership.

Partnership – LOLPA – Limited partner : s 8

Contribution of limited partner may be in the form of money, property, or services. If other than in cash, a value to be known as a statutory value shall be assigned to the value of that contribution or that part of the contribution or of that intended contribution or that part of the intended contribution.

Partnership – LOLPA – Rights of general partner : s 9Rights of general partner

The rights of a general partner in an offshore limited partnership general partner is similar to that of a partner in a partnership except for certain acts, the written consent or ratification by all the limited partners are required.

Partnership – LOLPA – Rights of general partner : s 9

Rights of general partnerAny debt or obligation incurred by a general partner in the course of the activities of an offshore limited partnership is a liability of the offshore limited partnership.

Partnership – LOLPA – Rights of limited partner : ss 12, 13, 14Rights of limited partner

A limited partner has the right to a share in the offshore limited partnership profits, allocated by reference to the percentage of contributions.A limited partner is allowed to lend and borrow money, and enter into transactions with the offshore limited partnership.

Partnership – LOLPA – Limited partner’s liability to creditors : s 17

Ltd partner shall not be liable as general partner unless the limited partner participates in the management of the offshore limited partnership.

Intellectual Property - Legislations

Trade Marks Act 1976Patents Act 1983Copyright Act 1987Industrial Designs Act 1996Layout-Designs of Integrated Circuits Act 2000Geographical Indications Act 2000

Intellectual Property – Trade Marks

No separate Trade Marks law for Labuan. The Trade Marks Act 1976 is applicable throughout Malaysia – s 1(2)

Intellectual Property – Trade Marks

No separate Trade Marks law for Labuan. The Trade Marks Act 1976 is applicable throughout Malaysia – s 1(2)

Intellectual Property – Benefits

An offshore company can purchase or be assigned the right to use a copyright, patent, trademark by its original holders with a power to sub-license. Upon acquisition, the offshore company can then enter into agreements with licensees around the world who would be able to exploit the intellectual property right in various countries.

Intellectual Property – Benefits

In some cases it may be preferable to acquire, for example, a patent at the patent pending stage before it becomes very valuable so that the capital payment for the acquisition of the patent can be set at a lower amount.

Intellectual Property – AssignmentsTrade Marks 1976, s 55 : Unregistered trade mark can also be assigned.Patents Act 1983, s 39 : A patent application or patent may be assigned or transmitted.Copyright Act 1987, s 27 : Copyright shall be transferable by assignment, testamentary disposition, or by operation of law, as movable property.Industrial Designs Act 1996, s 29 : Rights of an owner with respect to a registered industrial design are personal property and are capable of assignment and transmission by operation of law.

Intellectual Property – Trade MarksAny distinctive sign such logos, pictures, symbol etc. Not deceptive/confusing, or contrary to law and scandalous/offensive. Not identical or similar to earlier registered/application trade marks. Not identical or similar to well-known trade mark.

S 10

Intellectual Property – Trade Marks

Does Malaysian Registration Give Protection Abroad?

No. If protection of trade mark is required in other countries, it will be necessary to apply for registration separately in each countries.  However, a Malaysian application can be used as a basis for claiming priority in countries which are party to the Paris Convention and WTO.

http://www.mipc.gov.my/ 

Intellectual Property – Trade Marks Act 1976Application

Applicant can be a foreigner but if the applicant for the registration of a trademark does not reside or carry on business in Malaysia, he shall give to the Registrar an address for service in Malaysia which shall be the address of his agent. S 79

Intellectual Property – Trade Marks Act 1976Duration

The duration of a trademark shall be for a period of 10 years and may be renewed every 10 years . S 32 & 41

Intellectual Property – Patents Act 1983

No separate Patents law for Labuan. The Patents Act 1983 is applicable throughout Malaysia – s 1(2)

Intellectual Property – Patents Act 19833 criteria for Patentable Inventions

Be New - which means that the invention has not been publicly disclosed in any form, anywhere in the world; Involves an inventive step - that is to say the invention must not be obvious to someone with knowledge and experience in the technological field of the invention; and Industrially applicable - meaning it can be made or used in any kind of industry

Ss 11, 14, 15, 16

Intellectual Property – Patents Act 1983Non-patentable inventions

Discoveries, scientific theories and mathematical methods;Plant or animal varieties or essentially biological processes for the production of plants or animals, other than man-made living micro-organisms, micro-biological processes and the products of such micro-organism processes;

Intellectual Property – Patents Act 1983Non-patentable inventions (con’t)

Schemes, rules or methods for doing business, performing purely mental acts or playing games; Methods for the treatment of human or animal body by surgery or therapy, and diagnostic methods practiced on the human or animal body.

S 13

Intellectual Property – Patents Act 1983Utility Innovations

an exclusive right granted for a "minor" invention which does not require to satisfy the test of inventiveness as required of a patent. innovation which creates a new product or process, or any new improvement of a known product or process - s 17

Intellectual Property – Patents Act 1983Duration of patent

20 years from the filing date of the application.If prescribed annual fee is not paid, the patent shall lapse

s 35

Intellectual Property – Copyright Act 1987

No separate Copyright law for Labuan. The Copyright Act 1987 is applicable throughout Malaysia – s 1(2)

Intellectual Property – Copyright Act 1987Work eligible for copyright

literary works;musical works;artistic works;films;sound recordings; andbroadcasts

s 7

Intellectual Property – Copyright Act 1987Duration

literary works, musical works, artistic works – subsist during the life of the author and 50 years after his death – s 17sound recordings, broadcast, films – 50 years from the beginning of the calendar year next following the year in which the recording was first published – ss 19, 20, 22

Intellectual Property – Copyright Act 1987

Copyright works, unlike other IP need not be registered nor lodged with the Ministry of Domestic Trade and Consumer Affairs Malaysia.

To protect, an affidavit or statutory declaration can be made by any person claiming to be the owner of the copyright - s 42

Intellectual Property – Industrial Designs Act 1996

No separate Industrial Designs law for Labuan. The Industrial Designs Act 1996 is applicable throughout Malaysia – s 1(2)

Intellectual Property – Industrial Designs Act 1996Registrable industrial designs

To be registrable an industrial design must be new at the date an application for its registration is filed. A design is considered be new only if it has not been made available or disclosed to the public in any way whatsoever in Malaysia before the filing date of the application and it is not on the record the Register of Designs.

S 12

Intellectual Property – Industrial Designs Act 1996

Definition of industrial design– features of shape, configuration,

pattern or ornament applied to an article by any industrial process or means, being features which in the finished article appeal to and are judged by the eye, but does not include method or principle of construction.

Intellectual Property – Industrial Designs Act 1996

DurationDeemed to be in force on the filing date and shall subsist for five years thereafter. Extension may be made for two further consecutive terms of five years – s 25

Assisted by:Sally Kee Seok Meng

LLB (Hons) Londonof Lincoln’s Inn, Barrister

Advocates & Solicitors

The End