Common Reporting System by OECD- The Impact on Labuan Foundation and Trust Structures
For Malaysia, the OECD Common Reporting System (CRS) required all financial institutions to submit financial reporting of the tax ID of account holders, beneficiaries and owners with effective from 1st Jan 2017 with first reporting made available to CRS system on Sept 2018.
The reporting involved four (4) major categories as follows:
1. Foreign individual with more than USD 250,000
2. Foreign Individual with more than 25% shares ownership in an entity (local Sdn Bhd company, Labuan company, and all entities including Private Foundation).
3. Foreign individuals invested in all types of funds including mutual funds, life insurance investment plans,etc
4. Beneficial owners of Custodian accounts held by law firm, Trustee and Trust companies.
5. Bank account holders of Labuan Foundation, Trustees and Custodians.
With CRS by OECD implementation should be taken and it is a “new norm” how things will operate in financial institutions and these will effect your wealth management permanently. Hence, switching current Trust structure to Private Foundation may be a wiser move at the same time giving the founder the ability to have full control over it is own assets, without third party interference and peace will go a long way!
The moving out cost from Trustee to another vehicle maybe an expensive affair but in the run long the effort may worth doing as CRS is bound to stay for good! There is also a huge difference in term of controlship between a foundation and trust.
Effect of CRS on Foundation
Foundation vehicles are more transparent in the eyes of the bankers. Hence, it is not a main concern for individual, company or anyone as the Founder of the Labuan Private Foundation as the controller of bank account and founder names are revealed at the point of opening of account. Any changes of the signatories in the future is by way of resolutions. This made easy and straight forward for banker on CRS compliance. However, if Founder of the Labuan Private Foundation who is a Trustee, then the Trustees are required to reveal the real identity of the settlor and beneficiaries.
Switching Trustee as the founder of the Labuan Private Foundation is not permitted by Labuan FSA once the foundation is fully formed. Feel free to speak to us before set up the foundation to get the right structure to meet your objectives, at the same able to meet banker’s CRS compliance requirements.
Effect of CRS on Trustee
One of the key purpose of OECD introducing CRS is to unlayer and unmask the Trust structures to know the real identity of the settlors and beneficiaries. The CRS controls the financial institutions with reporting requirement detailing real beneficial owners of the Trustee accounts whom they act on behalf.
Many high net worth individuals using the Trust structures may want to re-consider a new vehicle such as Labuan Private Foundation to allow them to have full control of their assets with full protection all the time.
Trust structure held by the appointed Trustee may affect their wealth management operations being locked up should the current Trustee faces CRS compliance issues with any authorities and bankers. They handled multitudes of clients’ Trust accounts and they maybe investigated if their handling Trusts for their clients are not in the right order or unable to meet bankers’ compliance to meet the requirements of CRS.
Feel free to email us to understand more indepth about CRS on Trust and CRS on Labuan Foundation!