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BBS PRO TALK VOL 7

SUCCESSION PLANNING – PART 1

There is a popular adage “failing to plan is planning to fail”. 

Planning has been a great part of our lives. Sadly to say, in this modern world, everyone seems to be spending more time in planning where to go for their next vacation, or what car to buy or even where to go for dinner. Very few plan and decide who and how to pass on their wealth to the next generations. 

Main reasons why most people put off the estate planning:

  • I do not own enough
  • I am still young 
  • I am busy
  • I have plenty of time 
  • I am confused and do not know who to ask for help
  • I just do not want to think about it

Undoubtedly, estate planning is not as fun as booking a trip or checking out users’ reviews. But without proper estate planning, it may threaten your entire wealth and everything else that you have worked so hard for.

In this instalment of BBS Pro Talk, we shall study the top 3 reasons why the need for an estate planning.

  • Wealth Preservation for Your Intended Beneficiaries
    Main component of estate planning is designating beneficiaries for your wealth. Unfortunately, we cannot predict how long we will live, or when illness and accidents will happen. Where there is no proper decision as to who receives your wealth, you will not have any control as to what happens in the event the death strikes. This may mean that some of your loved ones may be left out of the distribution. Plus, the process can take years and can get ugly.  Worse still, if there is no one that fits the criteria under the governing laws, guess who keeps your assets?
  • Eliminates Family Conflicts
    I bet you have seen or heard of those horror stories that when a wealthy person passes away, the war between family members begins. Such internal conflict can get ugly and may end up in court, with family members fighting against each other. Estate planning is even more crucial in a non-traditional relationship where one has chosen to co-living without being married or has been married more than once. It gets even more complicated when one has children from the previous marriage. The last thing you want is to unintentionally disinherit someone you love because you failed to implement a plan for the proper disposition of your wealth.
  • Spares Heirs from Creditors
    Wealth planning is all about protecting your loved ones, especially from the creditors or even the tax authorities. No, we are not taking about evading taxes, but rather tax planning. With just a little bit of proper planning, one can reduce much or possibly altogether their inheritance tax which can be an enormous amount. Depending on the country of your tax residence, inheritance tax can be as high as 55%! In another words, more than half of your wealth will be taxed upon your departure. A proper wealth management structure can also be the vehicle for sheltering your wealth from creditors’ claims to satisfy debts.

 

WHAT IT MEANS TO YOU?

Simply put, your wealth does not have to perish with you. If you want to preserve your wealth for generation to generation and having a peace of mind knowing your loved ones are protected and properly taken care of when you no longer can do it, proper planning is vital. Without one, your heirs could face huge tax burdens and the court could designate how your wealth should be distributed and you may not even like it.

The question that confronts us, however, is not who needs wealth management but how to? Choosing the right framework can be powerful to protect your wealth and make sure they are handled with care after your passing. 

In the next instalment of BBS Pro Talk, we shall break down all you need to know about wealth planning options and the strategies that can help you and your family take care of your assets for generations to come.

October 3, 2019
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BBS PRO TALK VOL 6

SPECIAL VOLUNTARY DISCLOSURE PROGRAM

In today’s digitally connected world and with the implementation of the OECD1’s CRS2 for the Automatic Exchange of Information, tax authorities will have access to information of taxpayers from other foreign tax administrations so much easier than ever before. Observing such practice, Government of Malaysia has launched a Special Voluntary Disclosure Program (SVDP) to encourage taxpayers to come forward on a voluntary basis and report the actual income. 

What can be disclosed under the Program?

Types of disclosures
a) Income not previously declared / expenses over-claimed / expenses not allowed and reliefs /deductions/ rebates over-claimed
b) Gains on disposal of assets (real property and shares in a real property company)
c) Stamping of unstamped instruments

 

Who is eligible for the Program?

Categories of eligible taxpayers
a) Not registered with IRBM3
b) Registered with IRBM but have not submitted the ITRF4 / PRF5 / RPGTRF6
c) Submitted the ITRF / PRF / RPGTRF but have not reported the correct income / gains on disposal of assets
d) Late submission of instrument for stamping

Notes:

  1. OECD = Organisation for Economic Co-operation and Development
  2. CRS = Common Reporting Standard
  3. IRBM = Inland Revenue Board of Malaysia
  4. ITRF = Income Tax Return Form
  5. PRF = Petroleum Return Form
  6. RPGTRF = Real Property Gains Tax Return Form

 

Why should I take advantage of the Program?

Under the SVDP, any income reported will be subject to reduced penalty rates as shown in the table below.


How is this SVDP different from the previous voluntary disclosure offer?

ImplementationPeriodPenalty rates
SVDP period03/11/2018 – 30/06/201910%
SVDP period01/07/2019 – 30/09/201915%
After SVDP periodAfter 30/09/201945%

 

Voluntary Disclosure ProgramAction by IRBM
Previous programTaxpayers may be audited on the reported issues
SVDP
(03/11/2018 – 30/09/2019)
IRBM will accept the voluntary disclosed information in good faith. Further review will not be made on the reported information

 

WHAT IT MEANS TO YOU?

Taxpayers, whether company or individuals, are now offered the golden opportunity to spring clean their tax affairs. Taking advantage of the SVDP can be a good platform to start clean and fresh from Year of Assessment 2018 onwards.

 

ACTION REQUIRED (Depending on your current tax standing)

Register with IRBM for income tax number
File the relevant return forms for relevant year(s) of assessment
Review the submitted return forms. Evaluate and assess the risk areas of the tax position taken

For example, whether:

  1. The income is indeed capital in nature
  2. The income is indeed foreign sourced
  3. Tax stance taken is defensible from technical viewpoint
  4. Sufficient documentation is available to substantiate your claims
Submit voluntary disclosure to IRBM
Submit instruments for stamping

Still not sure how the above SVDP affects you or your company or how to go about the processes to take advantage of the golden opportunity? BBS is here to help. Please do not hesitate to contact our team at cs@bbstrust.com.

October 3, 2019
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BBS PRO TALK VOL 5

INNOVATIVE FINANCIAL SERVICES (“IFS”) IN LABUAN

Introduction

For the past two years, the Financial Technology (FinTech) industry has gained immense popularity and are quickly becoming more and more mainstream, thanks to increased global adoption. With the development of blockchain and other innovative technology, the traditional functions provided by banks, financial institutions, and corporations are being threaten and challenged by platforms that are able to make use of these technology to lower transaction costs, increase security, efficiency and reliability.

Labuan is an international financial center with its own business, tax and financial services legislation and its own financial services regulator, the Labuan Financial Services Authority (“LFSA”). Among the International Financial Centers in Asia Pacific, Labuan is perhaps one of the most interesting low-tax options for doing business internationally. For global businesses with Asian connections looking for a pro-business and low tax environment, there may be no better place to set up your company. You can set up a tax resident entity and pay as little as 3% of your net profit in taxes per year.

Innovative Financial Services

As an International Financial Center, Labuan is keen to attract Fintech companies from all around the world, including those involved in distributed ledger technology, blockchain and digital currencies to set their base in Labuan, and the regulator is taking the forward-looking steps for this to happen.

Labuan IBFC opt for a more market liberal approach for proposed IFS businesses. Labuan entities are allowed to undertake these businesses subject to them complying with the AML/CFT(1) regulations and market conduct requirements, especially for those whose businesses are governed by LFSSA(2) and LIFFSA(3).

Unlike other markets which choose to insulate or contain the IFS business in different regulatory platforms (e.g. sandboxes or incubators) for observation and experimental purposes, Labuan IBFC believes that IFS start-ups need to operate in the actual, open international market. This is to inject business pragmatism in IFS undertakings so that they can better adapt and gain traction in the market.

CRYPTO EXCHANGES

LFSA is regulating Crypto Exchanges under the Labuan Money Broker License, allowing them to provide both fiat and crypto wallets, support fiat and cryptocurrency trading and transactions. Requirements for compliance are very reasonable, includes but not limited to the following(4):

  • Comprehensive AML/CTF Policies
    The exchange will need to have the appropriate measures and system to manage AML/CTF risks.
  • Adequate Operating Capabilities
    The exchange operator will go through an assessment process by the LFSA to make sure you have adequate capital, the appropriate internal policies and controls, including the protocols and systems for cybersecurity risk management and governance expertise.
  • Experienced and Qualified Management Team
    LFSA will assess the management team background to ensure it is formed by fit & proper persons.
  • Minimum Paid Up Capital
    The minimum capitalization is relatively low, RM 500,000 (approximately USD 120,000), and the entire licensing process takes about 4 to 6 months.

TOKEN OFFERING

LFSA is regulating Token Issuers under the Labuan Credit Token License. This will allow companies to be fully regulated in launching their own Token. Requirements are not limited to and as follows:

  • Adequate Capital with Track Record
    To have a minimum paid up of at least USD 150,000, and the business must have a 3-year track-record or, if the company is new, it must have an innovative business model within the Fintech or Blockchain space.
  • Comprehensive AML/CTF Policies
    The company will need to have the appropriate measures and system to manage AML/CTF risks.
  • Adequate Operating Capabilities
    The exchange operator will go through an assessment process by the LFSA to make sure you have adequate capital, the appropriate internal policies and controls, including the protocols and systems for cybersecurity risk management and governance expertise.
  • Experienced and Qualified Management Team
    LFSA will assess the management team background to ensure it is formed by fit & proper persons.

CRYPTO FUND

Establishing a fund that invests in cryptocurrencies is also possible in Labuan. There are mainly two type of funds: private and public. These Funds can be structured as a Limited Company, Limited Liability partnership or protected cell company – with the Limited Company Private Funds being the most common. Some salient features of a Private Fund are as follows:

  • The appointment of a fund manager, administrator or custodian is not mandatory.
  • Private funds don’t need to obtain a license – they just need to file a memorandum to the LFSA for approval.
  • They can be open or closed ended, but its shares cannot be offered to the public.
  • For private funds with less than 50 investors – a minimum RM 250,000 (about USD 60,000) per investor applies.
  • Those with more than 50 investors – requires RM 500,000 per investor (about USD 120,000).

All in all, both private and public must ensure compliance with the AML/CTF regulations and guidelines provided by the LFSA.

BANKING IN LABUAN FOR CRYPTO STARTUPS

Market players in the industry has been facing issues with banking as it has become difficult not only for cryptocurrency startups but also for other businesses operating via offshore companies. It’s been getting progressively harder for offshore companies to get strong transactional ‘onshore’ accounts.

There are more than 50 licensed banks in Labuan. Most of the largest banks in Singapore, Hong Kong, Europe and the US have a branch in Labuan. Setting up a Labuan entity will give you access to top-notch banking options – with a comprehensive offer of corporate banking services, in both Malaysia and Labuan, and even Singapore.

This is even of more important for companies operating in the Cryptocurrency space. Non-regulated cryptocurrency companies face considerable challenges getting a bank account. Labuan has a similar stance on this matter. From the banks’ perspective, a non-regulated crypto business poses a high money laundering risk.

However, Labuan has an advantageous legal framework with which companies can legalize their crypto activity, and it will be under the scrutiny of the LFSA. Banks will be much more willing to accept these Licensed companies as their clients.

Thus, being licensed in Labuan will not only provide you a certain degree of regulatory certainty but will also give you access to top regional or even global banks.

(1) Anti-Money Laundering / Counter Terrorism Financing

(2) Labuan Financial Services and Securities Act 2010

(3) Labuan Islamic Financial Services and Securities Act 2010

(4) Regulatory requirements may be revised from time to time at the discretion of LFSA

October 3, 2019
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