For people and companies wishing to safeguard and manage their assets in a secure and structured way, setting up a trust in Malaysia offers a variety of alternatives. Malaysia offers the perfect environment for creating trusts that fulfill a variety of objectives, such as protecting wealth, organizing estates, supporting charitable organizations, and guaranteeing seamless corporate succession, due to its booming economy, political stability, and commitment to international standards.
REQUIREMENTS FOR SETTING UP A TRUST IN MALAYSIA
In Malaysia, the requirements for opening a trust involve incorporating a public company and registering it with the Registrar of Companies. The Trust Companies Act sets forth several conditions that a company must meet to qualify as a trust:
- The Trust Companies Act lists a number of authorized purposes from which a company must select one in order to create a trust. Various trusts kinds, including family trusts, investment trusts, insurance trusts, charitable trusts, special purpose trusts, and more are covered in this.
- The Trust Companies Act specifies the minimum authorized capital that the business must have. Depending on the type of the trust, the actual amount may change.
- In order to proceed, a portion of the authorized capital must be paid up in full.
- The Company shall establish a qualified Board of Directors to manage and supervise the affairs of the Trust
the business must show that it has the resources necessary to meet its debt obligations and perform its responsibilities as a trust. They should maintain accurate accounting records and submit regular financial reports.
COMMON TYPES OF TRUSTS IN MALAYSIA
- Discretionary trust – The beneficiaries of a discretionary trust do not have legal rights, and the settlor is the one who provides guidance to the trustee as needed or through a special document that details his plans for the management of the trust. Discretionary trusts are a type of trust that gives the trustee a wide range of rights and the ability to use his powers according to his own judgment.
- Fixed interest trust – In some circumstances, investors can set up a combination of fixed interest and discretionary powers to match the way the fund assets are distributed, unlike in the previous case where the trustee has unrestricted control over how the assets are distributed to the beneficiaries.
- Maintenance trust – This is also known as an accumulation trust and is only partially discretionary. For instance, it may be discretionary up until the beneficiary (who is typically a child) reaches a specific age or completes his schooling; after that, the trust becomes a fixed interest.
- Purpose trust – A purpose trust is a kind of trust that serves charitable objectives only and has no beneficiaries.
- Reserved powers trust – As the name implies, the settlor may provide the trustee in this situation reserved or special powers, such as the ability to invest trust funds or name or remove beneficiaries.
PROCESS OF REGISTERING A TRUST IN MALAYSIA
Choose the Type of Trust – Relin consultants will help you decide what kind of trust, such as a family trust, special purpose trust, or business continuity trust are best suitable for your activities.
Gather the Necessary Documents – Create a company by incorporating it and registering it with the Malaysian Registrar of Companies. This entails submitting the Articles of Association together with the necessary documents. Refer to Malaysia company formation to know more.
The Trust Deed is a vital document that specifies the trustee’s authority, the terms and conditions of the trust, and other significant clauses. Relin consultants will help you create a thorough trust agreement that is tailored to the objectives and requirements of the trust.
Appointment of Trustees – Determining the number of trustees needed for the trust can help you choose the right people to manage its assets and fulfill the fiduciary obligations
Consider a Protector or Enforcer – Depending on the kind of trust, Relin consultants will help you designate a protector or enforcer who supervises the trustee’s conduct and guarantees that the trust’s goals are achieved.
Funding the Trust – As directed by the Trust Deed, transfer the trust’s assets into the trustee’s possession. This could entail changing who owns certain securities, real estate, or other assets.
Register the Trust – Relin consultants will then send the needed paperwork, such as the Trust Deed and other essential documents, to the Registrar of Companies in order to register the trust.
TRUST MANAGEMENT AND TAXATION IN MALAYSIA
Trusts in Malaysia must pay taxes on the revenue they get there. The same tax year applies as it would for a limited liability business. For taxation purposes, the trust body is regarded as a separate entity. Its revenue is valued separately from the personal income tax levied on the trust’s beneficiaries. Whether or whether a trust is a non-resident trust, the ordinary corporate income tax rate in Malaysia is 24%. Withholding tax is applied to the trust’s income in the case of non-resident trusts.
For tax purposes, a trusted body is regarded as a resident (for a specific tax year of assessment) if one of the trust body’s trustee members is a resident during the same tax year. In the following situations, the trust body is not recognized as a Malaysian resident:
- when at least half of the trustees are not Malaysian residents for the tax year;
- when the trust was established outside of Malaysia by a non-resident;
- when the trust’s income for the tax year comes exclusively from outside Malaysia;
- when the trust is managed from outside Malaysia for the entire tax year.
The beneficiaries’ income is subject to personal income tax, which has a different rate for residents (where it has a progressive rate up to 28%) than for non-residents (where it has a flat 28% rate).
In Malaysia, trusts may be subject to additional taxes such as stamp duty and real property gains tax. There is no stamp duty owed when assets are transferred to particular trust vehicles, such as instruments of the deed of assignment and instruments of real property transfer authorized by the Securities Commission. There is no real property gains tax due when chargeable assets are sold to a real estate investment trust or property trust fund.
Malaysian investment trusts and property trusts are the best options for investors who want to diversify their investment portfolios and protect their investments. In Malaysia, to secure their children’s financial stability, parents can set up a specialized child trust that is less expensive than a property trust.
BENEFITS OF SETTING UP A TRUST IN MALAYSIA
- Trusts offer a legal framework for the preservation and protection of assets. Assets are held apart from personal or company assets when they are transferred to a trust, minimizing their exposure to risks or claims.
- Trusts are useful tools for estate planning because they let people arrange how their assets will be distributed and how they will support their loved ones when they pass away.
- Because the ownership and management of assets stay within the trust framework, trusts offer a certain level of privacy and confidentiality.
- Trusts can make the management and transfer of a family-owned business or fortune from one generation to the next easier. Trusts guarantee the continuity and preservation of family wealth or business activities
CHALLENGES OF SETTING UP A TRUST IN MALAYSIA
- The establishment and administration of trusts in Malaysia require navigating a complicated legal and regulatory environment. It requires compliance with a number of rules, including the Trust Companies Act, the Companies Act, and tax laws.
- The creation and operation of a trust can be a bit expensive as it involves expenses for professional and legal counsel, trust management services, tax compliance, and continuing management.
- Understanding the tax implications and obligations to maximize tax planning methods and guarantee compliance with the relevant tax rules is essential because trust taxation can be complicated.
Reach out to us at Relin Consultants – Leading Global Business Set Up Partners for further assistance with setting up your Malaysia trust.
Can I act as the trustee of my own trust?
A settlor may serve as the trustee of their own trust. It is suggested to appoint additional trustees or professional trustees to ensure effective management and continuity of the trust.
Can I change the terms of the Trust Deed after the trust is established?
The Trust Deed’s provisions can be changed, but doing so requires following the right processes and all applicable laws. Any modifications to the Trust Deed must be documented and approved in accordance with the guidelines laid out in the original Trust Deed.
Can a trust in Malaysia hold assets located outside of Malaysia?
Certainly, in Malaysia, it is possible for a trust to hold assets that are situated outside the country. However, it is crucial to take into account the relevant laws and regulations in the particular jurisdiction where the assets are located.
Can I dissolve or terminate a trust in Malaysia?
Yes, a trust may be terminated or dissolved in certain situations as described in the Trust Deed or by following the rules established in the Trust Companies Act.