Set Up a Trust in Malaysia

Updated on Thursday 28th February 2019

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Companies incorporated in Malaysia can be registered as trusts, according to the eligibility criteria and the laws in force. The trust can be created for several purposes, including investment, property or insurance.

In order to set up a trust in Malaysia, founders must observe the Trust Companies Act. The settlor is the one who creates the trust and he can be either an individual or a corporation in Malaysia. The trustee is the appointed one and he is the one in charge with the administration of the trust for the best interests of the beneficiaries. In some cases, the settlor may decide to appoint a protector or an enforcer who will supervise the activities of the trustee. The beneficiaries are the ones who legally benefit from the trust. They can be individuals or corporations. One of our lawyers in Malaysia can help you set up a trust in Malaysia and can give you more details on this law and how the terms and conditions apply to investors and trust owners.
 

Opening a trust in Malaysia


A trust in Malaysia is incorporated as a public company and registered with the Registrar of Companies. The Trust Companies Act sets forth a number of conditions in order for a company to qualify as a trust:
- it must serve one of the approved purposes (family, investment, insurance, charitable, special, etc.);
- has a minimum authorized capital;
- part of the said capital has been paid up in good faith;
- the company has a duly appointed Board of Directors and is able to meet its obligations.

Trusts can be set up for various purposes, as stated above. Our lawyers in Malaysia present some of the common types of trusts that can be set up by investors:
  • Discretionary trust: this is a type of trust that allows the trustee a large degree of rights and the ability to exercise his powers according to his own judgment; the beneficiaries do not have legal rights in these case and the settlor is the one who offers guidance to the trustee when needed or through a special document that states his intentions for the management of the trust.
  • Fixed interest trust: unlike in the previous case, where the trustee does not have unlimited powers over how the assets are distributed to the beneficiaries; in some cases, investors can set up a combination of fixed interest and discretionary powers to match the manner in which the fund assets are distributed.
  • Maintenance trust: this can also be named an accumulation trust and it is discretionary only in part; for example, it can be discretionary until the beneficiary (most often a child) reaches a certain age or finishes his academic education; from that point onward, the trust is a fixed interest one.
  • Purpose trust: this is a type of trust that has no beneficiaries but it is used for charitable purposes.
  • Reserved powers trust: as the name suggests, the settlor may award the trustee reserved or special powers in this case, for example for the investment of trust assets or to appoint or remove beneficiaries.

When registering the company as a trust in Malaysia, the applicant must provide several filled in forms, the Articles of Association, details regarding the company directors and shareholders, and other documents. The Trust Deed is the main document to be drawn up in the relation to the trust and it is the one that sets forth the powers of the trustee, the terms and conditions under which he may manage the trust assets. The document also includes a description of the assets legally owned by the trustee and establishes other details about the management of the trust, the number of trustees and whether or not a protector or enforcer is also nominated. One of the experts at our law firm in Malaysia can help interested individuals draw up this important document according to the type of trust they establish and the particularities that they wish to include in the Trust Deed.

One of our attorneys in Malaysia can help you make the submission with the Registrar. Should the documents be in order, the Registrar will request further statements from the company director. Other conditions for the application may exist and it is advisable to seek professional aid before taking these steps.
 

Trust management and taxation in Malaysia


Trusts in Malaysia are subject to taxation on the income derived from the country. The tax year is the same as in the case of a limited liability company. The trust body is treated as a separate entity for tax purposes. Its income is assessed separately from the personal income tax charged to the beneficiaries of that trust. The standard corporate income tax rate for a trust in Malaysia is 24%, irrespective of whether or not it is a non-resident trust. In the case of non-resident trusts, withholding tax applies to the income derived by the trust. We highlight the fact that this can apply only in some cases and for some types of income, the provisions of the double tax treaties signed by Malaysia may be relevant.
 
For the purpose of taxation, a trust body is considered a resident (for a given tax year of assessment) when a trustee member of the trust body is a resident during the same taxable year. In other cases, the trust body is not regarded as a Malaysian resident in the following cases:
  • when the trust was created outside of the country by a non-resident;
  • when the trust income for the given tax year is derived solely from outside of the country;
  • when the trust is administered for the entire tax year from outside Malaysia;
  • when at least half of the trustees are not Malaysian residents for the given tax year.
 
The personal income tax applies to the income derived by the beneficiaries and it is different for resident individuals (where it has a progressive rate of up to 28%) compared to non-resident individuals for which the rate is a flat 28%. One of our tax lawyers in Malaysia can give you complete details about the total chargeable income for trust beneficiaries.
 
Other types of taxes that can apply to trusts in Malaysia include the stamp duty and the real property gains tax. An exemption from the stamp duty applies when the transfer of assets is made to certain trust vehicles like instruments of the deed of assignment and instruments of transfer of real property, which are approved by the Securities Commission. A tax exemption from the real property gains tax applies for the disposal of chargeable assets to a real estate investment trust or a property trust fund.

Investment trusts and property trusts in Malaysia are suited for those investors who want to diversify their investment portfolio and also secure their assets. Individuals who are interested in the wellbeing of their family in Malaysia also have options for securing the financial well-being of their children, for example, by setting up a special child trust, with fewer expenses than a property trust, for example.

One of our attorneys in Malaysia can give you complete information on opening a company that acts as a trust.

Contact us for more details on the Trust Companies Act and specialized legal advice.