Forest City
is poised to become a magnet for international capital by introducing
incentives that include a 0% tax rate for single-family offices, plus a host of
other incentives for corporations and knowledge workers. The Forest City
Special Financial Zone (SFZ) would be the first location in Malaysia to offer
such a tax break, the government’s way of propelling the family office sector.
Family
offices play a myriad of roles such as legacy planning and management, and
investment portfolio management, aimed at growing and safeguarding family
wealth to ensure it remains in the family for generations.
The new
single-family office (SFO) scheme, coordinated by the Securities Commission,
aims to attract regional and local families to manage their family wealth from
Malaysia.
Supported
by good infrastructure, a competitive talent pool, robust common law practices
and effective governance, opportunities abound for family offices here. This
scheme is aimed at being operational by the first quarter of 2025. There is an
estimated 8,030 SFOs globally currently and the number is projected to grow to
more than 10,720 by 2030. The total estimated assets under the management of
family offices globally are also expected to rise to US$5.4 trillion (RM22.6
trillion) by 2030 from the current US$3.1 trillion (RM12.9 trillion).
To enjoy
the scheme, investors must have an asset size of more than RM30mil and part of
their assets must also be invested in Malaysia. The 0% tax rate on profits made
is given for a period of 10 years and there is an obligation for the companies
to scale up their operations – whether by adding employees, investments or
assets in the country – in order to (continue enjoying) the scheme. This is to
prevent shell companies and to create a win-win situation for investors and the
local economy and people.
1. What is a single family office
(“SFO”)?
A SFO is a corporate vehicle, wholly
owned or controlled by members of a single wealthy family, created to
exclusively manage the assets, investments and long-term interests of that
family. The SFO may also represent multiple generations and branches of the
family.
2. Is a SFO required to be licensed by
the SC?
As SFO is managing the assets which
include capital market products, the SFO triggers the requirement to obtain a
fund management license under the Capital Markets and Services Act 2007
(“CMSA”). However, the SFO may be exempted from licensing requirements if the
SFO can demonstrate that its management services is provided solely for the
benefit of a single family office vehicle (“SFOV”) which is its related
corporation. Please refer to the diagram below for an illustration of the
relationship between a SFO and a SFOV.
Notwithstanding the exemption, the SC may
still impose terms and conditions on the SFO pursuant to section 58 of the CMSA.
3. What constitutes a single family
office vehicle (SFOV)?
A SFOV is a corporate vehicle, wholly
owned or controlled by members of a single family and is established solely for
the purposes of holding the assets, investments and long-term interest of
members of the single family. A single family is taken to mean individuals who
are lineal descendants from a single ancestor, including the close relative of
the individual.
4. What type of tax incentive is
available for the SFOVs?
As announced recently, eligible SFOVs may
enjoy a 0% concessionary tax rate on income generated by eligible investments
for a period of 10 years (‘initial period’) which may be extended for an
additional 10 years (‘additional period’) subject to fulfilling the relevant
requirements.
5. What are the requirements for the SFOVs to be
eligible to claim for the family office tax incentive?
To qualify for the tax incentive during
the initial period, a SFOV must fulfil several conditions which include–
(a) The SFOV must be a new investment holding
company incorporated in Malaysia and seek pre-registration with the SC on the
eligibility of the tax incentives;
(b) The management company or SFO which is a
related company of the SFOV must be established and operating in Pulau 1,
Forest City Special Financial Zone with at least one investment professional
with a minimum monthly salary of RM10,000.
(c)
The SFOV must hold asset under management
(AUM) of at least RM30 million and meet minimum local investment in eligible
and promoted investments of at least 10% of AUM or RM10 million whichever is
lower;
(d) The SFOV must incur an annual operating
expenditure (OPEX) of a minimum of RM500,000 locally;
(e) The SFOV must employ a minimum of two
full-time employees with each employee receiving a minimum monthly salary of
RM10,000 and of whom at least one is an investment professional; and To qualify
for the tax incentive during the additional period, the SFOV must fulfil the
higher substance and financial requirements which include–
i. The SFOV must hold AUM of at least RM50
million and meet minimum local investment in eligible and promoted investments
of at least 10% of AUM or RM10 million whichever is higher;
ii. ii. The SFOV must incur an annual OPEX (30%
higher than during the Initial Period) of a minimum of RM650,000 locally; and
iii. iii. The SFOV must employ a minimum of four
full-time employees.
6. What is SC’s role in relation to the
SFOV’s application for the tax incentive?
Eligible SFOVs may apply to the SC for
certification for purposes of the tax incentives subject to the SFOVs
demonstrating that it has complied with the relevant requirements.
Forest
City, with its combination of a duty-free island within the SFZ, presents a
unique proposition as a catalyst for economic development in the southern
region of Malaysia. The potential to mature into a globally recognised
financial hub such as the likes of Shenzhen in China and Dubai International
Financial Centre in the United Arab Emirates.
Beyond the
family offices sector, the area is also envisioned to become a hub for
financial global business services, financial technology (fintech) and foreign
payment system operators with the provision of a special 5% tax rate, added the
minister. Would the FM consider moving all bank offices in Labuan to Forest
City?
References:
Wooing
the wealthy with lucrative tax packages, Yee Xiang Yun and Mohd Farhaan Shah, The Star, 21
September 2024
FAQ: Single Family
Office Scheme (Issued 23 September 2024), Securities Commission Malaysia
