Wooing the Wealthy to Forest City!

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