Malaysia’s capital drive shifting more focus to locals

Malaysia seems to be adopting a gradual policy shift for growth of its domestic capital market, where Shariah compliant assets have become a significant component, with the latest initiatives announced over the past week – including its Budget 2026 proposals.

Rather than its past main emphasis on wooing foreign players for FDIs, the government is now urging Malaysian resident companies to invest abroad and later repatriate funds back into the country – dangling the carrot of tax exemption on dividends from investments and gains from disposals of capital assets abroad. This exemption includes cooperative societies and trust bodies till 2030.

The Securities Commission Malaysia (SC) announced the gazetting of the Single-Family Office Incentive Scheme in early October 2025 – where financial benefits apply only to locally-incorporated entities operating within Pulau 1 of the Forest City Special Financial Zone.

KPMG Malaysia Tax Services Partner Tai Lai Kok said taking advantage of Malaysia’s initiative could allow a family office entity to streamline its existing asset holdings with legal transfers at literally no cost under the SC initiative.

“This could result in huge savings, potentially in the millions, especially if the assets have been accumulated over many years and parked in various incompatible structures. But I suspect this will mainly involve assets already in Malaysia, rather than inward property transfers.”

Tai also said the Malaysian proposition is less restrictive compared to Hong Kong and Singapore. But there are still grey areas which need to be addressed, although the SC has very much mirrored requirements in those jurisdictions.

Table 1: Comparison of family office benefits between Malaysia, Hong Kong and Singapore

Source: KMPG Malaysia

“Will Malaysian authorities be as flexible as, say, Singapore? Some will worry their funds may be locked in Malaysia. This is where other relevant authorities like Bank Negara Malaysia need to provide some clarity on remittance controls as it can be a cause of concern for foreign family offices.”

Meanwhile, foreign VC firms will enjoy a preferential corporate tax rate of 5% imposed on all income – provided at least 20% of its funds are invested in local VC companies. This 10-year tax incentive applies from when the SC-certification is received.

Otherwise, a still-lower 10% tax rate is imposed on income derived from the VC firm’s share of profits, management fees and performance fees from the current assessment year to 2035.

For fund managers, the stamp duty exemption on contract notes for ETF transactions is extended for another three years to the 31^st December 2028. This initiative comes on the back of Malaysia’s Islamic fund management recording RM261.25 billion (US$61.88 billion) in AuM as of July 2025, accounting for 24% of the total RM1.1 trillion (US$260.55 billion) AuM.