Aiming to provide a more affordable alternative while capitalizing on the proximity of Singapore’s wealthy business district, being nary an hour’s drive away, Malaysia will waive due taxes on single family offices to be newly established in the southern Forest City Special Financial Zone.
This zero-tax regime is seen as a potentially significant draw in the years ahead – for it comes on the heels of various taxes recently imposed in the GCC region, where more alternative national funding sources are planned to compensate for an anticipated decline in oil and gas revenues.
With Malaysia widely acknowledged as a global leader in Islamic finance, this initiative could lure GCC-based family offices seeking Shariah investments – by either channeling part of their vast funds via or relocating completely to the Forest City zone.
Malaysia is also striving to attract top fund managers from financial centers in Asia, Europe and the Americas to be based in this special zone and enhance the nation’s appeal to be a global Shariah investment hub.
The Forest City features a duty-free island within a special financial zone, presented as a catalyst for economic development on the Malaysian peninsula’s south and aspiring to be the likes of Shenzhen in China and Dubai International Financial Centre in the UAE, said Finance Minister II Hamzah Azizan.
The Securities Commission Malaysia (SC) said the 0% concessionary tax rate is for 10 years on income generated by eligible investments, and the tax waiver can be extended for another 10 years upon certain conditions being met.
While specifics will be announced in Q1 2025, the SC has applied the definition of a single-family office (SFO) as 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.
As the SFO may also represent multiple generations and branches of the family, the SC emphasized that an exemption from licensing requirements is possible “if the SFO can demonstrate that its management services is provided solely for the benefit of a SFO vehicle”.
To avoid flouting this requirement for a fund management license under the Capital Markets and Services Act 2007, SFO investment experts will need to incorporate separate entities – increasing the opportunities available for employment of both local and expatriate talents.
Reinforcing this aspect, the zero-tax regime for the initial 10 years requires the SFO to have two full-time employees, including investment professionals, earning at least RM10,000 (US$2,375) monthly. For the subsequent 10-year tax waiver, the minimum staff strength doubles to four professionals.
Another qualifier is for the SFO’s annual operating expenditure to be over RM500,000 (US$118,809), raised by at least 30% to RM650,000 (US$154,450) for the following tax waiver period.
Assets under management (AuM) will be at least RM30 million (US$7.13 million) – where over 10% of the AuM or RM10 million must be placed at Malaysia’s eligible and promoted investments. The AuM total rises to RM50 million (US$11.88 million) to qualify for the second 10-year tax waiver.
Hamzah said SFOs around the globe number an estimated 8,030 today and handling a total AuM of US$3.1 trillion. This number is forecast to grow to 10,720 by 2030, with SFOs handling total AuM of US$5.4 trillion.
