Incentives and Compliance Essentials for Setting Up a Family Office in Forest City

On 20 September 2024, Malaysia announced a new single family office incentive scheme in an attempt at boosting the economic activities in the Forest City Special Financial Zone (SFZ), being the first location in Malaysia to offer this scheme. Malaysia seeks to carve out its niche by appealing to family offices that may not meet Singapore’s stringent criteria, while still offering them countless financial incentives, making it an attractive place for the setting up of Single-Family Offices (SFO).

Key Benefits through the Incentives

  1. 0% tax rate for the first 10-year period
  2. Exemptions on stamp duty and capital gains tax for qualifying asset transfer
  3. Extended 10-year incentives if higher thresholds for assets under management (AUM), staffing and local expenditure are met

Together, these incentives position Forest City as a serious contender for families seeking a Southeast Asian base that combines favourable taxation with operational flexibility.

Eligibility Conditions for tax exemption

Initial 10-year incentive period

Location: Maintain a registered office within Pulau 1 of the Forest City SFZ

Entity form: Set up a new Malaysian-incorporated investment holding company and obtain pre-registration with the Securities Commission to verify incentive eligibility

Management structure: The Single Family Office must be a related company to Single Family Office Vehicle (SFOV), based in Pulau 1, employing at least one qualified investment professional earning RM10000 or more monthly. Certain licensing requirements under the Capital Markets and Services Act 2007 may not apply, so long as management services are provided solely to its related SFOV.

Assets under management (AUM): Minimum AUM of RM30 million

Investment threshold: Commit either 10% of AUM or RM10million (whichever is lower) towards local eligible and promoted investments

Operating Expenses (OPEX): Spend at least RM500000 per year locally

Staffing: Employ at least two full-time staff members, each earning a minimum RM10000, with one being an investment professional

AUM: At least RM50 million under management

Local Investment: Commit either 10% of AUM or RM10 million (whichever is greater) into eligible local investments

OPEX: Increase annual local OPEX by at least 3% over the initial period baseline, with a minimum spend of RM650000

Employees: Minimum of four-full time staff

Navigating Compliance Challenges to Establishing a Family Office

While the incentives are attractive, navigating the framework requires careful planning:

  1. Pre-registration & Certification
    • After qualifying for the tax incentives, it is a requirement to seek pre-registration with the Securities Commission Malaysia (SC) on its eligibility.
  2. Regulatory Framework
    • The SFO Management Company must have a Service Level Agreement or Investment Management Agreement with the SFOV establishing the scope of services, including but not limited to investment management, advisory, reporting obligations, and compliance.
Step 1: Consultation, Establishment, and Conditional Approval with the SC

The purpose of the consultation is to deliberate on SFOV’s fund structure, proposed assets composition and any other arising matters to confirm that it qualifies under the criteria for claiming tax incentives. Upon complete submission of the completed SFOV Conditional Approval documents, the SC shall issue a Conditional Approval letter to the SFOV, which is a prerequisite for annual tax certification. Furthermore, prospective applicants can apply for a one-time exemption from Capital Gains Tax and Stamp Duty on the transfer of eligible assets into the SFOV. Once the application forms and supporting documents are submitted, the SC will be provided a verification letter confirming that the exemption has been granted.

At the end of each financial year, the SFOV is required to apply for tax certification with the SC. If all criteria are fulfilled, the SC will issue a tax certification letter to certify that the SFOV has met the necessary conditions and therefore is eligible for the tax exemption for the year of assessment. From here, the SFOV is able to claim tax incentives directly with the Inland Revenue Board (IRB).

Process for SFO Scheme Tax Certification

Conclusion

Evidently, while Forest City provides a great opportunity for SFOs to be set up, the benefits it offers is surrounded by complex legal procedures. Failure to comply may result in loss of incentives or regulatory action. Acquiring a lawyer is essential in having a smooth legal process in claiming the benefits without complication.

For clients considering basing their family office structures or navigating the Malaysian regulatory framework, do contact our Malaysian Team lead (Nathan Maharajah) at enquiry@familyofficeforestcity.my or WhatsApp at +65 9810 1685 for further details. The InterAsia Law Alliance has a team of Malaysian-qualified lawyers and any Malaysian-law advice required for the setting up of the SFOVs and related services will be handled by Malaysian qualified attorneys.