Practical steps on how to implement a Family Office in Forest City, Malaysia

With the announcement of the Single-Family Office Scheme (SFO Scheme) in September 2024 and plans for the SFO Scheme to become operational by the first quarter of 2025, now is the ideal time to set up a Family Office in the Special Financial Zone (SFZ) in Forest City. Strict regulations and costly processes can make the implementation of a Family Office challenging; however, with our professional guidance and our practical step-by-step guide outlined below, you too can set up a Family Office in Forest City and enjoy the benefits of the SFO Scheme.

Step 1: Seek Out Legal Support from Professional Advisors

Implementing a Family Office can involve setting up multiple companies, such as a Single-Family Office (SFO) to manage funds and a Single-Family Office Vehicle (SFOV) to hold those funds. Navigating the regulations in place for setting up companies or corporate vehicles can be challenging without legal support. The InterAsia Law Alliance has a team of Malaysian-qualified lawyers who are well-equipped to assist you in implementing your Family Office. Any Malaysian-law advice required for the setup of the SFOVs and related services will be handled by our Malaysian-qualified lawyers.

Step 2: Choose Your Corporate Structure and Appoint Professionals to Help You.

There are many legal entities to consider when setting up an SFO in Malaysia. Some of the prominent options include:

  • Private Limited Company
    • Private Limited Companies will have to be registered with the Companies Commission of Malaysia.
    • Private Limited Companies will be regulated under the Companies Act 2016.
    • Private Limited Companies are separate legal entities and thus offer limited liability to your family, protecting your personal assets.
  • Trust Company
    • Trust Companies must apply to the Registrar of Companies to be registered.
    • Trust Companies are treated as independent entities for tax-related matters.
  • Labuan Entities, such as
    • Labuan Trust
      • Labuan Trusts do not need to be registered with the Labuan Financial Service Authority if the Labuan Trust company is one of the trustees.
      • Subject to a 3% tax on audited net profits, but there is a tax exemption on distributions made to the beneficiaries.
    • Labuan Foundation
      • A Labuan Foundation is a separate legal entity from its founders.
      • Labuan Foundations can be registered for non-charitable purposes.
      • Labuan Foundations are governed under the Labuan Foundation Act.
      • Investment income from non-trading activities such as interest can be exempt from tax.
    • Labuan Protected Cell Company (Labuan PCC)
      • Labuan PCCs offer limited liability and are separate entities from its members.
      • Labuan PCCs can form cells that have separate assets and liabilities from each other.
      • Subject to 3% tax on audited net profits.

It is important to choose the correct corporate structure for your Family Office in order to best cater to your needs. It is equally important to choose the right professional legal advisors that will help you with your choice and assist you in setting up the company in the following steps. Our experienced team will help you make the right choice and assist you in setting up the company through every step.

Step 3: Notify the Relevant Authorities

Some corporate structures may require registration under various organisations/authorities, such as the Malaysia Security Commission (SC), and/or require various licenses to be obtained. Different corporate structures may also have different regulations under various Acts. The InterAsia Law Alliance has a team of Malaysian-qualified lawyers who can assist you in complying with the necessary regulations in setting up your SFO, we may assist with applications to the SC to obtain licensing waivers.

Step 4: Apply for Incentives from the Forest City Management Office

Under the SFO scheme,

  • The incentive provides for a 0% concessionary tax rate on income generated by eligible investments from SFOVs.
  • Forest City will be the first location in Malaysia to offer a 0% tax rate incentive for Family Offices.
  • The incentives offered are subjected to several conditions. They include:
    • Location: Establish and operate a registered office in Pulau 1, Forest City SFZ.
    • Duration: 20 years, covering the initial period of 10 years and additional/subsequent 10 years.
  • There are two periods of incentives.
    • To qualify for the Initial Period (10 years):
      • The SFOV must be a new investment holding company incorporated in Malaysia and seek pre-registration with the Securities Commission (SC) on the eligibility of the tax incentives,
      • Management company or SFO which is a related company of SFOV to be set up and operate out of Pulau 1, Forest City SFZ with at least one investment professional with a minimum monthly salary of RM10,000.
      • Hold assets under management (AUM) of at least RM30 million,
      • Meet minimum local investment in eligible and promoted investments of at least 10% AUM or RM10 million, whichever is lower,
      • SFOV to locally spend a minimum operating expenditure of RM500,000 annually; and
      • Employ a minimum of two full-time employees of whom at least one is an investment professional, with a minimum monthly salary of RM10,000.
    • To qualify for the Additional Period (an additional 10 years):
      • Hold AUM of at least RM50 million,
      • Meet minimum local investment in eligible and promoted investments of at least 10% of AUM or RM10 million, whichever is higher,
      • SFOV to locally spend a minimum operating expenditure of RM650,000 annually; and
      • Employ a minimum of four full-time employees.

You should ensure your company fulfils the above requirements to be eligible for both periods of incentives and apply for incentives from the Forest City Management Office.

Step 5: Draft Agreements that Cater to the Specific Needs of Your Family Office

Once the licensing framework is in place, the next step is drafting and reviewing the key legal documents required for your family office. These include:

  • Investment Management Agreement
  • Trust Deed
  • Company Constitution
  • Offering Memorandum & Articles of Association
  • Subscription Agreement
  • Fund Administration Agreement
  • Custodian Agreement
  • Creating Compliance Manuals and operating manuals for SFOVs

As part of our InterAsia alliance, we have a team of Malaysian-qualified lawyers who will work with you to draft agreements and structure your Family Office under Malaysian law. Additionally, our team is available for ongoing legal support, ready to assist with any legal assistance required throughout the establishment of your Family Office.

Conclusion

Without the proper legal support, implementing a Family Office can be a challenging process to navigate. In order to implement your Family Office and fully benefit from the financial incentives offered through the SFO Scheme, you may require legal support to guide you through the step-by-step process outlined above.

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 your Family Office will be handled by our experienced Malaysian lawyers.

Sources

SC outlines Family Office incentive scheme – Media releases. (n.d.). https://www.sc.com.my/resources/media/media-release/sc-outlines-family-office-incNtive-scheme

Saieed, Z. (2024, September 20). Malaysia unveils zero tax for family offices in Forest City, in bid to revive Johor project. The Straits Times. https://www.straitstimes.com/asia/se-asia/malaysia-unveils-zero-tax-for-family-office-in-forest-city-in-bid-to-revive-johor-project

Setting Up of Family Office in Malaysia – Azmi & Associates. (2024, January 24). Azmi & Associates. https://www.azmilaw.com/insights/setting-up-of-family-office-in-malaysia/

Briefing, A. (2024, October 17). Malaysia’s family office incentives: Can it rival Singapore? ASEAN Business News. https://www.aseanbriefing.com/news/malaysias-family-office-incentives-a-challenge-to-singapore/

Saieed, Z., & Hoong, L. W. (2024, November 20). Johor Forest City’s plans for family offices gain pace, with details in early 2025: Minister. The Straits Times. https://www.straitstimes.com/asia/se-asia/johor-forest-citys-plans-for-family-offices-gain-pace-with-details-in-early-2025-minister