Prime Minister Dato’ Seri Anwar Ibrahim announced policies last year aimed at encouraging the establishment of family offices in Malaysia, with the goal of attracting a larger pool of investors to enhance financing support for SMEs and the new economy. Building on this, the Minister of Finance II, Senator Datuk Seri Amir Hamzah Azizan, on 20 September 2024 announced the Single Family Office scheme as part of the incentive packages for the Forest City Special Financial Zone.
The Securities Commission has been tasked with the responsibility of coordinating the Single Family Office incentive scheme.
The incentive provides for a 0% concessionary tax rate on income generated by eligible investments from the Single Family Office Vehicle.
The scheme is set to be in operation by the first quarter of 2025 and Forest City will be the first location in Malaysia to offer this tax incentive.
Key terms / definitions:
- What is a Single Family Office (“SFO”)?
A SFO is a corporate vehicle which is a management company that provides management services exclusively to its related Single Family Office 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.
- What constitutes a Single Family Office Vehicle (“SFOV”)?
A SFOV is typically a corporate vehicle, wholly owned or controlled by one or more individuals from a single family and is established solely for the purposes of holding the assets, investments and long-term interests of the family members.
A single family is taken to mean individuals who are lineal descendants from a single ancestor, including the close relatives of the individuals.
Tax Incentive available for SFOVs:
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 relevant requirements.
Conditions
To qualify for the tax incentive, the SFOV must fulfil conditions which include the establishment and operation of a registered office in Pulau 1, Forest City Special Financial Zone.
Initial Period
To be eligible for the tax incentive during the Initial Period, the SFOV must fulfil certain conditions including the following:
- the SFOV must be a new investment holding company incorporated in Malaysia and seek pre-registration with the Securities Commission on the eligibility of the tax incentive;
- the management company or SFO, which is a related company of SFOV, must be established and operating out of Pulau 1, Forest City Special Financial Zone with at least one investment professional with minimum monthly salary of RM 10,000;
- the SFOV must hold assets under management (“AUM”) of at least RM 30 million and meet minimum local investment in eligible and promoted investments of at least 10% of AUM or RM10 million, whichever is lower;
- the SFOV must incur an annual operating expenditure (“OPEX”) of a minimum of RM 500,000 locally; and
- the SFOV must employ a minimum of two full-time employees with each employee receiving a minimum monthly salary of RM 10,000 and of whom at least one is an investment professional.
Additional Period
Further, to qualify for the tax incentive during the Additional Period, the SFOV must fulfill the higher substance and financial requirements, which include:
- the SFOV must hold AUM of at least RM 50 million and meet minimum local investment in eligible and promoted investment of at least 10% of AUM or RM10 million, whichever is higher;
- the SFOV must incur an annual OPEX (30% higher than during the Initial Period) of a minimum of RM 650,000 locally; and
- the SFOV must employ a minimum of four full-time employees.
The detailed conditions will be made available by the first quarter of 2025 on the SC’s website https://www.sc.com.my/development/single-family-office.
Eligible SFOVs may apply to the Securities Commission for certification for purposes of the tax incentive subject to the SFOVs demonstrating that they have complied with the relevant requirements.
Concluding observations
As the SFO manages assets that may include capital market products, the SFO may trigger 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 it can demonstrate that its management services are provided solely for the benefit of a SFOV, which is its related corporation.
Despite the potential exemption, the Securities Commission may still impose specific terms and conditions on the SFO pursuant to section 58 of the CMSA.
Given these considerations, any person intending to establish or operate an SFO is advised to seek legal advice regarding its licensing obligations under the CMSA.
Read the full media release here: https://bit.ly/3BgskcU
Contributed by RDL’s Tax Practice Group.