Announcement of the SFO Scheme
The Government of Malaysia is looking to implement policies by early 2025 to encourage the establishment of family offices in Malaysia. During the Keynote Address by YB Senator Datuk Seri Amir Hamzah Azizan, Finance Minister II of Malaysia at the Forest City Special Financial Zone Tax Incentive Announcement Ceremony on 20 September 2024, the Single Family Office Scheme (as part of incentive packages for the Forest City Special Financial Zone) was announced.
The Securities Commission Malaysia ("SC") is tasked to coordinate efforts with all relevant stakeholders to bring the SFO Scheme into fruition by the first quarter of 2025 and has on 23 September 2024 issued FAQs to clarify aspects of the incoming Single Family Office Scheme. According to the FAQs:-
What is a single family office ("SFO")?
A SFO is 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. The SFO may also represent multiple generations and branches of the family.
Does a SFO require to be licensed by the SC?
Although a SFO may trigger the requirement to obtain a fund management license under the Malaysian Capital Markets and Services Act 2007 ("CMSA"), a SFO may be exempted from licensing requirements if the SFO can demonstrate that its management services are provided solely for the benefit of a single family office vehicle ("SFOV") which is a related corporation of the SFO.
Notwithstanding the exemption, the SC may nevertheless impose terms and conditions on the SFO.
What constitutes a single family office vehicle (SFOV)?
A SFOV is a corporate vehicle, wholly owned or controlled by members of a single family and is established solely for the purposes of holding the assets, investments and long-term interest of members of the single family.
A single family is taken to mean individuals who are lineal descendants from a single ancestor, including the close relative of the individual.
What type of tax incentive is available for the SFOV?
Eligible SFOVs may enjoy a 0% concessionary tax rate on income generated by eligible investments ("Tax Incentive") for a period of 10 years ("Initial Period") which may be extended for an additional 10 years ("Additional Period") subject to fulfilling the relevant requirements.
What are the requirements for the SFOVs to be eligible to claim for the family office tax incentive?
To qualify for the Tax Incentive during the Initial Period, a SFOV must fulfil several conditions which include:-
The SFOV must be a new investment holding company incorporated in Malaysia and seek pre-registration with the SC on the eligibility of the Tax Incentive;
The management company or SFO which is a related company of the SFOV must be established and operating in Pulau 1, Forest City Special Financial Zone with at least one investment professional with a minimum monthly salary of RM10,000.
The SFOV must hold asset under management ("AUM") of at least RM30 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 of a minimum of RM500,000 locally; and
The SFOV must employ a minimum of two full-time employees with each employee receiving a minimum monthly salary of RM10,000 and of whom at least one is an investment professional.
To qualify for the Tax Incentive during the Additional Period, the SFOV must fulfil the higher requirements which include:-
The SFOV must hold AUM of at least RM50 million and meet minimum local investment in eligible and promoted investments 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 RM650,000 locally; and
The SFOV must employ a minimum of four full-time employees.
Key Takeaways
The conditions currently set-out in the FAQs may not be exhaustive and detailed conditions will only be made available by the first quarter of 2025.
A local Malaysian corporate vehicle must be incorporated to be eligible for the Tax Incentive.
Pre-registration and consultation with the SC is necessary to ensure that the requisite exemption from licensing (if applicable) and the certification/confirmation of eligibility for purposes of the Tax Incentive is obtained.
For more information, please feel free to contact Alden Yeoh at alden@kyblegal.com and/or Benjamin Chia at benjamin@kyblegal.com.
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