Malaysia dangles 0% tax carrot to draw family offices to Forest City special financial zone, outlines other incentives
The government is also offering lower income tax rates for foreign workers as well as concessionary corporate tax rates to attract international firms.
by Amir Yusof · CNA · JoinISKANDAR PUTERI, Johor: Malaysia has unveiled several tax incentives in a bid to augment Forest City as a preferred investment destination for international companies, including family offices.
The incentives come as part of efforts to boost high-level business interest in the beleaguered development, which is the location of a planned special financial zone (SFZ).
The Johor state government has proposed that the SFZ be integrated with the Singapore-Johor special economic zone (SEZ), but this has yet to be confirmed by both the federal governments of Malaysia and Singapore.
During a special event in Forest City Marina Hotel on Friday (Sep 20), Malaysia’s Second Finance Minister Amir Hamzah Azizan said: “I am pleased to announce that Forest City will be the first location in Malaysia to offer a zero per cent tax rate for family offices.”
Family offices are private organisations set up to manage the wealth of one or multiple families.
He added that the scheme aims to attract regional and Malaysian families to manage their family wealth from Malaysia.
“Supported by good infrastructure, a competitive talent pool, robust common law practices and effective governance, opportunities abound for family offices,” said Mr Amir Hamzah.
“This scheme is aimed at being operational by the first quarter of 2025,” he added.
During a press conference after his speech, Mr Amir Hamzah explained that these companies will be subject to zero per cent tax when they file revenue of their transactions for 10 years.
He added that the incentives can then be extended if the family offices scale up investments and assets of their operations in Malaysia.
Mr Amir Hamzah added that a key criteria is that these family offices must have minimum assets of RM70 million (US$16.73 million), and a portion of these must be invested in Malaysia’s economy.
He added that this requirement is lower than in “neighbouring countries”.
“So those who can’t qualify may come here to invest. We are not competing with them, but we are complementary, so the whole Southeast Asian region will benefit,” he added.
He earlier outlined that there are an estimated 8,030 single-family offices globally today and this is projected to grow by 75 per cent to more than 10,720 by 2030.
“Total estimated assets under management of family offices are expected to rise to US$5.4 trillion from US$3.1 trillion by 2030,” he said.
Mr Amir Hamzah added that the establishment of family offices will complement “the collective strength of government linked-investment companies (GLICs)”.
“Hence, as we open our doors to welcome family offices, we are also inviting them into the good company of potential partners in the form of our GLICs and other institutional funds, and to partake in high-growth, high-value investments through venture capital and private equity opportunities,” he said.
Besides incentives for family offices, Mr Amir Hamzah added that the government will also offer a “special 5 per cent” tax rate for financial global business services, financial technology or fintech, and foreign payment system operators setting up operations in Forest City.
He added the government is also offering a concessionary corporate tax rate between zero and 5 per cent for companies, and a special individual income tax rate of 15 per cent for skilled foreign workers, compared to 30 per cent elsewhere.
“These incentives are expected to attract businesses, financial institutions, and high-net-worth individuals, further augmenting Forest City’s position as a preferred investment destination,” he said.
In Aug 2023, Malaysian Prime Minister Anwar Ibrahim announced during a visit to Johor that the Forest City project will be designated as a special financial zone to spur the economy in the Iskandar Malaysia region.
He outlined that the zone would offer businesses incentives to set up operations, such as a flat income tax rate of 15 per cent for skilled foreign workers, multiple entry visas as well as fast-track entry for those who are based in Singapore, without giving details.
“I am confident this will attract many companies which are experiencing high operating costs in Singapore,” said Mr Anwar.
Mr Anwar’s comments came amid various media reports labelling the project a “ghost town” in reference to the development’s slow pace of construction and low occupancy rates for its residential properties.
MUST ENSURE TAX INCENTIVES ARE NOT ABUSED BY FAMILY OFFICES: ANALYST
Johor economic observer Samuel Tan, chief executive of Olive Tree property consultants, told CNA the tax incentives are positive developments to attract family offices, fintech, shared services and digitalisation to Malaysia.
However, he warned that authorities must do due diligence to ensure that family offices, for instance, do not break the law and commit money laundering offences.
In 2023, six single family office funds in Singapore given tax benefits were found to be linked to the case where 10 foreigners were arrested and convicted in the country's largest money laundering case.
"What is needed is the legal frameworks to ensure efficiency and transparency. What happened to some countries where it was abused must not happen here. And the ecosystem must be right to attract knowledge workers to the Forest City Special Financial Zone," said Mr Tan.
He added that the amenities and infrastructure in Forest City must also be developed so that investors would find it plausible to relocate.
"Lower tax itself is insufficient if the quality of living is not up to expectations. In this regard, the stakeholders must ensure (the SFZ) offers an environment where people find it safe, convenient and efficient in carrying out their works," said Mr Tan.
"Forest City special financial zone can be the prototype of what an ideal SFZ should be. A successful model then can be adopted in other parts of Malaysia or even internationally," he added.
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