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How would family offices benefit Malaysia as a whole, and individuals like you and me?

Valuation Firm in Malaysia

Family office is a private wealth management advisory firms that serves high-net-worth families. It provides comprehensive services and solutions to high-net-worth families, including investment management, estate planning, tax planning, philanthropy, and family governance. The goal is to preserve and grow the family’s wealth across generations and any specific needs. There are two categories of family offices, i.e., Single-family offices (serve wealthy family and are tailored to the specific needs and goals) and Multi-family offices (serve multiple families and offering similar services at a lower cost due to shared resources).

The Securities Commission Malaysia had on 23 September 2024 announced the new Family Office incentive scheme (FOIS) with the objectives to enhance Malaysia investment landscape and attract regional and Malaysian families to manage their wealth from Malaysia. FOIS provides for a 0% concessionary tax rate on income generated by eligible investments from the Single Family Office Vehicle (SFOV). Pulau 1 of Forest City Special Financial Zone has been identified as the first location in Malaysia to offer a 0% tax rate incentive for Family Offices. Under this FOIS, the duration of 20 years has been fixed with the initial period of 10 years and additional period of another 10 years.

For the 10 years initial period, 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 incentives and holds asset under management (AUM) of at least RM30 million (net of debt) with a minimum local investment of at least 10% of AUM or RM10 million whichever is lower. The operating expenditure (OPEX) incurred locally of at least RM500,000 annually and employing a minimum of two full-time employees. A management company to be established with at least one investment professional with minimum monthly salary of RM10,000. 

For the additional period of further 10 years, the required AUM is at least RM50 million (net of debt), OPEX incurred locally at a minimum of RM650,000 annually and employing a minimum of four full-time employees.
The management company may not need to get certain licenses under the Capital Markets and Services Act 2007 (CMSA), such as for fund management, as long as it only provides services for its related corporation, the SFOV. The SC is currently working with the relevant stakeholders to operationalise the scheme by the first quarter of 2025.

The proposed Family office in Pulau 1 of Forest City Special Financial Zone may provide several potential benefits to the country or you and me, particularly when it comes to economic development, job creation, philanthropic efforts, and long-term investment in key industries. Briefly, they may be summaried as follows:-

  1. Family offices typically prioritize long-term wealth preservation and growth, which can bring substantial benefits to our private equity and venture capital sectors. By investing in startups, emerging companies, and innovative industries, family offices can stimulate entrepreneurship, foster innovation, and support the growth of local businesses. This, in turn, can drive job creation, promote technological advancements, and contribute to the overall economic development of our country.
  2. Family offices often invest in sectors that drive job creation, both directly and indirectly. By helping businesses expand, develop new products or services, and hire local talent, family offices play a key role in strengthening the economy. They also tend to focus on small and medium enterprises (SMEs), which are vital to our economic growth and serve as the backbone of many industries.
  3. Family offices may engage in philanthropy and social impact investing, which can benefit our education programs, healthcare facilities and research institutions. Their philanthropic efforts can improve overall well-being and quality of life for our citizens.
  4. Family offices are often less reactive to market volatility compared to other types of investors like hedge funds or private equity firms. This long-term outlook can provide stability in times of economic uncertainty. Some ways they can help stabilize our economy via investment during economic downturns and avoidance of short-term speculation.
  5. By participating in capital markets, family offices can contribute to the depth and liquidity of our financial markets.
  6. Family offices often have extensive global networks and may play a key role in fostering our international trade, partnerships, and foreign investment.
  7. Some family offices invest heavily in research and development (R&D), particularly in industries such as biotechnology, technology, and green energy.

The growth of family offices in Malaysia is expected to bring broad benefits to the country. However, the specific impact on individual industries, sectors, professions, or businesses will depend on the details of the scheme once it is officially launched, tentatively by Q1 2025.

Some key questions remain regarding the scope of investments family offices can make, including:

  1. Are there any restrictions on family offices investing in private companies? For example, will investments be limited to certain industries or sectors, such as those aligned with Malaysia’s New Industrial Master Plan?
  2. Can family offices invest in private companies that own properties or are involved in property development? If so, are there any limitations on the scale or type of real estate investments?
  3. Are family offices permitted to invest in properties outside of Forest City, or will investments be restricted to properties within the Forest City Special Financial Zone?
  4. Are there any specific restrictions on the types of properties family offices can invest in, such as residential, commercial, or industrial real estate?

These details will become clearer once the official guidelines for the scheme are announced.

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This blog / insight is based on Agility Valuers & Property Consultants / Agility Research (AVPC)’s current understanding and insights about the related topic in the current property / real estate market context. Agility Valuers & Property Consultants / Agility Research (AVPC) makes no guarantees, representation or warranties of any kind, expressed or implied, regarding the information including but not limited to, warranties of content, accuracy and reliability. Interested parties should undertake their own inquiries as to the accuracy of the information. Agility Valuers & Property Consultants Sdn. Bhd. / Agility Research (AVPC) excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss or damages arising therefrom.

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Sr Yap Kian Ann

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