Malaysia unveils zero tax for family offices in Forest City, in bid to revive Johor project

KUALA LUMPUR – Malaysia on Sept 20 announced a 0 per cent tax rate for family offices located in Forest City, as part of incentives to draw capital to the special financial zone in its southern state of Johor.

Finance Minister II Amir Hamzah Azizan said Forest City will become the first site in Malaysia to implement the 0 per cent tax rate for family offices, or private asset management firms that serve wealthy individuals and their families. This initiative is expected to be operational by the first quarter of 2025.

The move is part of a slew of incentives targeted at reviving Forest City, a beleaguered US$100 billion (S$129 billion) development project located a stone’s throw from Singapore, an established financial hub.

The 2,800ha development, backed by Chinese developer Country Garden Holdings, was

designated a special financial zone (SFZ) in August 2023

to boost foreign investment and economic growth in the area.

Datuk Seri Amir Hamzah said that the tax break is aimed at drawing families from Malaysia and other Asian countries to oversee their wealth management from Malaysia.

“Supported by good infrastructure, a competitive talent pool, robust common law practices and effective governance, opportunities abound for family offices,” he added, at the event in Forest City to launch these measures.

At a press conference after the event, Mr Amir Hamzah said the 0 per cent tax rate will be offered to family offices for 10 years, and requires a minimum assets under management of RM30 million (S$9.2 million).

There will be “an option to extend it (for another 10 years) only if you are able to scale up the operations by adding more investments and assets under management in the country”, he said.

The number of single family offices globally is expected to grow to more than 10,720 by 2030 with total estimated assets under management of US$5.4 trillion, from 8,030 family offices managing US$3.1 trillion currently, noted Mr Amir Hamzah.

Other measures unveiled for the SFZ on Sept 20 included a special 5 per cent tax rate for financial technology and foreign payment system operators, and incentives for financial sector players such as special deductions on relocation costs, enhanced industrial building allowances and withholding tax exemptions.

There is also a concessionary corporate tax rate of between 0 and 5 per cent and a special individual income tax rate of 15 per cent for knowledge workers, and Malaysians, who choose to work in the SFZ.

“Locally incorporated foreign banks will enjoy regulatory flexibilities to open additional branches within the SFZ, and also benefit from foreign exchange flexibilities for offshore borrowing in foreign currency and investment in foreign currency assets,” the minister said. He added that the SFZ could potentially become a recognised financial hub like Shenzhen in China and Dubai in the United Arab Emirates.

Forest City is a joint venture between Country Garden and a private Malaysian company backed by the country’s king, Sultan Ibrahim Iskandar of Johor.

Economists acknowledge that the tax breaks and incentives for Forest City’s SFZ are competitive but wonder whether that will be enough to draw family offices from nearby Singapore due to the latter’s established banking and legal ecosystem.

PwC Malaysia economist Patrick Tay Soo Eng told The Straits Times it was a bold move by Malaysia to roll out the 0 tax rate but added that the decision to move family offices from Singapore to Forest City will depend on the operating environment, including fund-flow guidelines for the SFZ.

At the end of August, the number of single family offices (SFOs)

grew to 1,650,

according to Mr Chee Hong Tat, Singapore’s Minister for Transport and Second Minister for Finance.

From just 400 SFOs awarded tax incentives by the Monetary Authority of Singapore in 2020, the number of family offices grew to 1,400 at the end of 2023.

The rich choose Singapore for many reasons, including its strong rule of law, robust and predictable regulatory regime, an ecosystem of wealth managers and professional service providers, safe and family-friendly environment, as well as its world-class education and healthcare systems, Mr Chee said.

Compelling though they may be, tax incentives alone may not be enough for businesses to thrive within the SFZ, said one tax expert.

KPMG Malaysia’s senior adviser on tax policy, Dr Veerinderjeet Singh, told ST: “We need seamless ways of doing business and smooth entry and exit into Johor (and Singapore), bank accounts opened almost instantaneously, quick business approvals, and allowing an entity to be set up in a fast manner.”

Malaysian think-tank Socio Economic Research Centre executive director Lee Heng Guie agreed, saying: “We need to have supporting infrastructure, a conducive investment climate, and business auxiliary services within the SFZ to attract companies to move to Forest City.”