The recent launch of the Forest City Special Financial Zone (SFZ) in Iskandar Puteri, Johor, marks a pivotal moment for Malaysia’s economic landscape. This ambitious project, developed by Country Garden Pacificview Sdn Bhd and Esplanade Danga 88 Sdn Bhd, is designed to attract significant foreign investment and rejuvenate the Johor region. Key components of the SFZ include a unique tax regime aimed at appealing to global businesses and wealthy individuals, particularly family offices.

Key Features of the Forest City SFZ

The Forest City SFZ encompasses four man-made islands over 30 square kilometers and is part of a US$100 billion investment. The Forest City SFZ offers a suite of incentives to attract diverse industries. Notable features include:

1. Zero Percent Tax Rate for Family Offices: By Q1 2025, Forest City will introduce a zero percent tax rate for family wealth offices, positioning itself as a favorable jurisdiction for high-net-worth individuals seeking to manage their assets effectively.
2. Concessionary Corporate Tax Rates: The SFZ will implement corporate tax rates ranging from zero to five percent for businesses, particularly those in sectors such as global business services and financial technology. This framework aims to create a competitive environment for attracting multinational corporations.
3. Special Income Tax Rate for Skilled Workers: A reduced income tax rate of 15% for skilled professionals is set to encourage talent attraction and retention within the region.
4. Incentives for Financial Companies: Financial firms operating in the SFZ will benefit from various incentives, including deductions for relocation costs and enhanced industrial building allowances.
5. Multiple Entry Visas: To facilitate international business, the government will provide multiple entry visas for foreign investors and skilled workers, enhancing accessibility to the region.

Single Family Offices (SFOs) and the SFZ

On 23 September 2024, the Securities Commission (SC) outlined the requirements for the newly launched family office incentives at the Special Financial Zone (SFZ). A Single Family Office (SFO) is a corporate vehicle that is wholly owned or controlled by members of a single affluent family, established to manage the family’s assets, investments, and long-term interests across multiple generations. While SFOs generally require a fund management license under the Capital Markets and Services Act 2007 (CMSA) for managing capital market products, they may be exempt if they exclusively provide services to a related Single Family Office Vehicle (SFOV), which also serves as a corporate entity for holding the family’s assets and investments.

This incentive scheme will offer benefits for an initial period of 10 years (‘initial period’), with the option for a 10-year extension (‘additional period’), contingent upon specific conditions, as follows:

To Qualify for the Initial Period (10 years):

• 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;
• The management company or SFO, which is a related company of the SFOV, must be set up and operate out of Pulau 1, Forest City Special Financial Zone, with at least one investment professional with a minimum monthly salary of RM10,000;
• 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 annual operating expenditure (OPEX) locally of at least RM500,000;
• Employ a minimum of two full-time employees, one of whom must be an investment professional, with a minimum monthly salary of RM10,000.

To Qualify for the Additional Period (additional 10 years):

• 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 OPEX locally that is 30% higher than during the Initial Period, with a minimum of RM650,000 annually.
• Employ a minimum of four full-time employees.

Eligible SFOVs may apply to the SC for certification to qualify for tax incentives, demonstrating compliance with the relevant requirements. Pre-registration with the SC is recommended to confirm eligibility.

Conclusion

The establishment of the Forest City Special Financial Zone presents a significant opportunity for investors looking to enter the Malaysian market, particularly in sectors such as finance and technology. The zero tax rates for family office is designed to attract high-net-worth individuals to manage their global assets from Forest City SFZ. The Securities Commission Malaysia has issued a set of FAQs on SFO scheme which aims to address some of the common questions to the SFO regime and encourage a person intending to set up or operate a SFO to seek legal advice in relation to the licensing obligations under the Capital Markets and Services Act 2007.

The information provided is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations

Bin Hau Lee, Partner, Malaysia