How to Set Up a Family Office in Malaysia

In recent years, Malaysia has emerged as a strategic location for high-net-worth individuals seeking to manage their wealth efficiently.

The increasing complexity of global financial landscapes has made centralized wealth management solutions like family offices increasingly valuable.

For high-net-worth families in Malaysia, establishing a family office represents a strategic approach to preserving, growing, and transmitting wealth across generations.

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This guide on how to set up a family office in Malaysia provides insights into the SFO scheme, costs, taxes, and the step-by-step establishment process.

What Is a Family Office in Malaysia?

Family offices generally fall into two distinct categories:

Single Family Office (SFO):

• Exclusively serves one wealthy family
• Tailored entirely to that family’s specific financial objectives and requirements
• Provides dedicated resources and customized solutions

Multi-Family Office (MFO)

• Manages the wealth of several families simultaneously
• Combines resources to deliver extensive services to clients with comparable financial goals
• Offers economies of scale while addressing similar wealth management needs

In the Malaysian context, a Single Family Office (SFO) is a corporate vehicle wholly owned or controlled by members of a single wealthy family.

It is created to exclusively manage their assets, investments, and long-term interests. 

It may represent multiple generations and branches of the same family, centralizing and formalizing decision-making processes for high-net-worth individuals.

The typical structure comprises:

• SFO Management Company: Provides advisory and administrative services to the family.
• Single Family Office Vehicle (SFOV): Holds the family’s assets and executes investment strategies

This structure allows for a clear separation of management and ownership, ensuring efficient wealth management while maintaining family control.

Family offices in Malaysia offer a comprehensive range of services, including:

• Wealth management and investment oversight
• Legal and bookkeeping assistance
• Insurance and risk management
• Family governance and education
• Philanthropy initiatives

Unlike traditional wealth management services, family offices in Malaysia provide a more personalized approach, tailored to meet each family’s unique requirements, values, and long-term objectives.

They serve as a holistic solution for high-net-worth families, addressing both financial and non-financial needs.

What is the SFO scheme in Malaysia?

The Single-Family Office Scheme in Malaysia is a government initiative by the Securities Commission Malaysia (SC).

It is designed to position the country as a preferred destination for high-net-worth families looking to manage and grow their wealth efficiently. 

Malaysia’s Single-Family Office (SFO) Scheme offers a structured and tax-efficient environment for families to manage their assets, investments, and long-term interests.

Announced by the Minister of Finance II on 20 September 2024, the scheme is set to be operational by the first quarter of 2025.

A notable aspect of this scheme is its connection to the Forest City Special Financial Zone (FCSFZ), which was introduced by Prime Minister Anwar Ibrahim on August 25, 2023.

Forest City SFZ is the first location in Malaysia that offers a single-family office scheme, making it a unique and strategic choice for wealthy families. 

As mentioned earlier, to participate in the SFO scheme, two wholly owned companies must be established:

1. An SFO (management company)
2. An SFOV (investment holding vehicle)

Both entities must maintain physical operations based in Pulau Satu, located in the FCSFZ. 

The SFOV must also be registered with the Securities Commission Malaysia.

The SC oversees the scheme and issues certifications to eligible SFOVs.

 Notably, the management company or SFO may be exempted from licensing requirements under the Capital Markets and Services Act 2007.

Only if they can demonstrate that their management services are provided solely for the benefit of an SFOV which is its related corporation. 

However, the SC may still impose terms and conditions on the SFO according to section 58 of the CMSA.

How much to set up a family office in Malaysia?

Setting up a family office in Malaysia involves several costs, from registration fees to operational expenditures.

Understanding these costs is crucial for high-net-worth families planning to establish a presence in the country.

Here is a snapshot of all the costs associated with setting up a family office in Malaysia.

Incorporation Fees:

For a Local Private Limited Company, the costs are as follows:

• Name reservation: RM 50 per name application.
• Incorporation (section 14): RM 1,000 flat fee.

For a Foreign Company with Share Capital, the costs are:

• Up to RM 1 million: RM 5,000
• RM 1 million–RM 10 million: RM 20,000
• RM 10 million–RM 50 million: RM 40,000
• RM 50 million–RM 100 million: RM 60,000
• Above RM 100 million: RM 70,000.

For a Foreign Company with No Share Capital: RM 70,000 flat rate for foreign entities.

SFO Scheme-Specific Substance Requirements

• Assets Under Management (AUM): ≥ RM 30 million.
• Local Investment: ≥ 10% of AUM or RM 10 million, whichever is lower.
• Annual Local Operating Expenditure: ≥ RM 500,000.
• Staffing: ≥ 2 full-time employees (each with a minimum monthly salary of RM 10,000, one must be an investment professional)

What is the tax incentive for a family office in Malaysia?

The tax incentive for family offices in Malaysia is one of the most compelling reasons for high-net-worth families to consider the country.

Eligible SFOVs can enjoy a 0% concessionary tax rate on income generated by eligible investments for a period of 10 years (initial period).

This can be extended for an additional 10 years (additional period) subject to fulfilling certain requirements.

To qualify for the tax incentive during the initial 10-year period, an SFOV must meet several conditions:

1. 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.
2. 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. There should be at least one investment professional earning a minimum monthly salary of RM 10,000.
3. The SFOV must hold an AUM of at least RM 30 million and meet minimum local investment requirements.
4. The SFOV must employ a minimum of two full-time employees, each receiving a minimum monthly salary of RM 10,000, with at least one being an investment professional.

For the tax incentive to be extended for an additional 10 years, the SFOV must meet higher substance and financial requirements:

1. The SFOV must increase its AUM to at least RM 50 million.
2. The SFOV must meet a minimum local investment in eligible and promoted investments of at least 10% of AUM or RM 10 million, whichever is higher.
3. The SFOV must increase its annual operating expenditure by 30% to a minimum of RM 650,000 locally.
4. The SFOV must employ a minimum of four full-time employees.

Additionally, employees in the Forest City Special Financial Zone may benefit from a reduced income tax rate of 15%.

Setting Up a Family Office in Malaysia

Establishing a family office in Malaysia involves a comprehensive process from planning to implementation. Here’s a step-by-step guide:

1. Planning and Feasibility Study:

Conduct a thorough analysis of the potential benefits, costs, and challenges.

This should include capital structuring, profit repatriation strategies, corporate tax considerations, and workforce planning.

2. Choosing the Right Structure:

Decide on the most suitable structure for your family office.

For the SFO scheme, you’ll need to establish both an SFO (management company) and an SFOV (investment holding vehicle).

3. Incorporation and Registration:

Register your entities with the Companies Commission of Malaysia, paying the appropriate registration fees based on your nominal share capital. 

Ensure your SFOV is registered with the Securities Commission Malaysia.

4. Meeting Financial Requirements:

Ensure you meet the financial requirements for the SFO scheme, including the minimum AUM of 30 million ringgit and local investment thresholds.

5. Setting Up Physical Operations:

Establish a physical office in Pulau 1, Forest City Special Financial Zone. The office should be at least 500 square feet to meet regulatory requirements.

6. Recruiting the Right Team:

Hire the necessary professionals, including at least one investment professional and one director, both with minimum monthly salaries of RM 10,000.

7. Applying for Tax Incentives:

Seek pre-registration with the SC to confirm eligibility for tax incentives under the SFO scheme.

8. Implementing Governance Frameworks:

Establish clear governance structures, decision-making processes, and operational protocols aligned with your family’s values and objectives.

9. Ensuring Regulatory Compliance:

Maintain ongoing compliance with regulatory requirements, tax obligations, and reporting standards to preserve eligibility for tax incentives.

10. Regular Review and Adaptation:

Periodically review your family office’s performance, strategy, and operations, adapting to changes in regulations, market conditions, and family needs.

For a seamless setup process, it’s advisable to engage experienced professionals familiar with Malaysia’s regulatory environment and the specific requirements of the SFO scheme.

Conclusion

Malaysia’s introduction of the Single-Family Office Scheme represents a significant opportunity for high-net-worth families seeking efficient wealth management solutions.

Malaysia is positioning itself as a competitive jurisdiction for family wealth management with its:

• Compelling 0% tax rate for qualifying family offices
  • Strategic location in Southeast Asia
  • Robust regulatory framework

The process of establishing a family office in Malaysia, while comprehensive, follows a clear structure.

It is designed to ensure that family offices serve their intended purpose of preserving, growing, and transferring wealth across generations.

The detailed requirements for financial substance, local investment, and employment create a framework that benefits both the families and the Malaysian economy.

As the scheme becomes fully operational in early 2025, interested families should begin the planning process now, engaging with the Securities Commission for pre-registration and ensuring all requirements are understood and can be met.

For high-net-worth families looking to centralize their wealth management in a tax-efficient jurisdiction with strong growth potential, Malaysia’s Single-Family Office Scheme offers a compelling proposition that merits serious consideration.

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Adam is an internationally recognised author on financial matters with over 830million answer views on Quora, a widely sold book on Amazon, and a contributor on Forbes.