This article first appeared in Wealth, The Edge Malaysia Weekly on September 22, 2025 - September 28, 2025

Launched in September last year, the Single Family Office (SFO) Incentive Scheme is aimed at making Malaysia a key destination for high-net-worth families from around the world. With seasoned players like Singapore and Hong Kong already dominating the market, can Malaysia carve out its own niche?

Industry players say the biggest driver of this scheme, which is regulated by the Securities Commission Malaysia (SC), is the Johor-Singapore Special Economic Zone (JS-SEZ), which serves to draw not only trade, but also capital reallocation to Malaysia amid the ongoing US-China trade war.

Family offices are booming in the region, according to data published by Preqin, a London-based investment data company owned by the world’s largest asset manager, BlackRock.

A family office is a private company that manages the wealth, investments and financial affairs of an affluent family. It is set up for wealth preservation and investment management, or even lifestyle management and philanthropic purposes.

As at June, the number of family offices in Asia-Pacific had grown 515% to 1,224 from only 199 in 2019, more than double the growth in North America. North America had 1,898 family offices during the corresponding period, up 234% from 569, while Europe had 1,482 family offices, up 372% from 314.

Globally, one in four family offices are now based in Asia-Pacific, mainly in Singapore and Hong Kong, followed by Australia and India. By number of offices, Singapore (27.3%) and Hong Kong (21.1%) take up almost half of the family office market share in Asia-Pacific, while Australia (19.3%) and India (12.7%) have roughly one-third. At 2.5%, Malaysia is still ahead of Taiwan (1.6%), Thailand (1.3%) and New Zealand (1.3%).

It is yet to be seen if the SFO scheme will be a success. However, consultants who are advising and helping families are encouraged by the response they have received. “The level of interest [from our clients for SFO] has continued to grow and has exceeded our expectations. We have clients who have received conditional approval under the scheme, as well as some [who are] currently in advanced stages of preparing their respective applications,” says Lim Eng Ping, head of wealth management at Malayan Banking Bhd (Maybank).

He notes that interest has come primarily from Malaysian families with holdings in both publicly listed and privately held businesses. Some initial interest from foreigners has also begun to trickle in.

Maybank has helped its client ONE KL Management Sdn Bhd to be the first family office to obtain conditional approval from the SC. It is the family office of CMY Capital, founded by Tan Sri Chua Ma Yu.

Alan Inn, deputy CEO of CGS International Securities Malaysia Sdn Bhd, says the firm is working on about 20 SFO proposals, adding that “a few” have been given conditional approval.

“We continue to ramp up the pipeline by meeting with our clients and prospecting them for the SFO scheme. The majority at the moment are mostly local families who can easily meet the at least RM30 million in assets under management (AUM) requirement to apply for the scheme [RM50 million for the subsequent 10-year extension]. We do receive interest from foreign families, including from China and Taiwan,” he says.

Inn expects more families from China to apply for the SFO scheme as their businesses are no longer looking to re-export their products from Southeast Asian countries, but to move their production base to the region. When their factories are set up in Malaysia, owned by a local entity and manufacturing products to be shipped overseas, they can avoid the hefty tax rates that the US imposes on China.

The Malaysian entity, in turn, can be held by a holding entity owned by a family member under the SFO scheme. “Entrepreneurs from China may be moving their manufacturing base to the JS-SEZ on the back of the ‘China Plus One’ trend. They are localising production in Asean. And they can hold their Malaysian assets through the SFO for tax efficiency,” he says.

However, industry players are not expecting Malaysia to attract prominent families into the country.

Singapore has attracted high-profile people to set up family offices in the city state, including Google (Alphabet) co-founder Sergey Brin, UK investor James Dyson and Bridgewater Associates founder Ray Dalio.

“Singapore has been in the space for much longer and it benefits from being a regional financial centre with very mature and established financial institutions. But we have to start somewhere,” says Inn.

Bernard Yap, Malaysia private tax leader and partner at Ernst & Young (EY) Tax Consultants Sdn Bhd, agrees. “Malaysia will strive to secure prominent figures to set up family offices here. But I think what families will look for in Malaysia is real estate, especially cost-competitive industrial estates, to reallocate their production base. That’s something Singapore doesn’t have.”

He adds that land ownership for foreigners is also more restrictive in countries like Vietnam, another major beneficiary of the “China Plus One” trend.

Inn says Malaysia can leverage its strength in Islamic finance and the halal industry to attract wealthy families from the Middle East. “In fact, we are setting up an office in the Middle East for the SFO.”

The external factors aside, the 0% concessionary tax rate for the initial 10-year period, and subsequent extension for another decade, for taxes such as the capital gains tax (CGT) on the sale of shares in unlisted companies and the tax on foreign-sourced income (FSI), is the biggest draw of the SFO scheme.

Yap says it is the only tax scheme in Malaysia with such a long duration, an opportunity that wealthy families are keen to seize as it provides long-term certainty and stability.

It is worth noting that the exemptions are approved and provided on an annual basis when family offices meet all the eligible requirements set out by the regulator.

According to the SC’s official website, if the Single Family Office Vehicle (SFOV) does not meet the eligibility requirements for the income tax exemption in a given year, it will be subject to the prevailing corporate tax rate for that financial year. But it will not prevent the SFOV from applying for tax certification from the SC in the following year once it meets all required conditions. The 10-year assessment period will continue to run for the year when the SFOV fails to obtain tax exemption.

Many affluent families had set up investment holding companies to preserve and grow their wealth even before the announcement of the SFO scheme, some by hiring professional fund managers, relationship managers and other financial experts.

The financial gains of these firms derived from the trading of shares in public-listed entities are taxed under company income tax (up to 24%), while those derived from the trading of shares in unlisted firms are captured by the CGT (10%). Other taxes such as on FSI (taxed at the prevailing rate) and dividend tax (2% on dividend income exceeding RM100,000 annually) could also apply.

“From the tax perspective, there have been debates from time to time whether certain financial gains should be taxed under CGT or company income tax. There’s a big disparity between the two tax rates. Capital gains may not be taxed at all, or may be subjected to lower tax rates than gains of a revenue nature. But under the SFO scheme, it doesn’t matter, as both are exempted. FSI is also exempted,” says Yap.

To be qualified for the initial 10 years of the scheme, applicants will need to fulfil a list of requirements, including having RM30 million in AUM and at least RM500,000 annually in operating expenditure. These requirements are not an issue for wealthy families as they can easily meet the required AUM and may already be spending that amount of money to operate their investment holding companies.

CGS’s Inn says the exemption on CGT and 2% dividend tax for annual incomes exceeding RM100,000 is appealing to wealthy families, including those from abroad. He says most foreign entrepreneurs who relocate their production base to Malaysia hold shares in private companies, and the shares of those companies are likely to be traded at some point in time due to restructuring exercises, such as to raise capital, change ownership structure or even prepare for an initial public offering. On top of that, the dividends distributed through those shares, held under an SFOV qualified for the SFO scheme, can be fully distributed to shareholders without being taxed.

A private banker with one of the largest local banks says the SFO tax exemption is a “game changer”. “Much of the dividends are actually paid through the shares of private companies in Malaysia. In some cases, savings from the 2% dividend tax exemption itself can already justify the minimum operating expenditure required by the SC to apply for the scheme,” he points out.

One of the questions that tax consultants have been asked is how companies operating in Labuan will be treated compared with family offices under the SFO scheme.

A tax expert, who wishes to remain anonymous, says a Labuan company may enjoy a 0% to 3% income tax rate where conditions on economic substance are met, including a minimum operating expenditure in the jurisdiction and having full-time employees based there.

Labuan entities may also enjoy exemptions on stamp duty and withholding tax, subject to certain conditions.

Put simply, the economic substance requirement is part of a regulatory framework that requires companies, typically those in low tax or no tax jurisdictions, to demonstrate that they have genuine business activities and operations in the place where they claim to be a tax resident.

However, the tax expert adds that Labuan has been excluded from the benefits of some of Malaysia’s tax treaties with other countries. Some tax benefits, including the exemption on interest and dividends paid by a Labuan company, are expiring at end-2027, but they could be extended.

Industry players expect more parties to apply for the SFO scheme once the tax exemption is gazetted. For now, promises have been made by the Malaysian government, which might not be sufficient for foreign applicants.

“There need to be certainties for lawyers, tax consultants and applicants, especially in Malaysia where things are more prone to policy flip-flopping. After all, it has been over a year since the scheme was announced and the tax exemption hasn’t been gazetted yet,” says an industry player.

He says the delay could stem from the authorities still discussing the specific details, including governance and compliance. For instance, what if an SFOV made an investment at the very last minute just for the tax exemption, would it be allowed? And if not, what are the things that need to be done to curb such behaviour?

“These might be things that take time to be decided, which involve different government agencies working together. Details of the quantitative tests that have to do with the numbers are already out, but qualitative tests, which are non-numerical assessments, could still be in discussions,” he adds.

Some families opine that the tax exemption period of up to 20 years may seem long, but family offices are set up specifically for legacy planning purposes, with an investment horizon of several decades, if not a century. So, why limit the period to just 20 years?

Then, there is the issue of location. Families are asking why the location of the SFOV is only restricted to Pulau 1 of the Forest City Special Financial Zone. Can’t it be expanded to other locations? After all, many wealthy families live or have their businesses in other states.

Others are asking about the setting up of multi-family offices (MFOs), where one family office provides solutions to several families and not just one. This would allow several families to pool their assets to access better solutions and services.

For instance, a family with US$1 billion in AUM is allowed to run a large-scale family office with better services. Other smaller families with, say, US$100 million in AUM can access a large-scale MFO by paying a fee instead of setting up a small outfit of its own. An MFO allows the activities of a family office to be aggregated and commercialised.

During the SFO roadshow with a local bank, EY’s Yap says he did receive questions on why Malaysia cannot have an MFO scheme. “We said the family office scheme is still new to Malaysia. We start with the SFO first before introducing MFO, just like in Singapore. We can’t run before learning to walk,” he adds.

How do consultants communicate with their clients about these challenges? An industry player says there isn’t much downside for wealthy families to apply for the scheme. They will be entitled to tax exemptions if their application is successful. Otherwise, they will pay taxes as usual.

Inn concurs. “Our response is that if you don’t do anything about it, basically you will have none of the benefits provided by the scheme,” he says.

Industry players point out the possibility of the government extending the scheme if proved successful. While the SFOV needs to be set up in Pulau 1 of the Forest City Special Financial Zone, the SFO management company (SFO MC) can be set up anywhere in the country.

According to the SC’s official website, the SFO MC is a Malaysian company wholly owned, directly or indirectly, by members of a single family office. It is established for the purpose of managing assets and investments in the interests of the members of the SFO.

The SFOV, on the other hand, is established for the purpose of holding the assets and investments in the interests of members of a single family office.

The Securities Commission Malaysia (SC) says the Single Family Office (SFO) Incentive Scheme, announced on Sept 20, 2024, has received strong interest from local families.

As at Sept 12, the regulator had granted five conditional approvals for the SFO scheme and received more than 20 expressions of interest. Several applicants are in various stages of the application process.

In its written response to Wealth, the SC says the scheme is already bringing in investments from abroad, reinforcing the potential of the Forest City Special Financial Zone (FCSFZ) as a competitive location for family office activity. “The SC’s recent working visits to Taiwan and Oman also garnered expressions of interest from family advisers, bankers, trustees and the broader business community in those jurisdictions.”

The SC says the success of Malaysia’s SFO scheme will be measured by its ability to anchor family wealth in the country and build a sustainable ecosystem around it.

The scheme is expected to contribute RM277 million to the country through direct investments, operating expenditure and job creation from 2026 to 2030. All this while ensuring wealth management activities and the relevant service providers remain onshore.

“Over the longer term, success means positioning Malaysia as a credible regional hub for family offices, alongside Singapore and Hong Kong. This includes deepening capital markets; directing investments to priority sectors such as start-ups, infrastructure and sustainable finance; and reinforcing Malaysia’s strengths in Islamic finance, sukuk leadership and Asean connectivity.”

Beyond the numbers, the SC says Malaysia offers globally mobile families a practical and cost-efficient base that combines policy clarity, a robust legal and regulatory framework and world-class services, including quality healthcare, international education and strong liveability.

While there are challenges in balancing incentives with safeguarding tax revenues, the scheme is designed with clear guard rails in place to ensure the benefits flow back to the local economy, says the SC. “In short, it offers both day-to-day liveability and long-term investment confidence for families looking to grow and transition wealth across generations.”

On the tax exemption, the SC says the tax order under the SFO scheme has not been formally gazetted yet. “The Ministry of Finance has provided policy approval and utilised its minister’s powers under the Income Tax Act 1967 (ITA) to support a smooth transition. The SC has been delegated to facilitate the application and verification process,” it adds.

“Applicants can already proceed [with the applications], with the application kit and terms of conditions for the SFO scheme available on the SC’s webpage.”

Regarding the location of the Single Family Office Vehicle (SFOV) restricted only to Pulau 1 of the FCSFZ, the regulator says it is for the SFOV to meet the substance requirements in the FCSFZ.

“However, there is flexibility where the management company and other service providers supporting the SFOV can be located outside of the FCSFZ. Families also have the option of structuring their ultimate holding company or trust structure above the SFOV to be [located] either onshore in Malaysia or offshore.”

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