In a move seen as a direct challenge to Singapore, Malaysia has unveiled a new tax scheme for single family offices located in the Forest City Special Financial Zone (FCSFZ) in Johor, a stone’s throw away from Singapore.
For single family offices (SFOs), or wealth management firms that cater to a single family, setting up shop in the FCSFZ will allow them to enjoy a zero percent tax rate for 10 years, provided they have minimum assets under management of 30 million ringgit (US$7 million), according to Malaysia’s finance minister II Amir Hamzah Azizan. It is extendible for another 10 years, provided the SFO is able to scale up operations.
The new tax regime is expected to take effect by the first quarter of 2025, and is part of the Malaysian government’s efforts to boost the broader Forest City development, which was launched by the Malaysian government and Chinese developer Country Garden Holding in 2023.
Malaysia hopes the tax incentive is attractive enough to lure some of the 1,650 SFOs in nearby Singapore, as well as others across Asia, to uproot themselves and set up shop in Forest City. The FCSFZ’s location in Johor, which is just an hour away from Singapore, is expected to offer an attractive alternative to the city-state, which, while an established financial hub with a strong regulatory framework, comes with a corresponding price tag.
In addition to the zero tax rate for SFOs, Azizan says the Forest City will also offer zero to 5% corporate income tax rates for fintechs and global business services. These rates are significantly lower than Singapore’s 17% corporate tax, and some companies in Singapore looking to reduce overhead costs could find this attractive, especially as Johor itself offers the added benefit of cheaper rent and utilities costs.
In a bid to attract not just companies, but also talent to staff these firms, the FCSFZ will also lower the income tax rate for skilled workers.
While the tax incentives are competitive, they also come at a time when Singapore is seeing an unprecedented growth in the SFO space. In 2020, there were about 400 SFOs in the city-state, according to the Monetary Authority of Singapore, but the number has since grown to 1,650 as of September 2024, a 312.5% increase.
Chee Hong Tat, Singapore's second minister for finance and deputy chairman of the Monetary Authority of Singapore, credits the robust growth of SFOs in Singapore to the city-state’s “strong rule of law, robust and predictable regulatory regime and a comprehensive ecosystem of wealth managers and professional service providers”.
“Equally important to wealth owners who spend time here is our high quality of life, our safe and secure environment which is family-friendly, and our excellent connectivity with the rest of the world, as well as our world-class education and healthcare systems,” he adds.
In the end, it still remains to be seen if SFOs and fintechs in Singapore are willing to uproot themselves to save a few dollars, or if SFOs will choose the relative safety and ease of doing business in Singapore.