Introduction
Generally, family office is still uncommon in Malaysia. It is still new and at early stage as compared to the USA, European countries, Hong Kong and Singapore that have more established family office markets. Among the top family offices in the world are Walton Enterprises and Bezos Expeditions in the USA, Dubai Holding in UAE and Tolaram Group in Singapore.
What is actually a family office? Family office is a group of advisers that provide a high-net-worth individual or family with a range of services including amongst others legal advice, tax planning, and investment planning. Each family needs to organize its affairs and plan for the future. But family office is a more formal and structured arrangement which is designed for a high-net-worth individual or families whose affairs are more complicated and complex. If the financial and personal needs of a family are no longer suitable with the ordinary arrangement, then family office is an ideal way to resolve the issues. Family office can be structured either by single family office or multiple family office.
An example of the significance of the need for family office is based on the saga of Ambani’s family. After the passing of Dhirubai Ambani who was the founder of Reliance Industries Ltd in July 2002 without leaving a will, his sons Mukesh Ambani and Anil Ambani had begun their family feud which became the world’s attention where the two brothers had spent years of bashing each other publicly that even brought to defamation suits between them. The altercation finally came to an end when Mukesh bailed out Anil’s debt to Swedish firm Ericsson which had saved him from prison. In 2022, Mukesh opened his single family office in Singapore whereby Reliance Industries still functions as an investment vehicle for Ambani, with the Singapore family office helping him to invest in assets abroad that are mainly oil and gas, real estates and venture capital. From this tale of Ambani’s family, it shows the importance of having a family office that could avoid family disputes, ensure the effective governance of wealth and hence, prosperity is transferred and passed down to the future generation.
Overview of Family Office in Malaysia
Following the announcement by the Prime Minister Dato’ Seri Anwar Ibrahim that encouraged the establishment of family office to attract larger investments in Malaysia, the Minister of Finance II, Senator Datuk Seri Amir Hamzah Azizan had on 20 September 2024 announced 0% tax rate incentives scheme on income generated by eligible investments from the Single Family Office Vehicle (“SFOV”) as part of incentive packages for the Forest City Special Financial Zone (“FCSFZ”). The Securities Commission (“SC”) that is responsible for coordinating the Single Family Office Incentive Scheme has outlined certain conditions for the eligibility of the scheme. The said conditions amongst others are as follows:-
i. the establishment and operation of the registered office shall be in Pulau 1, Forest City Special Financial Zone whereby Forest City will be the first location to offer 0% tax rate incentive for family offices;
ii. the duration of the family office is 20 years with the initial period of 10 years and the additional or subsequent period of 10 years;
iii. To qualify for Initial Period (10 years):
a. 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;
b. Management company or SFO2 which is a related company of SFOV to be set up and operate out of Pulau 1, Forest City Special Financial Zone with at least one investment professional with minimum monthly salary of RM10,000.
c. Hold AUM of at least RM30 million; meet minimum local investment in eligible and promoted investments of at least 10% of asset under management (AUM) or RM10 million whichever is lower;
d. SFOV to spend operating expenditure (OPEX) locally a minimum of RM500,000 annually;
e. Employ a minimum of two full-time employees of whom at least one is an investment professional, with minimum monthly salary of RM10,000;
iv. To qualify for Additional Period (additional 10 years):
a. Hold AUM of at least RM50 million; meet minimum local investment in eligible and promoted investments of at least 10% of asset under management (AUM) or RM10 million whichever is higher;
b. SFOV to spend OPEX locally (30% higher than Initial Period) a minimum of RM650,000 annually;
c. Employ a minimum of four full-time employees.
Islamic Family Office
Nowadays, Islamic family office has become essential to cater the wealth management of the high-net-worth Muslim families. Amongst the features of the Islamic family office are that the family office follows and adheres to the Islamic principles in which the investments and financial matters are in line with the Shari’ah Laws, ensures fairness to the beneficiaries and gives benefit to the society.
Islamic family office structures the creation, growth, preservation and succession of wealth through investments, philanthropy, and estate planning. Among the methods of the Islamic wealth planning are:-
i. Fara’id (Islamic Inheritance Law): Fara’id ensures fairness and provides succession of the estates to the rightful heirs. Under fara’id, the estates must be used to fulfill the debts and liabilities of the deceased, to allocate one-third (1/3) to the non-heirs and to distribute the remaining estates to the beneficiaries according to the fara’id rules.
ii. Wasiat (Will): A written declaration by a Muslim to appoint the executor of the estates, allocation of one-third (1/3) of the estates to the non-heirs if any, allocation for charitable purposes or any other purposes permissible in Islam.
iii. Hibah (Gift): The transfer of ownership of wealth or property to a person or entity during the donor’s lifetime without expecting anything in return or consideration.
iv. Wakaf (Endowment): Where the donor contributes or dedicates his property or wealth to the society for perpetual benefit.
v. Amanah (Trust): Appointment of trustee to hold and manage the assets for the benefit of the beneficiaries.
vi. Takaful (Islamic Financial Protection): A protection instrument in order to ensure the financial benefit for the families upon death of the policy owner.
vii. Syariah-Compliant Investments: Investment under the Islamic family office must be syariah-compliant investment. The Islamic wealth planning integrates or combines religious principles with strategies to ensure the wealth preservation and growth and to achieve both financial and spiritual goals, leaving a lasting legacy in accordance with the Islamic principles and values.
Potential Growth of Islamic Family Office
Eventhough Malaysia is still new in regard to family office as mentioned before, Islamic family office in Malaysia has its significant potential growth, expansion and opportunities based on the following reasons:-
1. the increase of economic growth and wealth in Muslims majority countries such as the Middle East and Southeast Asia particularly in Malaysia has led to the rise of number of the high-net-worth and ultra-high-net-worth muslim individuals and families who are looking for Islamic wealth management system;
2. with the growth of the Islamic finance and services due to strong support by the government and a well-developed regulatory and Syariah governance as well as large number of Syariah-compliant equity investments, it provides wide range of options for Syariah-compliant financial and investments solutions that attract the establishment of more Islamic family offices in Malaysia. Investment opportunities such as information technology, real estates and others also attract the development of Islamic family offices in Malaysia;
3. Islamic family office ensures long-term preservation and development of family wealth and seamless transfer of wealth between generations;
4. furthermore, the increase of awareness among Muslims in Malaysia in terms of wealth management, philanthropy, and family governance also contributes to the growth of Islamic family office;
5. high sense of social responsibility and the desires to help the communities among the wealthy Muslim families. This is based on a large number of philanthropic programs like donations and contributions were held to help those in needs. Islamic family office plays a significant role in charitable activities that contributes to the social development of the Muslim communities in Malaysia;
6. under Islamic family office, the transfer of wealth to the beneficiaries in accordance with the Islamic principles could be done effectively. With the surge in numbers of wealthy families, a lot of transfer of wealth are expected to take place in the future and this also contributes to the growth of structured wealth management in Malaysia in accordance with the Islamic principles;
7. the enhancement of financial technology (fintech) in Malaysia has led to the efficiency and accessibility of the Islamic financial products and services;
8. Islamic family office ensures high level of confidentiality and this is essential to ensure the privacy and all information are protected;
9. strong supports by the government of Malaysia in terms of tax incentives and regulatory frameworks. The SC and Bank Negara Malaysia are the two (2) institutions that actively promote Islamic financial products and encourage high-net-worth families to use family office as a vehicle of investments;
10. Malaysia is a strategic location to become hub for Islamic family office. Situated in the centre of South East Asia, Malaysia aims to be amongst the global hub for Islamic finance and wealth management.
Challenges of Islamic Family Office
Notwithstanding the potential growth of Islamic family office in Malaysia, there are challenges that need attention and scrutiny, amongst others are as follows:-
1. since family office is still at early stage in Malaysia, not so many people familiar and understand the concept of Islamic family office. A lot of seminars, conferences and campaigns need to be organized in order to introduce and familiarize Islamic family office to the public especially the high-net-worth or ultra-high-net-worth individual and families;
2. there is a global competition between Malaysia and other countries such as the Middle Eastern countries like UAE and Saudi Arabia as well as Singapore that has more established family office in their respective countries;
3. investment under Islamic family office must be done conscientiously to avoid gharar and to ensure that the investment is in compliance with the syariah;
4. managing conflicts and disputes among the beneficiaries is also a challenge in Islamic family office while at the same time to ensure adherence to the Islamic inheritance principles;
5. in certain cases, there is a conflict in preservation of traditional values while adopting the modern wealth management and at the same time to ensure everything is in compliance with the syariah principles;
6. there is also a challenge in family governance framework that must align with Islamic principles while at the same time addressing the complexity of the family.
Conclusion
In conclusion, Islamic family office in Malaysia has a great potential of growth based on the grounds as outlined in this article and taking into account 0% tax rate incentive provided by the government at Forest City Special Financial Zone. Although there is a great potential of growth however there are certain challenges in the implementation of the Islamic family office that need to be dealt with in line with the Islamic principles.
With the encouragement by the government through the incentive packages, we really hope that family office can be expanded and become a new industry in Malaysia as it will not only benefit the high-net-worth family but will boost the economy of our country by providing more employment opportunities, attracts more investments locally and brings large foreign investments into the country.
For further information, please contact:
Mohamad Redzuan Idrus, Partner, Azmi & Associates
redzuan@azmilaw.com
- Is Mukesh Ambani’s feud with Anil finally over? The Ericsson bailout saved the younger brother jail time – but was it enough to heal wounds? https://www.scmp.com/magazines/style/celebrity/article/3111262/mukesh-ambanis-feud-anil-finally-over-ericsson-bailout.
- Super rich Indian families joining the Ambanis to set up family offices in Singapore https://www.thestar.com.my/aseanplus/aseanplus-news/2024/11/06/super-rich-indian-families-joining-the-ambanis-to-set-up-family-offices-in-singapore.
- Mukesh Ambani: Is there a single family office? https://familyofficehub.io/asia-hnwi-single-family-offices/mukesh-ambani-is-there-a-single-family-office/.
- SC Outlines Family Office Incentive Scheme https://www.sc.com.my/resources/media/media-release/sc-outlines-family-office-incentive-scheme.
- Ahmed Hassan Alnajjar, Islamic Family Offices: A Growing Niche in Wealth Management and Growth Drivers https://www.researchgate.net/publication/381522046_Islamic_Family_Offices_A_Growing_Niche_in_Wealth_Management_and_Growth_Drivers.
