Last week, the Finance Minister II in his speech at the launch of the SFZ, announced incentive packages to attract international capital to Forest City Special Financial Zone (SFZ), including zero tax on family wealth offices aimed to attract regional and Malaysian families to manage their family wealth from Malaysia.
A concessionary corporate tax rate between 0 and 5% and a special individual income tax rate of 15% for knowledge workers, and Malaysians, who choose to work there.
He said the establishment of Family Offices will broaden the investor base to channel private capital into high-growth, high-value sectors.
It is another way of attracting wealth.
Previously governments would speak about ultra-high net worth individuals, multimillionaires or billionaires in the past.
Now family office is a buzzword.
Multimillionaires are restless everywhere.
Demand from the super-rich for stable, convivial and financially lenient havens remains as high as ever and that many jurisdictions are willing to cater for it.
They like stability and a country that is not subject to rapid political changes.
It is very easy for them to relocate.
The competition to attract rich migrants seeking to avoid potential higher levies elsewhere is particularly fierce at the moment, driven partly by clampdowns in rival jurisdictions.
Over the past couple of decades, several countries in EU have introduced tax-privileged systems purposely designed to entice wealthy foreigners, including Cyprus, Greece, Italy, Malta, Portugal and Spain.
Nearer us, city-states Dubai and Singapore have also been vying to attract wealthy expats with offers of low or, in the case of Dubai, no income or capital taxes for individuals.
Tax is often a key factor in the decision of such wealthy emigrants.
Secrecy and opacity are an industry hallmark especially on founders’ wealth and origins.
Thus, it is hard to do due diligence.
Chances for misrepresentation and scams are aplenty and gaining in numbers.
At stake is a growing risk of fraud and with increasing competition by governments rolling out the red carpet to attract them, it could create a slew of economic and political problems.
The family office space has become so big that it is attracting legitimate players but also people trying to make a quick buck or hustle.
In March 2024, the Hong Kong government hosted its second Wealth for Good summit, an invitation-only event with more than 400 guests designed to attract the global elite. Chief executive John Lee mingled with captains of industry and boasted of Hong Kong’s “unwavering support for family offices”.
Listed as one of the guest speakers on the topic `Philanthropy and Wealth Legacy’ was Sheikh Ali Rashed Ali Saeed Al Maktoum, whose listed designation is member of the Ruling Family, Dubai where earlier in 2024, news and other media outlets reported on his pledge to invest as much as US$500 million in a Hong Kong family office.
It became an embarrassment for the Hong Kong government when he abruptly left the city after the media questioned his credentials.
Nearer home, multiple family offices with tax exemptions were implicated in a $S3 billion ($3.3 billion) money laundering scandal in 2023 resulting in the government of Singapore introducing and passing new legislation.
With the concerted effort aimed at enticing the super wealthy here, it is projected that there would be a massive flow of monies into the country.
It is the hope that authorities in this country will stay vigilant to monitor it especially monies whose origins are shady especially those who prefer to remain unnamed.
In the long run, it could create a slew of economic and political problems.
Wealthy foreigners could push up local property prices as properties could be bought for cash and transactions are executed through anonymous offshore shell companies and these properties could then sit empty for most of the year.
Or Johor could become the playground for the super rich.
A new problem could arise.
Fake or exaggerated “peers” can be created overnight with little or no substance.
E.g service providers or investors trying to win over clients by pretending to be family offices.
Imposters can exaggerate their role within a legitimate family office by setting up a new firm with little money backing it or with scant or questionable sources of wealth to gain access and trust.
As long as you paint that story of riches and association with grandeur, people almost want to buy into it.
Already this is a growing problem in Hong Kong and Singapore.
The lack of clarity of what constitutes a family office is one of the challenges facing authorities in both countries.
At its most basic level, family office is a broad label used to describe an organisation set up to manage the wealth and affairs of rich clans.
Campden Wealth, a family-owned, global membership organisation providing education, research and networking opportunities to families of significant wealth, supporting their critical decisions, helping to achieve enduring success for their enterprises, family offices and safeguarding their family legacy, in their 2023 THE ASIA-PACIFIC FAMILY OFFICE REPORT states that the rule of thumb was that a typical family office would cost at least US$3.1 million a year to run.
That means they would need US$200 million in liquid assets to make it work.
For anything below that, it would be cheaper for these family offices to hire outside bankers and lawyers.
Probably the support mechanisms for this move should be further enlarged and tighten.
Like what is happening in Singapore post the money laundering case.
The Monetary Authority of Singapore (MAS) is pushing family office to respond promptly within one month to scrutiny, or risk having their efforts to obtain tax breaks rendered fruitless when it asks for additional information where in the past, no hard deadline was given.
Going forward, applications are set to be disregarded if the deadline is not met.
The reasoning was simple – if the applicant can't dig and find the information within 30 days, what does it mean?
With greater scrutiny by the government of Singapore in reviewing and processing new applications like asking the applicants how many passports they hold, whether any entities connected to them face regulatory action in their country of origin, those whose source and origins could probably be dubious could now be lining up and looking at setting up a family office in the SFZ.
Hopefully, our authorities are vigilant enough to prevent and weed out applicants who potentially want to exploit the SFZ as a base to shelter ill-gotten gains.
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