The Comparative Analysis of Wakaf Zurri and Family Office in the Context of Malaysia

Introduction

This article examines a wealth management instrument and a form of charitable transaction that plays a strategic role in the sustainability of generational wealth, Family Office and Wakaf Zurri. Despite the inconsistencies in its definition, a Family Office is conventionally understood as a corporate entity that manages the wealth of high-net-worth individuals (“HNWI”) or ultra-high-net-worth individuals (“UHNWI”). According to Part I Schedule 6 of the Capital Markets and Services Act 2007, HNWI defined as individuals whose total net personal assets, or total net joint assets with his or her spouse, exceed RM3 million or its equivalent in foreign currencies, excluding the value of the individual’s primary residence; individual who has a gross annual income exceeding RM300,000 or its equivalent in foreign currencies per annum in the preceding twelve months; or who, jointly with his or her spouse, has a gross annual income exceeding RM400,000 or its equivalent in foreign currencies per annum in the preceding twelve months.[1] On the other hand, Wakaf Zurri is a charitable transaction for the welfare and interest of heirs or relatives. Wakaf Zurri can also serve as a wealth management instrument for HNWI or UHNWI.

The unique intertwinement of Family Office and Wakaf Zurri garnered increased attention in Malaysia following the Government’s announcement on 25th August 2023 regarding the establishment of a Forest City Special Financial Zone (“FCSFZ”).[2] The emergence of this private wealth management mechanism sparks a discussion on its co-habitual characteristics with other similar wealth management instruments, especially considering the position of Shariah in Malaysia. One such concept is Wakaf Zurri. Both Family Office and Wakaf Zurri maintain the economic and social stability of a family for future generations. In a layman’s view, both allow wealth to be passed down to future generations. Therefore, a clear distinction between the two concepts is essential for their proper utilization by the society. This article examines the basic concepts and operational mechanism of the both respectively.

Basic Concept of Family Office and Wakaf Zurri

Family Office

“Someone is sitting in the shade today because someone else planted a tree a long time ago”

The aforementioned expression by Warren Buffet may serve as the best illustration of a Family Office. In simple terms, Family Offices are business entities that provide investment and management services to HNWI or UHNWI. These entities are designed to professionally and comprehensively manage the assets of those families, serving as a tool for wealth planning, asset preservation, and long-term inheritance. Family Office established to provide various financial and personal services tailored to the specific needs of HNWI or UHNWI, which include financial investments, estate planning, tax optimization, accounting, and more.[3] Family Offices can be categorized into two forms, single-family office (“SFO”) and multi-family office (“MFO”). SFO is an entity that serves exclusively one family,[4] while an MFO refers to an entity that serves at least two families.[5] Some of the most prominent and well-established family offices globally include “Cascade Investment”, managing the extensive wealth of Bill Gates, including the Bill & Melinda Gates Foundation; “Bloomberg LP”, which handles the vast fortune of Michael Bloomberg, the founder of Bloomberg News; and “Ferrari Family Investments”, a private entity managing the wealth and legacy of the Ferrari family.

Wakaf Zurri

As an introduction, wakaf originated from an arabic term awqaf which means “withhold”, “to stop” or “to refrain”. Wakaf is a charitable transaction. It refers to an act of a person restraining himself from gaining benefits from his own property, by relinquishing the property to Allah and the benefit of property is to be reaped by other people. However, in the context of wealth management, wakaf also serve as a unique instrument. There are many types of wakaf. Mainly there are two types that are wakaf am and wakaf khas. Wakaf Zurri is a subcategory of wakaf khas. Wakaf Zurri is known by various names among the legal scholars, including Wakaf A’la Aulad, Wakaf Keluarga, Wakaf Individu, Wakaf Anak Cucu, and Wakaf Ahli.[6] Wakaf Zurri refers to a type of wakaf where the benefits are specifically allocated to the family members and descendants of the waqif as beneficiaries.[7] Wakaf Zurri involves the transfer of property or wealth to the family and their descendants. The purpose of Wakaf Zurri is not only to benefit the family but also future generations, contributing to the welfare of the Muslim community as a whole. Therefore, Wakaf Zurri can be seen as an instrument prescribed in Islamic law to protect and preserve family wealth, in line with the principles of permanence (istibdal) and the preservation of benefits (ibqa'). It is important to note that this transfer by wakaf is to be distinguished with transfer by way of hibah and transmission by way of inheritance due to faraid. Wakaf Zurri prohibit the property to be disposed off in manner whatsoever unless it is replaced with another property. Among the significant Wakaf Zurri implemented previously in Malaysia, are Wakaf Tengku Kaya Pahlawan in Kota Bharu, Kelantan. This waqf land is now utilized for a business building that offers vocational training in tailoring, specifically for asnaf (needy individuals) and school leavers interested in learning through tailoring workshop. The rental income generated is distributed in accordance with the waqif’s intentions, with 1/10 allocated for charitable purposes and 9/10 dedicated to supporting the descendants.

Operational Mechanisms of Family Office and Wakaf Zurri

Family Office under the SEZ Scheme in JS SEZ

The Diagram 1.0 illustrates the simple operational mechanism of a Family Office under the Special Financial Zone in Pulau 1 Forest City Scheme. Based on the diagram above, ABC Foundations (“the Foundation”) represents an entity formed by a wealthy family with a wealth of RM50 million. To establish a Family Office under FCSFZ in Malaysia, two companies must be formed and these two companies must be fully owned by the Foundation, that are a SFO and a Single Family Office Vehicle (“SFOV”). The SFOV is an investment holding company incorporated in Malaysia, and needs to pre-register with the Securities Commission concerning the eligibility of tax incentives.[8] SFOV must incur annual operating expenditure locally of at least RM500,000.[9] It is specifically established to hold and manage the family's investments. The SFOV must hold assets under management of at least RM30 million and meet minimum local investment in eligible and promoted investments of at least 10% or RM10 million, whichever is lower.[10] It also has to employ a minimum of two full-time employees, one of whom must be an investment professional, with a minimum monthly salary of RM10,000.[11] For example, SFOV will hold RM30 million of ABC Foundations' assets, which may include various asset classes such as real estate, private equity, or securities.

On the other hand, the SFO must be a related company of SFOV. It is wholly owned and controlled by the members of the wealthy family via the Foundation and functions as a “management office” responsible for overseeing the family’s investments held by the SFOV.[12] The SFO must be set up and operate in Pulau 1, Forest City with at least one (1) investment professional with a minimum monthly salary of RM10,000.00.[13] For instance, the $30 million held by SFOV will be managed and invested by the SFO, which may engage in a range of investment strategies including traditional asset management, alternative investments, and private equity. SFO solely providing management services for SFOV is exempted from fund management license under the Capital Markets and Services Act 2007.[14] To ease the understanding, the SFOV is the “Holder” company holds the property in trust on behalf of the Foundation. Meanwhile, SFO is the “Investor” company that manage the property held by the Holder.

Through this structure, the Foundation benefits from a streamlined and efficient management of its wealth, with the Investor handling the operational and investment management tasks, while the Holder acts as the holding entity for the wealth. The profits generated from these investments are then realized by the wealthy family, which can be reinvested or distributed according to the family’s objectives. The whole structure of Family Office in SEZ is entitled for incentives subjected to a lock period of 20 years operation in SEZ.

The key incentives under FCSFZ are divided into 2 period. For the first 10 years:

• 0% tax rate for Family Offices by the First Quarter of 2025;
• 0% to 5% Concessionary Corporate Tax Rates;
• Reduced 15% Income Tax Rate for skilled professionals;
• Deduction for relocation costs and enhance industrial building allowance to Financial Companies;
• Multiple entry visas for foreign investors and skilled workers;

To Qualify for Additional Period of 10 years:

• Minimum Asset Under Management (AUM) of at least RM50 million and meet minimum local investment in eligible and promoted investments of at least 10% of AUM or RM10 million, whichever is higher.
• The SFOV must incur Operating Expenditure (OPEX) locally that is 30% higher than during the Initial Period, with a minimum of RM650,000 annually.
• Employ a minimum of four full-time employees.

The Operation of Wakaf Zurri

Wakaf Zurri distinguishes itself from other Islamic wealth management mechanisms such as Al-Faraid, Wasiyyah, and Hibah. In addition to these three methods, Wakaf Zurri is increasingly favored by Muslims as a means of transferring wealth to future generations. Unlike the other methods, Wakaf Zurri offers the unique advantage of preserving or retaining ownership, allows for an unlimited number of beneficiaries, supports long-term economic growth, and is actively practiced in Malaysia.[15] In Malaysia, Wakaf Zurri is managed and administered by the State Religious Authority (“SRA”).[16] SRA is responsible for managing and administering Wakaf Zurri in their respective states.

Diagram 2.0 illustrates the simple operational mechanism of Wakaf Zurri. En. Ramli (wakif) surrender his property (mawquf) to his descendants (mu’ayyan) and the public at large (ghayr mu’ayyan). One-tenth (or 10%) of the rental income is allocated for welfare purposes and the remaining nine-tenths (or 90%) of the rental income is allocated to the descendants.

The requirements of wakif are as follows:

• A person who is of sound age
• Legal owner of the property to be endowed;
• A person who is not under the restriction of law (mahjur ‘alaih) by reason of bankruptcy or the like; and
• A person who is able to manage his property.

The requirements of mawquf are as follows:

• Property can be clearly defined (ta’yin);
• Legally owned by the waqif;
• Property that can be used indefinitely;
• Property whose use is allowable under Shariah.

Comparison Table between Family Office and Wakaf Zurri

Conclusion

In conclusion, both Family Offices and Wakaf Zurri serve as invaluable mechanisms in the management and preservation of generational wealth, each offering unique advantages aligned with their respective frameworks. The Family Office, with its modern and flexible approach, provides a strategic means for managing complex family assets while ensuring compliance with regulatory requirements and taking advantage of tax incentives, as demonstrated by the Forest City Special Financial Zone. On the other hand, Wakaf Zurri holds strong roots in Islamic tradition, offering a permanent and Shariah-compliant solution for wealth preservation across generations, with a focus on benefiting both the family and the broader community. As wealth management strategies evolve, the choice between a Family Office and Wakaf Zurri depends on a family’s specific needs, goals, and values. While both mechanisms aim to sustain wealth across generations, their operational and philosophical differences highlight the importance of understanding each option’s strengths in the context of Malaysia’s socio-economic and legal environment. By strategically integrating both mechanisms, families in Malaysia can effectively navigate the complexities of wealth preservation, fostering both economic stability and social welfare for future generations.

1. Part I, Schedule 6 of the Capital Markets and Services Act 2007.
2. Investment Policy Hub. 2023. Introduces a Special Financial Zone in Forest City to Attract Foreign Investment. UN Trade & Development https://investmentpolicy.unctad.org/investment-policy-monitor/measures/4379/malaysia-introduces-a-special-financial-zone-in-forest-city-to-attract-foreign-investment- [1st January 205].
3. Jung Park, “Family Office” [2023] ISG Business School, Page 1.
4. Ilias Georgopoulos, “The Evolution of the Single Family Office” [September 2023] IQEQ, Page 1.
5. Ilias Georgopoulos. 2024. Understanding Multi Family Offices and Their Role in Wealth Management. IQEQ https://iqeq.com/insights/understanding-multi-family-offices-and-their-role-in-wealth-management/? [25th November 2024].
6. Muhammad Hamizan Ab Hamid, Mohd Afandi Mat Rani, Ismail Ahmad, Faezy Adenan and Mohd Izzat Amysar Mohd Arif, “The Development of Waqf Zurri Through the Family Foundations Model” [2023] International Journal of Islamic Studies, Page 365.
7. Sri Wahyu Sakina Ahmad Sanusi, Salmy Edawati Yaacob and Mohd Fairuz Md Salleh, “Wakaf Zurri: Instrumen Pengurusan Harta Dalam Pembangunan Tamadun Islam Waqf Zurri: An Instrument for Estate Planning in Developing Islamic Civilization” [June 2021] Journal of Al-Tamaddun, Page 1.
8. Hooi Beng Tan. 2024. Additional Details Available on FCSFZ Incentives Proposed for Single Family Offices. Deloitte https://www.taxathand.com/article/36996/Malaysia/2024/Additional-details-available-on-FCSFZ-incentives-proposed-for-single-family-offices [1st January 2025].
9. Ang Henn Ann. 2024. Malaysia Special Economic Zones: Exclusive Tax Incentives to Establish Your Family Office in Malaysia’s Forest City Special Financial Zone. ECOVIS International https://www.ecovis.com/global/malaysia-special-economic-zones-exclusive-tax-incentives-to-establish-your-family-office-in-malaysias-forest-city-special-financial-zone/#:~:text=The%20SFOV%20must%20incur%20at,in%20annual%20operating%20expenditure%20locally.&textin%20annual%20operating%20expenditure%20locally.&text=The%20SFOV%20must%20employ%20at,one%20being%20an%20investment%20professional [1st January 2025].
10. Emir Zainul. 2024. SC Outlines Conditions for Family Offices’ Tax Break in Forest City Special Financial Zone. The Edge Malaysia https://theedgemalaysia.com/node/727601 [1st January 2025].
11. Foo Meng Huei, “Key Highlights of Malaysia’s Budget 2025” [2024] Crowe Malaysia, Page 26.
12. Frequently Asked Questions, Securities Commission Malaysia.
13. Anon. 2024. SC Outlines Family Office Incentive Scheme. Securities Commission Malaysia https://www.sc.com.my/resources/media/media-release/sc-outlines-family-office-incentive-scheme [1st January 2025].
14. Bin Hau Lee. 2024. Malaysia: Launch of the Forest City Special Financial Zone and Securities Commission FAQs on Family Office. DFDL https://www.dfdl.com/insights/legal-and-tax-updates/malaysia-launch-of-the-forest-city-special-financial-zone-and-securities-commission-faqs-on-family-office/#:~:text=While%20SFOs%20generally%20require%20a,entity%20for%20holding%20the%20family's [1st January 2025].
15. Sri Wahyu Sakina Ahmad Sanusi, Mohd Fairuz Md Salleh and Salmy Edawati Yaacob “The Management and Implementation of Zurri Waqf in Malaysia Waqf Institution” [2022] Jurnal Pengurusan, Page 44.
16. Aimi Fadzirul Kamarubahrin, Abdullah Mohammed Ahmed Ayedh and Khairil Faizal Khairi, “Accountability Practices of Waqf Institution in Selected States in Malaysia: A Critical Analysis” [2019] International Journal of Economic, Management and Accounting, Page 332.

Corporate Communications, Azmi & Associates - 5 March 2025