While the concept of residence planning for wealthy individuals is not new, the motives behind such considerations are continually evolving, particularly in Asia. There are various reasons why wealthy individuals may consider relocating. These reasons include quality of life, security, education and most notably tax planning.

Traditionally, and amongst Europeans in particular, the only way for a wealthy individual to reduce the tax burden and regulatory restrictions legally and in a significant manner was to relocate. The main driver for Asians, however, has typically centred around quality of life and education.

With the introduction of the Common Reporting Standard (CRS), there has now been a shift towards the tax planning aspects of residence planning for high net worth individuals in Asia. Regarded primarily as a measure to counter tax evasion, the CRS builds upon existing information sharing legislation such as the United States Foreign Account Tax Compliance Act (FATCA) and the European Union Savings Directive (EUSD).

The CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. As of January 2016, there were a total number of 79 signatories to the CRS Multilateral Competent Authority Agreement (MCAA) which governs the automatic exchange of information under the CRS. Based on the timelines to which the various jurisdictions have committed to implementing the CRS (i.e. 2017 or 2018), it is expected that the first exchange relationships under the MCAA will become effective in late 2016 or early 2017.

This globally-coordinated approach to the disclosure of income earned by wealthy individuals does, however, introduce a level of risk in terms of the security of those individuals and their families once governments, and particularly those in developing counties, begin exchanging sensitive financial information. Relocating to another country that presents a more attractive proposition in terms of lifestyle, security, education and tax is therefore becoming a popular option to counter this risk.

Established in 2002, the Malaysia My Second Home (MM2H) program allows foreigners, who fulfil certain criteria, to legally stay in Malaysia on a multiple-entry social visit pass for an initial period of ten years and is subsequently renewable.

Malaysia offers a multi-cultural society and affordable lifestyle to its residents. The country is a member of the United Nations, APEC and a founding member of ASEAN and is also a key tourist destination, located near the equator, offering excellent beaches, breath-taking scenery and dense rainforests.

Applicants to the MM2H program are required to demonstrate the capability to support themselves financially in Malaysia without seeking employment or government assistance. Under the MM2H program, applicants are not allowed to work while staying in Malaysia and the program does not lead to permanent residence.

Successful applicants are allowed to bring their spouse and children below 21 years old; purchase any number of residential properties at a specified minimum value; purchase a locally assembled car which will be exempt from excise- and stamp- duty or import a car from their country of​ residence.

Most importantly, applicants are expected to be financially capable of supporting themselves in Malaysia. In this regard, the following is required for applicants below 50 years old; proof of bankable assets of at least MYR 500,000 (USD 135,000) and proof of income of at least MYR 10,000 (USD 3,000) per month. For applicants 50 years and above, the requirement is proof of bankable assets of at least MYR 350,000 (USD 95,000) and proof of income of at least RM 10,000 (USD 3,000) per month.

During the approval processing period, applicants are expected to open a bank account, obtain a medical report and purchase medical insurance from a local insurance company.

For applicants below 50 years old; a bank account must be opened with a deposit of at least MYR 300,000 (USD 80,000). After a period of one year, the applicant is allowed to withdraw up to MYR 150,000 (USD 40,000) for approved expenses relating to a house purchase, education for children in Malaysia or medical purposes. A minimum balance of MYR 150,000 (USD 40,000) must be maintained from the second year onwards and throughout the stay in Malaysia under the MM2H program.

For applicants 50 years old and above; the required bank deposit is MYR 150,000 (USD 40,000) and applicants are allowed to withdraw up to MYR 50,000 (USD 13,000) for approved expenses after one year. The minimum balance to be maintained from the second year onward is MYR 100,000 (USD 27,000).

In terms of taxation, Malaysia is based on the territorial source principle and therefore tax is only levied on income sourced in Malaysia. Malaysia has an extensive network of double tax agreements with other countries, which means a resident may be able claim a tax refund on foreign income taxed in overseas countries.

With over 27,000 successful applicants since inception, the MM2H program offers wealthy individuals and their families an attractive option to live in one of South East Asia’s most vibrant economies for what is considered a relatively low investment requirement when compared to other options in the region.

Dominic Volek, Managing Director Henley & Partners Singapore, Head South East Asia
Date Submitted: 17 March 2016