Law firm interviewed: Rahmat Lim & Partners
In January, Singapore and Malaysia entered into a landmark agreement to establish the Johor-Singapore Special Economic Zone (JS-SEZ), marking a significant step in strengthening economic ties between two of Asia's dynamic economies.
The JS-SEZ agreement focuses on developing key sectors, including manufacturing, logistics, and energy, with projections to create 20,000 skilled jobs. Both countries have committed to enhancing cross-border efficiency through increased clearance capacity and a one-stop centre to facilitate business operations.
The initiative presents distinct advantages for both countries. Singapore can optimise its land use by relocating resource-intensive industries, while Malaysia stands to gain from technology transfers, infrastructure development, and high-income job creation through its partnership with its prosperous neighbour.
The zone's tax structure stands out as a key attraction for foreign investment. “Compared to the present corporate tax rate of 24 percent, the preferential 5 percent corporate tax rate for up to 15 years, along with targeted investment tax allowances and income tax exemptions, significantly lowers the cost of doing business,” says Desmond Liew Zhi Hong, a tax partner at Rahmat Lim & Partners in association with Allen & Gledhill in Singapore.
“This positions the JS-SEZ as a compelling destination for corporations in high-growth sectors such as artificial intelligence, quantum computing, pharmaceuticals, and aerospace manufacturing,” he adds.
The competitive tax framework is particularly significant for logistics development, with plans to establish AI-driven smart logistics facilities in the SEZ. According to Liew, this plan presents global investors with opportunities to optimise supply chains and regional distribution networks while reducing costs.
However, as Ang Sinn E, M&A partner at Rahmat Lim & Partners, points out, "foreign investors in certain sectors will be required to comply with specific eligibility criteria, such as minimum capital expenditure, paid-up capital, and Malaysian workforce requirements, to be entitled to JS-SEZ tax incentives."
The JS-SEZ also aims to foster innovation in sustainability, particularly in carbon reduction and renewable energy. While certain sectors face foreign equity restrictions, Liew notes that "Since the overarching agenda of the JS-SEZ is the encouragement of bilateral trade, it is envisaged that there may be special import licences or potential relaxations of local equity ownership requirements for investments in the JS-SEZ."
As the project is in its early stages, some regulatory aspects remain under development. To safeguard investors’ needs throughout the approval process, "the newly operational Invest Malaysia Facilitation Centre in Johor (IMFC-J) serves to bridge this gap by acting as a one-stop centre to facilitate investment approvals, clarify queries and concerns, and serve as direct liaison between investors and the various governmental authorities, thereby easing the process for an investor to invest in the JS-SEZ," explains Ang.
Another challenge is the implementation of the 15 percent global minimum tax reform, which may require companies to pay additional tax if their effective rate falls below 15 percent in Malaysia. Global investors are advised to conduct impact assessments before making investments in the zone, according to Liew.
Looking ahead, regulatory reforms are expected to focus on harmonising cross-border operations, streamlining customs and trade facilitation, enhancing workforce mobility, and ensuring policy alignment between Singapore and Malaysia.
"For instance, it is envisaged that there will be special work passes for employees working within the JS-SEZ, to allow professionals to work across the border without excessive bureaucratic constraints," says Ang. The zone is also expected to implement digital regulatory systems, including blockchain-based trade and customs clearance technologies.
To ensure regulatory coherence, "we foresee the establishment of a dedicated regulatory body overseeing the JS-SEZ, or the Joint Ministerial Committee for Iskandar Malaysia, which was initially established as part of joint collaborative efforts between both governments for JS-SEZ matters," adds Ang.
