Malaysian Tax Incentives – Introduction
On 20 September 2024, Malaysia’s Finance Minister II, Datuk Seri Amir Hamzah Azizan, unveiled an exciting new financial incentive package for the Forest City Special Financial Zone (FCSFZ).
Forest City, often referred to as the ‘Jewel of the South’, is located on four reclaimed islands in the Straits of Johore, nestled between the State of Johore and Singapore.
Recently declared a duty-free zone, Forest City aims to become a preferred regional financial hub, similar to Shenzhen in China and the Dubai International Financial Centre in the UAE.
The New Tax Incentives
General
To support the development of FCSFZ, Malaysia’s Finance Minister announced a range of tax incentives that aim to attract businesses and skilled workers to the area.
The goal is to make Forest City an attractive destination for international finance and innovation.
Here are the key tax benefits outlined in the financial package:
Corporate Tax Benefits
Companies in FCSFZ will enjoy a concessionary corporate tax rate ranging between 0% and 5%.
This makes the region highly competitive for businesses looking to reduce tax costs.
Special Income Tax for Knowledge Workers
Knowledge workers, as well as Malaysians working in the FCSFZ, will benefit from a special individual income tax rate of just 15%.
This is intended to attract skilled professionals from various sectors.
Single-Family Office Scheme
Family offices, which manage the wealth of high-net-worth families, will enjoy a 0% tax rate for a period of 10 years under the Single-Family Office Scheme.
Further details for this regime, targeted at high-net-worth investors, are as follows:
- Minimum Asset Requirement: Investors must have assets worth more than RM30 million to qualify for the scheme;
- Investment in Malaysia: A portion of these assets must be invested in Malaysia, ensuring that the country benefits from the wealth managed by these family offices.
- 10-Year Tax Exemption: Investors will enjoy a 0% tax rate for 10 years, provided they continue to meet the scheme’s conditions.
- Scaling Operations: To continue benefiting from the scheme, investors must scale up their operations by increasing the number of employees, investments, or other assets in Malaysia over time.
This scheme will be coordinated by the Securities Commission Malaysia and is set to be operational in the first quarter of 2025.
Global Business Services & Financial Technology
Global business services, financial technology firms, and foreign payment system operators will be subject to a special tax rate of 5%.
Incentives for Financial Institutions
Qualifying banking institutions, insurance companies, and capital market intermediaries will receive incentives such as special deductions on relocation costs, enhanced industrial building allowances, and withholding tax exemptions.
These benefits are designed to lower operational costs for financial sector entities moving into the FCSFZ.
Flexibilities for Foreign Banks
Locally incorporated foreign banks will be given regulatory flexibilities to establish additional branches within the FCSFZ.
They will also have the ability to borrow in foreign currencies and invest in foreign currency assets.
FCSFZ and the Johore-Singapore Special Economic Zone
There is excitement surrounding the anticipated agreement between Malaysia and Singapore to establish the Johore-Singapore Special Economic Zone (JS-SEZ), with the deal expected to be signed in November 2024.
It is hoped that the FCSFZ will complement, rather than compete with, the initiatives planned for JS-SEZ. Together, these zones are expected to stimulate economic activity in the region.
Challenges and New Opportunities for Forest City
Forest City has faced difficulties in recent years, particularly as Chinese investors, who were a key target for the development, have scaled back their overseas investments.
This slowdown is due to economic challenges within China itself.
However, by offering this new incentive package, Malaysia’s government hopes to broaden Forest City’s appeal, attracting a more diverse range of investors and giving the project a much-needed boost.
Malaysian Tax Incentives – Conclusion
The FCSFZ incentive package is an ambitious step by the Malaysian government to revitalise the Forest City development.
By offering a competitive tax environment and regulatory flexibilities, it aims to attract global businesses and high-net-worth individuals, turning Forest City into a leading financial hub for the region.
Final Thoughts
If you have any queries about this article on Malaysian tax incentives or tax matters in Malaysia more generally, then please get in touch.
Alternatively, if you are a tax adviser in Malaysia and would be interested in sharing your knowledge and becoming a tax native, there is more information on membership here.