Introduction

Special Economic Zones (“SEZs”) are designated areas within a country that offer a more favourable regulatory framework to encourage both local and international investment. Over the decades, SEZs have played a crucial role in driving economic growth, attracting foreign direct investment, and fostering industrial development. These zones typically provide investment-friendly incentives, such as tax breaks, streamlined regulations, and enhanced infrastructure. A prime example of a successful SEZ is Shenzhen in China, the country’s first SEZ, which has been instrumental in driving China’s economic reforms and continues to be a key player in its growth. Other examples of special economic zones in Asia include the Incheon Free Economic Zone in South Korea, Kendal SEZ in the Centra Java province of Indonesia, the BBK free trade zone comprising of Indonesian islands of Batam, Bintan, and Karimun, the Eastern Special Development Zone of Thailand and the Golden Triangle Special Economic Zone along the border region of Thailand, Laos and Myanmar.

In a similar vein, on 7 January 2025 at the 11th Malaysia-Singapore Leaders’ Retreat, the Governments of Malaysia and Singapore formally established the Johor-Singapore Special Economic Zone (“JS-SEZ”) through an exchange of the signed agreement. This collaborative effort is designed to facilitate the cross-border movement of people and goods, while strengthening the regional business ecosystem. By joining forces, both nations aim to attract global investments more effectively and enhance their competitive edge. As Malaysian Prime Minister Anwar Ibrahim aptly stated, this initiative is unique in that it leverages the strengths of both countries, deepening their economic ties in an increasingly polarised world.

The JS-SEZ is situated in the state of Johor, spanning an area of approximately 3,588 square kilometres. It will comprise 9 flagship zones: Johor Bahru Waterfront, Iskandar Puteri, Tanjung Pelepas, Tanjung Langsat – Kong-Kong, Senai – Skudai, Kulai – Sedenak, Desaru – Penawar, Forest City, and Pengerang. These strategically located zones will play a crucial role in fostering economic development and positioning the region as a key hub for investment and industrial growth.

To realise the objectives and ambitions of the JS-SEZ, both Malaysia and Singapore have agreed to cooperate in the following key areas and initiatives: –

• Economic sectors:
  • Promoting investments: Facilitating and encouraging investments from Singapore and international companies in 11 strategic economic sectors within the JS-SEZ. These sectors include manufacturing, logistics, food security, tourism, energy, digital economy, green economy, financial services, business services, education and healthcare.
  • Project expansion: Supporting the expansion of 50 projects within the first 5 years and a cumulative goal of 100 projects by the end of the 10-year mark, which is expected to generate 20,000 skilled job opportunities.
  • Renewable energy projects: Facilitating the development of renewable energy projects to accelerate renewable energy trading between both nations.
    
    
• Movement of people and goods:
  • Talent mobility: Enhancing Malaysia’s existing visa schemes, such as the DE Rantau Nomad Pass which allows qualified foreign digital nomads to travel and work in Malaysia.
  • Immigration facilities: Expanding immigration clearance capacity by implementing automated immigration lanes and paperless clearance for goods.
  • Connection between the two nations: Promoting the use of the Second Link Bridge (connecting Johor and Singapore) by commercial vehicles and additionally, to launch the Rapid Transit System (RTS) Link which is anticipated to commence by the end of 2026. The RTS Link is expected to facilitate the movement of 10,000 people between the two countries on a daily basis.
    
    
• Talent development:
  • Skills enhancement: Attracting and developing talents aligned with industry needs within the JS-SEZ. This includes bolstering industry-ready skills training and education programmes in partnership with the Johor Talent Development Council (JTDC).
    
    
• Ease of doing business
  • One-stop investment centre: Establishing the Investment Malaysia Facilitation Centre-Johor (IMFC-J) to serve as a central hub for facilitating investments and business operations within the JS-SEZ.

Before inking the JS-SEZ Agreement, the governments of both countries had proactively collaborated on several early initiatives. For example, Singapore implemented passport-free QR code clearance at its land checkpoints starting in March 2024, while Malaysia established the IMFC-J one-stop shop to streamline and accelerate the process for companies looking to establish or expand within the JS-SEZ. Additionally, both nations entered into partnerships to enhance cooperation in technical and vocational education and training (TVET) programs to meet industry needs. They also streamlined customs procedures for land intermodal transshipments, enabling traders to apply for a single transshipment permit with Singapore Customs for land intermodal transshipments starting 1 January 2025.

Following the JS-SEZ Agreement, the Malaysian Government announced that, effective 1 January 2025, investors within the JS-SEZ would be eligible for a range of incentives, including:

1. Special Corporate Tax Rate: New companies undertaking new investment in qualifying manufacturing and services activities, namely, AI and Quantum Computing Supply Chain, Medical Devices, Pharmaceutical, Aerospace Manufacturing and Global Services Hub, are entitled to enjoy a special tax rate of 5% for up to 15 years. Existing companies undertaking new investment in the qualifying manufacturing and services activities on the other hand are entitled to enjoy a special investment tax allowance of 100% on the qualifying capital investment (excluding land) incurred within 5 years which can be set-off against 100% statutory income.
   
   
2. Special tax rate for knowledge workers: A special flat tax rate of 15% on chargeable employment income for a period of 10 years is available for eligible knowledge workers working in JS-SEZ.
   
   
3. Stamp Duty Exemption: 40% stamp duty exemption on the instrument of transfer or financing agreement for the purchase of a commercial property in Johor Bahru Waterfront and Iskandar Puteri that remains unsold as at 31 December 2024.
   
   
4. Capital Allowance: One off accelerated capital allowance for qualifying companies in respect of renovation costs incurred on a building or part of a commercial building within the JS-SEZ flagship areas for the purpose of qualifying company’s business.

In conclusion, the JS-SEZ stands as a testament to the power of cross-border collaboration and visionary economic planning. By leveraging the strengths of both Malaysia and Singapore, the JS-SEZ is poised to drive regional growth, foster innovation, and create new opportunities for businesses and skilled talent. With its strategic focus on high-growth industries, talent development, and streamlined trade and investment processes, the JS-SEZ will not only enhance the competitiveness of both nations but also serve as a model for future economic zones across the region. The foresight embedded in this initiative promises to accelerate the flow of investments, strengthen economic ties, and ensure sustainable, inclusive growth for years to come, making the JS-SEZ a pivotal cornerstone in the region’s economic future.

This article is intended to provide general information only and does not constitute any legal opinion or professional advice. For further information and advice on this article and/or on any areas of Corporate and Commercial law, please contact Hoong Wei En at weien.hoong@taypartners.com.my.

Hoong Wei En
Partner
T: +603 2050 1838
weien.hoong@taypartners.com.my

Ooi Hui Tian
Associate
huitian.ooi@taypartners.com.my