Joint Commitment of Singapore and Malaysia to establish a Special Economic Zone in Johor
The signing of a memorandum of understanding on 11 January 2024 between Singapore and Malaysia reaffirms the longstanding ties and joint commitment by both countries to strengthen economic cooperation and the establishment of the Johor-Singapore Special Economic Zone (JSSEZ) which will be located in the state of Johor.
Anticipated Tax, Customs & Trade Benefits
While the JSSEZ is still in the planning stages and full details about the anticipated tax, customs and trade benefits to be introduced are not yet available, we can draw insights from established special zones in Malaysia such as the East Coast Economic Region, Northern Corridor Economic Region, and (in Johor itself) Iskandar Malaysia in anticipating the benefits that the JSSEZ may bring to businesses located in JSSEZ:
Tax
- Income tax and other tax incentives: Most economic zones offer a range of tax incentives to attract businesses to operate within the zones. This can include exemptions or reductions in corporate and/or individual income tax for companies carrying on business and individuals employed within the zones, as well as stamp duty exemption for relevant instruments relating to investments into the zones, such as for the purchase and sale of real estate.
- Sales tax and customs duty exemptions: Another common benefit for operating in a free economic zone is the availability of sales tax and customs duty exemptions on importation of goods and equipment, as well as other tax facilitation such as the exemption from sales tax registration for manufacturers operating within the zones.
- Investment incentives: Investment incentives such as grants, subsidies, or financial assistance for capital investments, research and development activities, or training programs are also often offered to attract foreign and domestic investors to invest into economic zones.
Customs & Trade
- Streamlined customs clearance: The governments are in discussions about the introduction of simplified customs processes, such as fast-tracked digitized customs clearance, to facilitate a rapid customs clearance process. The introduction of such facilities is expected to further accelerate the adoption of the ASEAN Customs Transit System which facilitates cross-border transit movement of goods via land within ASEAN, including Singapore and Malaysia.
- Trade facilitation: Other benefits typically offered by economic zones include the ability to import goods into the zones without import license, permit or conformity compliance documentation which may otherwise be applicable, until they are brought into the principal customs areas.
- Greater cost efficiency: The economic zone is expected to benefit the manufacturing, warehousing and distribution industries by providing a conducive environment for manufacturing and trade, through leveraging cost-effective land and labor resources in Malaysia and the extensive and efficient logistics infrastructure in Singapore via some of the world’s busiest sea and air ports. By leveraging natural geographical advantages and strategic location facing the South China Sea, JSSEZ will serve as a crucial link for streamlined trade between Singapore, Malaysia, and the Asia Pacific, solidifying their roles as the gateway to the Asia Pacific markets.
In addition to tax and trade incentives, JSSEZ presents a spectrum of benefits and opportunities, contributing to the stimulation of regional economic growth for both nations. For further insights, please refer to our recent client alert available here. More details regarding the implementation of the JSSEZ and the relevant laws and regulations are expected to be rolled out to harness the bilateral cooperation between Singapore and Malaysia.
