The “twinning” opportunity

The JS-SEZ is designed around complementarity, not competition. Singapore offers strong financial, regulatory, and innovation infrastructure, while Johor contributes expansive land availability for manufacturing, warehousing, logistics and back-office support, together with a growing supply of workforce at competitive costs.

For investors (both global and Singapore), this “twin-city” model opportunity allows companies to establish complementary business functions or manufacturing operations in Johor with Singapore acting as the anchor base for high-value activities such as global headquarters, finance and treasury, R&D, innovation, engineering, design and quality control.

The “twinning” strategy allows businesses to synergise their strengths and increase productivity. It also enables business scalability, enhances market reach and secures new business opportunities.  

Businesses are encouraged to evaluate their regional expansion plans strategically with a view to leverage the tax incentives which they are able to secure in Malaysia, and possibly in Singapore too. 

Competitive cost base

Businesses can benefit from Johor’s lower land, labour and utility costs. These advantages can translate into higher profitability without the need to sacrifice product quality.

Greater pool of skilled talents 

The JS-SEZ is designed to attract a wide range of investments, with diverse supply chain capabilities. The integrated business environment, together with enhanced transportation infrastructure, would be appealing to skilled professionals. 

This in turn provides businesses with access to a greater pool of skilled talents, creating opportunities to grow their business and develop new capabilities.

Support infrastructure and one-stop facilitation centre 

To ease investors’ entry and expansion into Johor, a government-backed one-stop facilitation centre, the Invest Malaysia Facilitation Centre, has been set up in Johor. It serves as a one-stop centre to fast-track applications for business permits and facilitate approvals expeditiously.   

In Singapore, the Economic Development Board and Enterprise Singapore, and various industry associations (including Singapore Business Federation and Singapore Manufacturing Federation) provide advisory and support services for companies keen to explore investments in the JS-SEZ. 

The availability of such assistance helps reduce administrative complexity and allow investors to focus on their strategic investments rather than navigating bureaucratic hurdles.       

Advanced manufacturing and supply chain 

Johor is home to robust industrial parks offering large-scale facilities and logistics access.
Manufacturers in Singapore who face land and cost constraints may consider shifting their assembly, component fabrication and packaging operations to Johor but continue to retain engineering, design, quality control and other high-value functions in Singapore.

Such an alternative creates end-to-end operational efficiency while maintaining product quality and brand assurance associated with Singapore-made goods.

Logistics and cross-border trade 

With Singapore’s port and Changi Air Hub complementing Johor’s seaport and warehousing capacity, the JS-SEZ enhances regional logistics corridors. The upcoming Johor Bahru-Singapore Rapid Transit System and the planned digital pre-clearance at checkpoints will further streamline the movement of goods, services and talent which are key for logistics and e-commerce players.

There are potential opportunities for Singapore companies to setup their regional distribution hubs in Johor while maintaining Singapore as the financial and IT control centre. With the availability of such dual customs facilitation schemes, businesses could shorten their product delivery lead times.

Digital economy and data centres 

The JS-SEZ is positioning itself as a digital corridor. This would be of particular interest to data centre and AI (Artificial Intelligence) firms as Johor offers land and energy capacity for data infrastructure, while Singapore ensures cybersecurity governance and financial compliance standards are in place.

Singapore businesses may also look to establishing cross-border cloud service partnerships under Singapore’s data governance frameworks.

Minimise permanent establishment risk in Malaysia

Due to the proximity to JS-SEZ, businesses may have a tendency to send its Singapore-based employees regularly to supervise or oversee operations in Malaysia. This may potentially trigger permanent establishment exposure for the Singapore entity. Precautionary actions should be taken to ensure that such risks are properly managed and minimised.

Debt versus equity funding for investment in the JS-SEZ

Equity funding would be the preferred mode of investment funding as future dividends received from Malaysia are generally exempt from further taxation in Singapore. There is also no Malaysia withholding tax imposed on dividend payments.   

If debt funding is opted instead, interest payments from Malaysia will attract withholding tax at the standard rate of 15%, which may be reduced to 10% if the provisions of the Malaysia-Singapore Double Tax Agreement are met. 

The Malaysia-sourced interest income will be subject to tax at 17% in Singapore if it is received or deemed received in Singapore. Foreign tax credit relief for the Malaysia withholding tax suffered can be claimed against the Singapore tax payable on the same source of income.

Transfer pricing considerations 

Transactions between the Singapore parent company and its Malaysian subsidiary must comply with the arm’s length principle in both jurisdictions. Both entities will be subject to the transfer pricing documentation regimes in their respective countries, notwithstanding that they may each enjoy tax incentive benefits. 

Employee taxes 

The JS-SEZ Tax Incentive Package provides eligible knowledge workers with a flat 15% tax rate on their chargeable employment income for a period of 10 years. 

To qualify, individuals must hold a degree or higher qualification in a professional or technical field recognised by the Malaysian government and possess substantial relevant work experience.  In addition, the individuals concerned must earn a minimum salary of RM20,000 per month and having no Malaysian employment income in the 24 months prior to their application for the flat 15% tax rate.  

It remains to be clarified whether the knowledge worker must be tax resident in Malaysia (which is likely to be the requirement) to enjoy the beneficial 15% tax rate and allowed to work remotely from Singapore for the Malaysian entity. Also, whether such employees may have dual employment arrangements.    

BEPS 2.0 Pillar Two considerations

For a company established in the JS-SEZ and enjoying reduced tax rates, the global minimum tax rate of 15% under the BEPS 2.0 Pillar Two initiative will not apply if it does not belong to a large multinational enterprise (MNE) group with annual global revenue of at least Euro 750 million.  

Even if the incentivised company in Malaysia belongs to a large MNE group subject to BEPS 2.0 Pillar Two, top-up tax may still not apply if under the Global Anti-Base Erosion (GloBE) Rules, and applying the jurisdictional blending approach, the group’s effective tax rate in Malaysia does not fall below the 15% threshold.