Written by Chiou Zhi Qi
On 20th September 2024, Malaysia’s Minister of Finance II, Datuk Seri Amir Hamzah Azizan, announced the establishment of a new Special Financial Zone (‘SFZ’) in Forest City, Johor. A range of incentives have been introduced to attract businesses and talent to this new SFZ, particularly, targeting industries such as family wealth offices and the broader financial sector. Below are the key incentives that have been outlined.
0% Tax Rate for Family Wealth Offices
In today’s world, private wealth management advisory services have become crucial, particularly for families that own businesses. These services typically cater to ultra-high-net-worth individuals and provide comprehensive guidance such as crafting a family constitution aligned with the family’s core values, and offering strategies for sustainable business operations.
By engaging family wealth offices, families can ensure that their businesses are managed systematically, minimising internal disputes and fostering smoother operations. This in turn, supports the long-term growth and sustainability of family enterprises.
With the introduction of a 0% tax rate for family wealth offices, Malaysia aims to attract more of these experts to the country. Their presence will not only enhance the management of local family businesses but also boost the nation’s economy by fostering growth in the family wealth investment sector.
Concessionary Corporate Tax Rate Between 0% – 5% for Companies in the SFZ
Between 2019 and 2023, corporate tax rates in Malaysia ranged between 15% and 25%, depending on the company’s paid-up capital. However, for companies operating in the SFZ, a reduced tax rate of 0%–5% has been introduced, making it an extremely attractive incentive.
This concessionary rate is expected to draw a significant number of businesses to set up operations within the SFZ, spurring economic growth not just within the zone but across the country. The more businesses that establish themselves in the SFZ, the more investments Malaysia can attract, including from high-net-worth individuals. This influx of businesses and talent will likely lead to substantial improvements in the nation’s economic, social, and educational sectors.
Special 5% Tax Rate for Financial Industry Companies
A special 5% tax rate has been set for companies in the financial sector that operate in the SFZ. This includes businesses involved in global financial services, financial technology (fintech), and foreign payment systems.
This reduced tax rate is expected to attract international financial companies, particularly those specialising in fintech and payment systems, to establish operations in Malaysia. The expansion of these industries will help Malaysia reach new milestones in financial services and technology, further enhancing the country’s global competitiveness in these sectors.
Special Individual Income Tax Rate of 15% for Malaysians and Knowledge-Based Workers in the SFZ
In addition to corporate incentives, the government has also introduced personal tax incentives for individuals working within the SFZ. Both Malaysians and foreign knowledge-based workers will benefit from a special income tax rate of 15%, down from the usual 30%.
This attractive tax rate is likely to entice high-net-worth individuals and skilled workers to relocate to Malaysia, especially considering the proximity of Johor Bahru to Singapore. Many Malaysians currently travel to or work in Singapore, but with the introduction of these incentives, there is potential to draw this talent back to Malaysia, strengthening the local economy and boosting national development across multiple sectors, including social and educational advancement.
Conclusion
The establishment of the new Special Financial Zone in Forest City, Johor, marks a significant step forward for Malaysia’s economic development. With the suite of incentives introduced, the SFZ is poised to attract high-net-worth individuals, financial services companies, and knowledge-based workers, creating a thriving ecosystem that will bolster the nation’s economic, financial, and social progress.
As of now, we are still awaiting detailed information from the Government of Malaysia regarding the specific implementation of these incentives. However, it is clear that this SFZ will play a crucial role in enhancing Malaysia’s position as a regional financial hub and driving the nation’s future growth.
Published on 4 October 2024