7 January 2025 marks a significant milestone in Malaysia-Singapore relations as the two nations exchanged an agreement to establish a special economic zone in the southern Malaysian state of Johor (JS-SEZ) during the 11th Malaysia-Singapore Leaders’ Retreat hosted by Malaysian Prime Minister Dato' Seri Anwar Ibrahim. JS-SEZ is the first special economic zone spanning Southeast Asia’s borders.
The JS-SEZ Agreement, developed over a year of negotiations, aims to foster greater economic collaboration between the two neighbours with a view to attracting high-value investment into the region and creating 20,000 job opportunities across a diverse range of sectors within the first five years.
The JS-SEZ encompasses the Iskandar Development Region and Pengerang, spanning an area of over 3,500 square kilometres across southern Johor. Road and railway links already exist over the narrow strait between Johor and Singapore, but a high-speed rail link is also being developed.
Overview of Malaysia-Singapore Economic Cooperation
Singapore and Malaysia have long been key trading partners, and Johor is one of the leading investment destinations for Singaporean businesses.
In 2023, Malaysia was Singapore’s third largest trading partner while Singapore was Malaysia’s top export destination and second largest trading partner globally - the total value of trade between the two nations in 2023 reached US$79.6 billion. In the same year, Singapore was also Malaysia’s largest source of approved FDI, contributing US$9.52 billion to Malaysia’s FDI.
What does the JS-SEZ mean for businesses looking to expand in Johor, Malaysia?
- Competitive tax incentives: Businesses undertaking new investments in high-growth sectors within the JS-SEZ can benefit from a special corporate tax rate of 5% for up to 15 years. The Johor government has identified 16 key sectors including manufacturing, electronics and semiconductor, aerospace, healthcare and technology services. We anticipate the JS-SEZ will help create a broader digital ecosystem to support Malaysia's aspirations as a data centre powerhouse in the region.
- Access to deeper talent pool: Eligible knowledge workers employed in the JS-SEZ will be given a concessionary income tax rate of 15% for up to 10 years in order to attract talent who might otherwise consider relocating to other global tech hubs. Further details on the eligibility criteria will be announced in due course.
- Investment incentives: There are various other incentives that are currently being developed. The preliminary proposal includes offering grants, subsidies and financial assistance for capital investments, R&D activities and training programme. Malaysia has also established the Invest Malaysia Facilitation Centre-Johor to act as a one-stop shop to provide consultation services and facilitate application processes for investor approvals, complementing the existing advisory service centre at the Malaysian Investment Development Authority.
- Enhanced transportation infrastructure: A major component of the JS-SEZ is the Rapid Transit System Link (RTS) which is currently under construction. The 4km light-rail link is expected to further enhance Johor-Singapore transport connectivity as it aims to ease traffic congestion on the Johor-Singapore causeway, one of the world's busiest land crossings. The RTS is scheduled to commence operations by end of 2026.
- Improved cross-border movement: Drawing inspiration from Hong Kong and Shenzhen, the two countries are working towards implementing a QR code-based, passport-free immigration clearance system to expedite movement of people at land checkpoints on both sides of the border. While Singapore has implemented such procedure at its checkpoints since March 2024, Malaysia will be looking to roll this out later this year.
Having opened our office in Singapore in 2024, we are focussed on our integrated Singapore-Malaysia offering to better support the increasing cross-border investment opportunities arising for our clients across the ASEAN market. The announcement of the JS-SEZ is something we very much welcome and marks a significant milestone in the long-standing economic ties between the two nations.
Further insights will follow from our team, but if you would like to discuss any aspect of the proposed special economic zone, please get in touch with any of the key contacts listed here.