Tax Quick Guide: Forest City Special Financial Zone Tax Incentive

Introduction of Forest City

Forest City is an integrated residential development and private town located in Iskandar Puteri, Johor, Malaysia. It is situated in the southwestern part of Johor Bahru District, the second largest district in Malaysia by population.

Forest City, with its combination of a duty-free island within a special financial zone, presents a unique proposition. This setup creates an attractive environment for both businesses and residents.

As a catalyst for economic development in the southern region of Malaysia, Forest City is anchored on innovative financial services. It has the potential to drive growth from Johor into the rest of the ASEAN region.

Additionally, Forest City has the potential to mature into a globally recognised financial hub. The government has announced a competitive package of incentives to make Forest City a magnet for international capital.

The Pulau 1 of Forest City has been Designated as a Duty-free Zone

To promote economic development in the region, the government has excluded Pulau 1 from Principal Customs Area, designating it as a duty-free island along with Labuan, Langkawi, Tioman, and Pangkor.

Incentive Packages

1. Family Offices 0%

Establishing a family office in the Forest City Special Financial Zone (FCSFZ) in Johor allows you to enjoy a 10-year 0% concessionary tax rate.

Family office is a corporate vehicle, wholly owned or controlled by members of a wealthy family, created to exclusively manage the assets, investments and long-term interests of that family. The family office may also represent multiple generations and branches of the family.

2. Special Tax Rate 5%

Forest City is envisioned to become a hub for financial global business services, financial technology, and foreign payment system operators, with a special 5% tax rate.

3. Individual Tax Rate 15%

Knowledge workers and Malaysians who choose to work at FCSFZ can enjoy a special individual income tax rate of 15%.

4. Corporate Tax Rate 0% to 5%

Corporate tax rate between 0% and 5% for eligible businesses operating in the FCSFZ .

5. Other Tax Incentive:

Banking Institution
Capital Market Intermediaries
Insurance
Other Eligible Financial Sector Entities

Incentives:

Special deductions on relocation costs
Enhanced industrial building allowance
Withholding tax exemption

Family Office (FO) Scheme

The incentive provides for a 0% concessionary tax rate on income generated by eligible investments from the Single Family Office Vehicle (SFOV).

SFOV is a corporate vehicle which is wholly owned, directly or indirectly, by one or more individuals from a single family and established solely for the purposes of holding the investments of the family members.

Conditions

1. Location – Establish and operate a registered office in Pulau 1, FCSFZ

2. Duration – 20 years (initial period of 10 years + additional 10 years)

3. To qualify for Initial Period (10 years)

a. The SFOV must be a new investment holding company incorporated in Malaysia and seek pre-registration with the SC on the eligibility of the tax incentives;

b. Management company or Single Family Office (SFO) which is a related company of SFOV to be set up and operate out of Pulau 1, FCSFZ with at least one investment professional with minimum monthly salary of RM10,000.

SFO is an entity that provides management services exclusively to its related SFOV, handling tasks such as investment management, administrative services, and other related activities for the benefit of the family members.

c. Hold Asset Under Management (AUM) of at least RM30 million; meet minimum local investment in eligible and promoted investments of at least 10% of AUM or RM10 million whichever is lower;

d. SFOV to spend operating expenditure (OPEX) locally a minimum of RM500,000 annually;

e. Employ a minimum of 2 full-time employees of whom at least one is an investment professional, with minimum monthly salary of RM10,000;

4. To qualify for Additional Period (additional 10 years)
a. Hold AUM of at least RM50 million; meet minimum local investment in eligible and promoted investments of at least 10% of AUM or RM10 million whichever is higher;

b. SFOV to spend OPEX locally (30% higher than Initial Period) a minimum of RM650,000 annually:

c. Employ a minimum of 4 full-time employees.

The SFO or management company may not need to get certain licenses under the Capital Markets and Services Act 2007 (CMSA), such as for fund management, as long as it only provides services for its related corporation, the SFOV. Eligible SFOVs may apply to the Securities Commission (SC) for certification for purposes of the tax incentives, subject to the SFOVs demonstrating that it has complied with the relevant conditions.

Note: The FO Scheme is still being developed and the SC has indicated that the detailed conditions for the FO Scheme will be made available by the first quarter of 2025.

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