(Tax Update) Forest City SFZ Tax Incentive

(Tax Update) Forest City SFZ Tax Incentive

Looking to invest in Johor? Forest City might just be the tax haven you’ve been waiting for.

Malaysia is pushing forward with the Forest City Special Financial Zone (SFZ) by offering an attractive 5% tax rate for up to 20 years. This incentive is part of the government’s big plan to make Forest City a regional business hub — especially for digital finance, tech, and high-value services.

Let’s break it down for you.

What are the Qualifying Activities?

To enjoy this incentive, your business must be involved in specific services and must use promoted technologies.

A. Qualifying Services

Your company must carry out one of the following:

  1. Financial Technology (Fintech) – including:

    • Regulatory fintech (e.g., compliance automation)

    • Insurance tech (e.g., AI-based underwriting)

    • Islamic fintech (e.g., Shariah-compliant e-wallets)

  2. Financial Global Business Services (GBS) – such as:

    • Accounting, payroll, treasury, tax, and financial reporting

    • Middle office (e.g., internal control, risk management)

    • Back office (e.g., transaction processing, IT support)

  3. Foreign Payment System Operators (PSO) – with Bank Negara Malaysia (BNM) approval under the Financial Services Act 2013 or Islamic Financial Services Act 2013

B. Promoted Technology Enablers

Your operations must involve at least one of the following:

  • Artificial Intelligence (AI)

  • Big Data Analytics

  • Internet of Things (IoT)

  • Cybersecurity

  • Cloud computing

  • Blockchain

  • Creative media technologies (e.g., XR / MR)

  • Robotics or automation

  • Advanced network or telecommunication technology (e.g., 5G)

Key Eligibility Criteria

To qualify for this incentive, your company must meet these conditions:

  • Incorporated in Malaysia under the Companies Act 2016

  • Minimum paid-up capital of RM50,000 (increase to RM2.5 million for the second 10-year period)

  • The qualifying activity must be carried out in Pulau 1, Forest City

  • The company must not have received any tax incentive for the same activity

  • The company must not have issued any sales invoice before applying, unless it has 60% Malaysian equity and invoices were issued less than 12 months ago

  • Related companies must also not have received tax incentives or issued invoices for the same activity

Other Key Information

  • No MSC or MD status required to qualify

  • Application period: 1 September 2024 to 31 December 2034

  • Companies may add new qualifying activities during the incentive period, as long as those activities have not yet generated revenue in Malaysia

Key Conditions to Maintain the 5% Tax Rate

The tax incentive is granted for 10 years and can be extended for another 10 years, subject to fulfilling ongoing conditions.

First 10 Years

  • Maintain adequate full-time employees (FTE) in Malaysia, with a portion being knowledge workers earning at least RM10,000 per month

  • Ensure adequate annual operating expenditure (OPEX) in Malaysia

  • Operations must be based in Pulau 1, Forest City

  • Meet Environmental, Social and Governance (ESG) compliance

  • Obtain the necessary regulatory licences if your activity is regulated

  • Submit an auditor-certified self-declaration form within 7 months after each year of assessment

  • Fulfil other economic development requirements

Extension Period (Second Next 10 Years)

  • Continue all above requirements

  • Increase FTE headcount by at least 30% (with knowledge workers)

  • Increase OPEX by at least 30%

  • Increase paid-up capital to RM2.5 million

Failure to comply with these conditions will result in loss of the 5% preferential tax rate, and the company will be taxed at the prevailing corporate tax rate.

Why This Matters for You

Whether you're a growing SME looking to scale, or a foreign investor eyeing Johor as a base for regional operations, this is a rare tax window with significant cost savings and long-term certainty.

Forest City is not just a property development; it is now positioned to become Malaysia’s next international business hub.

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