Malaysia dangles 0% tax carrot to draw family offices to Forest City special financial zone, outlines other incentives

In Aug 2023, Malaysian Prime Minister Anwar Ibrahim announced during a visit to Johor that the Forest City project will be designated as a special financial zone to spur the economy in the Iskandar Malaysia region. 

He outlined that the zone would offer businesses incentives to set up operations, such as a flat income tax rate of 15 per cent for skilled foreign workers, multiple entry visas as well as fast-track entry for those who are based in Singapore, without giving details.

“I am confident this will attract many companies which are experiencing high operating costs in Singapore,” said Mr Anwar.

Mr Anwar’s comments came amid various media reports labelling the project a “ghost town” in reference to the development’s slow pace of construction and low occupancy rates for its residential properties.

MUST ENSURE TAX INCENTIVES ARE NOT ABUSED BY FAMILY OFFICES: ANALYST  

Johor economic observer Samuel Tan, chief executive of Olive Tree property consultants, told CNA the tax incentives are positive developments to attract family offices, fintech, shared services and digitalisation to Malaysia. 

However, he warned that authorities must do due diligence to ensure that family offices, for instance, do not break the law and commit money laundering offences.

In 2023, six single family office funds in Singapore given tax benefits were found to be linked to the case where 10 foreigners were arrested and convicted in the country’s largest money laundering case. 

“What is needed is the legal frameworks to ensure efficiency and transparency.  What happened to some countries where it was abused must not happen here. And the ecosystem must be right to attract knowledge workers to the Forest City Special Financial Zone,” said Mr Tan. 

He added that the amenities and infrastructure in Forest City must also be developed so that investors would find it plausible to relocate. 

“Lower tax itself is insufficient if the quality of living is not up to expectations. In this regard, the stakeholders must ensure (the SFZ) offers an environment where people find it safe, convenient and efficient in carrying out their works,” said Mr Tan. 

“Forest City special financial zone can be the prototype of what an ideal SFZ should be. A successful model then can be adopted in other parts of Malaysia or even internationally,” he added.