Note: According to a report released by the Singapore Business Federation (SBF), Singapore businesses have strong interest in doing business and investing in Johor, Malaysia. SBF interviewed 160 Singapore companies across different industries, and 93% of the surveyed companies considered Johor an attractive investment destination, with half of them already operating in the state.
Johor is located in southern Malaysia, at the southernmost tip of the Asian mainland. It faces the South China Sea to the east, overlooks the Strait of Malacca and Indonesia's Sumatra to the west, and is adjacent to Singapore across the Johor Strait (Selat Tebrau) to the south.
Source: JengaBCG Consulting
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From the illustration, it is clear how close Johor Bahru is to Singapore, separated only by the 1 km Johor-Singapore Causeway. That is why so many visitors to Singapore make a side trip to Johor Bahru on weekends to shop and spend.
In January 2024, Singapore and Malaysia signed a Memorandum of Understanding (MOU) on the Johor-Singapore Special Economic Zone (JS-SEZ), which is expected to provide fiscal and non-fiscal incentives, such as tax relief and easier travel between the two countries. Malaysian Economy Minister Rafizi Ramli, who is in charge of SEZ negotiations, said at an event in Kuala Lumpur on 10 July that the agreement is expected to be signed in September, and that officials from both sides will "burn the midnight oil" to finalise details before the Malaysia-Singapore Leaders' Meeting in September.
At a joint meeting held at the SBF Centre in Singapore on 11 July, the Malaysia-Singapore Business Council (MSBC) said the focus was on advancing shared interests through the development of the Johor-Singapore Special Economic Zone, exploring new opportunities, and addressing challenges in the global economy.
Dr Robert Yap, Co-Chairman of the meeting and Executive Chairman of YCH Group, said the proposed SEZ would strengthen cooperation between the two countries and promote their sustainable development.
Teo Siong Seng, Chairman of the JS-SEZ Singapore Business Working Group (SBWG), also said: "This project could be a game changer for Malaysia and Singapore."
01 The "Major Challenges" Faced
Faced with potential "major challenges" such as manpower gaps and talent shortages, as well as congestion at the two land checkpoints, SBWG recommended that the authorities of both sides establish a "unique labour ecosystem" that leverages the strengths of the two economies—Singapore's R&D and management capabilities, and Johor's technical skills in execution and operations—to support various industries. Other major recommendations include developing harmonised labour regulations, investing in each other's workforce to enhance manpower capabilities and bridge skills gaps, and establishing talent acquisition programmes.
The Johor-Singapore Causeway has become one of the busiest land crossings in the world, with about 300,000 commuters crossing every day. This number is expected to grow, and the Immigration and Checkpoints Authority of Singapore estimates that traffic on the Causeway will increase by 40% by 2050.
The movement of goods between Singapore and Johor is hampered by traffic congestion as well as different import tax regimes and customs procedures. SBWG noted that Johor and Singapore could learn from the Chinese city of Shenzhen, which has streamlined customs and border clearance procedures with Hong Kong by implementing a passport-free QR code clearance system and digitalised cargo clearance, thereby promoting the development of its special economic zone.
Many companies surveyed believe that the upcoming Johor Bahru-Singapore Rapid Transit System (RTS) Link, which is scheduled to commence operations by the end of 2026, is key to solving logistics challenges. These businesses also suggested improvements such as developing enhanced border crossing centres with automated clearance using biometric technology and investing in efficient multimodal connectivity.
02 Potential Revival of the Singapore-Kuala Lumpur High Speed Rail (HSR) Project
The prospect of reviving the project gained momentum after Malaysian Prime Minister Anwar Ibrahim took office following the 2022 general election and visited Singapore early last year to meet Singapore leaders. On 3 August last year, then Acting Minister for Transport Chee Hong Tat said in Parliament that Singapore was willing to discuss in good faith any new proposal from Malaysia on the Kuala Lumpur-Singapore High Speed Rail project, "starting from scratch".
03 Streamlining Processes: Customs Clearance and Investment Approval Procedures
The survey results show that 55% of businesses indicated difficulties in dealing with tax matters, and 48% indicated that more convenient cargo clearance is critical to the efficient movement of goods.
Based on these insights, SBWG recommended implementing simplified customs and border clearance procedures, harmonising tax and tariff policies, developing integrated transport networks and logistics infrastructure, and strengthening digitalisation and e-commerce.
The report also outlined that the current investment facilitation landscape between Singapore and Johor is fragmented and complex, with businesses reporting obstacles in obtaining the necessary permits and licences.
According to the survey results, 58% of businesses indicated they hoped to establish a joint investment promotion agency to promote the free trade zone and facilitate investor participation, while 33% hoped to establish a platform to promote collaboration and networking opportunities among themselves for self-help and support.
SBWG recommended simplifying investment approval processes, providing attractive tax incentives, developing a sound legal and regulatory framework, offering comprehensive business facilitation services, and strengthening the interoperability of financial systems.
04 Building a Singapore Headquarters + Malaysian Subsidiary Structure
As the only developed economy in Southeast Asia, Singapore has emerged as a preferred destination for many companies going global. With its strategic location, pro-business policies and excellent connectivity, it has drawn the attention of many domestic and international enterprises and investors.
According to the latest data from the Accounting and Corporate Regulatory Authority (ACRA), a total of 70,402 new companies were incorporated in Singapore last year. Compared with 64,305 in 2022, this represented an increase of 9% and marked the highest number since 2014.
According to Enterprise Singapore, there are more than 7,000 multinational corporations in Singapore, and these MNCs have set up more than 4,200 operational entities in Singapore, including regional headquarters, R&D centres and sales centres.
1. Common Structures for Singapore Companies in International Business
- Wholly-owned enterprise or joint venture
- Investment holding company structure
- Import-export and cross-border trade structure
- Intellectual property holding company
- Red-chip structure (VIE)
1. Wholly-owned Enterprise or Joint Venture
A wholly-owned or joint venture holding structure refers to one or more corporate shareholders controlling a Singapore company for purposes such as overseas expansion, overseas settlement or tax optimisation.
Key Advantages:
Each shareholder company bears limited liability, and the operating model is flexible. Income of the operating company can be repatriated to the shareholder company through dividends; dividends received by the shareholder company are not subject to a second layer of tax; surplus funds can be retained in overseas accounts to isolate or defer the potential income tax obligations of individual shareholders; and the structure can enjoy Singapore's tax incentives as well as the convenience of Singapore's banking and foreign exchange settlement system.
Suitable For:
Companies intending to expand into Southeast Asian and global markets; companies intending to make overseas investments and conduct M&A; and companies intending to establish a global financial settlement centre.
2. Investment Holding Company Structure
An investment holding company is incorporated to hold financial assets and shares in branches or subsidiaries with specific purposes. The holding company does not transact with its subsidiaries; it merely acts as the holder of the corresponding equity interests through the allocation of company shares.
Advantages of setting up an investment holding company in Singapore:
1. New Developments
Companies may wish to expand their business into (a) more industries and (b) more countries. For example, a Singapore company may set up a Malaysian factory, with manufacturing carried out in a country with lower labour costs, while order revenue remains with the Singapore holding company, which enjoys the low tax rate of 17% and the convenience of international currency exchange.
2. Partnerships
By acquiring shares in a partner company, the holding company becomes its parent company, holds shares in the subsidiary and appoints directors, and expands its existing business through the subsidiary's operations. For example, Alibaba expanded into a new industry with ease by acquiring a stake in SingPost, making itself a trusted partner with a professional logistics operations team in Singapore.
3. Shareholder Governance
Changes in the shareholding or directors of the holding company do not affect the structure of its subsidiaries.
4. Tax Benefits
Enjoy tax exemptions on dividend income and capital gains received from subsidiaries.
For the original source of some of the content in this article, please refer to: https://www.channelnewsasia.com/singapore/johor-singapore-sez-special-economic-zone-businesses-investments-4471991
- For more information on investment structures for companies going global, operational practice, and compliance matters in Singapore and Southeast Asia, please contact the Zhong Xin Fa Xun professional team.
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Author | To be confirmed
This article is for informational reference only and does not constitute formal legal advice.
This article is general information and not legal advice. Specific matters require assessment by appropriately qualified professionals.