In a move to foster stronger economic relations, combat global business slowdown and improve bilateral connectivity, Malaysia and Singapore has signed a Memorandum of Understanding (“MOU”) on the realisation of the Johor-Singapore Special Economic Zone (“the SEZ”) on 11th January 2024. The MOU was signed by Economy Minister Rafizi Ramli and Singapore Trade and Industry Minister Gan Kim Yong, witnessed by Prime Minister Datuk Seri Anwar Ibrahim and his Singapore counterpart Lee Hsien Loong.
Commercial Impact of the SEZ
The SEZ is set to be in the main southern development corridor in Johor, Iskandar Malaysia. Boasting an area of about 2,300sq km, the abundance of land brings with it many business growth opportunities to be “Shenzhen 2.0” through five key areas of developments:-
1. Economic Growth
Echoing results from other special economic zones in the world, the SEZ is anticipated to attract investments and trade due to investor friendly policies, special tax & incentive packages and bonded warehouses arrangements. The increased movement of goods and services would stimulate economic growth in the area.
2. Increased Connectivity
The direct train link from Bukit Chagar Johor Bahru to Woodlands North Singapore by way of the Rapid Transit System (“RTS Link”) is expected to solve the longstanding issue of connectivity between Singapore and Johor. Singapore has also pledged to redevelop the Woodlands Checkpoint to increase capacity. These efficiencies in customs and logistics can reduce transit times and costs, making cross-border trade more attractive.
Among the collaborative initiatives being considered for the SEZ at this stage also includes the implementation of a passport-free QR code system to facilitate land travels between Singapore and Malaysia, and digitised processes for cargo clearance at land checkpoints.
3. Job Opportunities
Increased business activities will bring in numerous job creations with talent coming in from both sides of the border. Companies in the SEZ are able to get the right mix of professionals, skilled workers and other general workers that they need.
4. Infrastructure Development
Demand for rental and houses in the central region of Johor will grow significantly in the coming years. The influx of investments alongside favourable labour conditions and cost-effective construction goods would boost property growth and value.
Opportunities Presented by the SEZ
The SEZ marks a significant milestone for businesses seeking strategic advantages in the heart of Southeast Asia. Among the sectors that the SEZ is targeting include electronics, financial services, business‑related services and healthcare.
Whilst Malaysian companies can consider diversifying their operations by establishing a presence within the SEZ, allowing them to benefit from (among others) the favourable tax measures and close proximity to Singapore as a global financial and business hub, Singaporean and other foreign businesses also stand to gain immensely from the connectivity the SEZ provides.
Singaporean businesses contemplating expansion within their home country may now explore extending their operations into the SEZ. The common historical, linguistic, and cultural ties between Singapore and Malaysia create a foundation of understanding and familiarity. Additionally, Singapore and Malaysia both being former British colonies, share similar legal framework rooted in English common law. The shared background of its legal system facilitates smoother business interactions by easing the complexities associated with adapting to a foreign jurisdiction. For Singaporean companies eyeing growth opportunities, the common legal system in Malaysia not only fosters a sense of legal familiarity but also enhances the efficiency of operations, offering a smoother transition/expansion into the Malaysian market. Malaysia’s lower operational costs also creates a competitive edge that can translate into increased profitability and sustainable growth for Singaporean businesses without any quality compromise.
Foreign or international businesses eyeing a strategic presence in both Malaysia and Singapore should also find the SEZ particularly enticing, as the SEZ serves as a bridge between two economies. The SEZ serves as a gateway to the Southeast Asian market, offering foreign businesses an opportunity to tap into the rapidly growing economies of Malaysia and other ASEAN countries. With proximity to Singapore’s well-established financial and business hub, foreign companies will gain access to a sophisticated and internationalized business environment. The strategic positioning of the SEZ opens doors for foreign businesses to establish a robust foothold in the ASEAN market.
With the development of the RTS Link scheduled to come into operation in 2026, the improved transportation infrastructure is set to promote collaboration between businesses in Singapore and Johor, leading to increased partnerships and joint venture, fostering a more integrated and collaborative business environment, while making the SEZ more attractive to professionals and skilled workers to Singapore and Malaysia talents and contributing to diverse and skilled labour pool.
Legal Consideration Before Expanding in the SEZ
Navigating the SEZ for business expansions, be it for Singaporean companies or other foreign/international companies requires careful attention to various legal considerations. It is advisable to seek professional advice before relocating or setting up a business in the SEZ. Some considerations to be made include, among others:
a. The appropriate business vehicle of the intended business in Malaysia.
b. Industry specific licenses/permits required for the intended business and licensing requirements of the same.
c. Corporate legal/statutory requirements to be complied in Malaysia – such as minimum director requirements, statutory filing etc.
d. Labour legal/statutory requirements to be complied in Malaysia – such as working hours, termination process and employee rights.
e. Compliance with Malaysia’s Personal Data Protection Act (PDPA) with regards to the collection and processing of personal data.
In navigating these legal considerations, businesses can effectively mitigate risks, ensure regulatory compliance, and establish a solid foundation for their operations within the SEZ or within Malaysia.
The SEZ stands as a visionary collaboration, poised to bring transformative benefits not only to Malaysia and Singapore but also to foreign and international businesses. The SEZ extends its allure to foreign and international businesses seeking a strategic foothold in Southeast Asia. For Singapore, the SEZ provides a strategic opportunity to leverage shared heritage, familiar legal frameworks, and cost advantages. Meanwhile Malaysia stands to benefit from increased investments, job creations and infrastructure development from the Zone’s economic growth.
The envisioned SEZ reflects a forward-looking initiative that leverages the strengths of Malaysia, Singapore, and the broader international business community, promising not only economic growth but also fostering collaboration, innovation, and shared prosperity in the dynamic landscape of Southeast Asia.