Forest City clarifies 5% fintech tax incentive

Forest City Special Financial Zone has clarified that its incentive for qualifying fintech and technology-enabled financial services is a 5% corporate tax rate rather than a blanket tax exemption, drawing a distinction between the Johor-based programme and Malaysia’s separate national digital incentives.

The clarification sets out the eligibility framework for companies considering operations in Pulau 1 of Forest City, where qualifying fintech businesses, Financial Global Business Services operations and foreign-owned payment system operators can apply for the special rate. The incentive runs for 10 consecutive years of assessment and may be extended for another 10 years if the company continues to meet the stipulated conditions.

Malaysia Digital Economy Corporation, or MDEC, is the government agency appointed to process applications, while approvals are subject to the national investment assessment framework. Eligibility does not arise simply from locating a technology business within Forest City.

Qualifying activities must incorporate at least one designated technology enabler. These include artificial intelligence or big data analytics, the Internet of Things, cybersecurity, cloud computing, blockchain, creative media technology, robotics or automation, and advanced network connectivity or telecommunications technology.

The framework therefore covers AI where the technology supports an eligible financial or business-service activity. A general AI developer or technology company does not automatically qualify for the Forest City incentive merely because it uses artificial intelligence.

Applicants must be companies incorporated under Malaysia’s Companies Act and resident in the country, with minimum paid-up capital of RM50,000. The qualifying business must be conducted in Pulau 1, Forest City. Companies must also comply with requirements covering employment, knowledge workers, operating expenditure, economic substance, environmental, social and governance commitments and any regulatory approvals applicable to their activities.

The Forest City incentive is separate from Malaysia Digital Status and the Malaysia Digital tax incentive administered by MDEC. Companies do not need Malaysia Digital Status to apply for the Forest City programme, and an applicant generally cannot receive another tax incentive for the same qualifying activity.

That distinction has become important because the national Malaysia Digital scheme includes figures of up to 100%, potentially creating confusion over whether technology and AI businesses can obtain complete corporate tax exemption in Forest City.

Under the Malaysia Digital tax incentive, companies making new investments can apply for a zero per cent reduced tax rate on qualifying intellectual-property income, subject to the applicable intellectual-property nexus rules. Qualifying non-IP income may receive a 5% or 10% reduced rate for up to 10 years, depending on whether the relevant conditions are met.

Alternatively, eligible new investments can choose an investment tax allowance of 60% or 100% of qualifying capital expenditure, which can be set against up to 100% of statutory income for a period of up to five years. The 100% figure refers to the investment tax allowance and does not constitute a general declaration that all income earned by an eligible company is tax-free.

Companies undertaking qualifying expansion investments face a different structure. The national digital programme provides a 15% reduced tax rate on qualifying IP and non-IP income for up to five years, or an investment tax allowance of 30% or 60% of qualifying capital expenditure, subject to the conditions attached to the scheme.

Applications for the Malaysia Digital tax incentive remain open until December 31, 2027. Applicants for that programme must first secure Malaysia Digital Status. Forest City’s programme has a longer application window, running to December 31, 2034 under the existing guidelines.

Forest City’s financial-zone incentives were formally unveiled by the government in September 2024 as part of an effort to establish Johor as a competitive financial and services hub close to Singapore. The package also includes separate arrangements for single family offices and knowledge workers.

Qualifying single family office vehicles operating under the Forest City framework can obtain a zero per cent tax rate on chargeable income from approved holding and investment activities, subject to Securities Commission Malaysia requirements. That concession is distinct from the 5% regime covering fintech, Financial Global Business Services and foreign payment system operators.

Forest City also sits within the wider Johor-Singapore Special Economic Zone, strengthening its role in Malaysia’s strategy to attract cross-border investment, advanced financial services and digital businesses. Johor has emerged as a major destination for digital infrastructure and technology investment, supported by its proximity to Singapore, expanding data-centre capacity and improving regional connectivity.