The FCSFZ Tax Incentive Framework for Fintech-related Activities, Financial Global Business Services and Foreign Payment System Operators
04 June 2025
On 25 August 2023, the Malaysian Government announced the establishment of the Forest City Special Financial Zone (“
FCSFZ”), aiming to attract foreign investment, particularly in the finance, technology, and business services sectors. On 13 May 2025
1, Malaysia Digital Economy Corporation Sdn Bhd (“
MDEC”) released the
Guidelines on Forest City Special Financial Zone Tax Incentive (For Fintech Related Activities, Financial Global Business Services and Foreign Payment System Operator) (“
Guidelines”) setting out, among others, the qualifying activities, the special tax incentives and the conditions to be fulfilled to qualify for such incentives.
2 A set of
Frequently Asked Questions was also issued by MDEC in relation to the tax incentives at the same time.
Tax Incentive Details
Companies that carry out qualifying activities in the FCSFZ are eligible for a special corporate tax rate of 5% for a period of 10 consecutive years of assessment, which may be extended for a second period of 10 consecutive years of assessment, contingent upon meeting specified conditions.
Qualifying Activities and Promoted Technology Enablers
Qualifying activities encompass the provision of services in Fintech (including Regulatory Fintech, Insurtech and Islamic Fintech), Financial Global Business Services and Foreign Payment System Operators. Briefly:
- “Fintech” refers to the integration of technology into offerings by financial services companies;
- “Financial Global Business Services” refers the centralised, multifunctional service delivery model within large organisations under the financial sector/ services; and
- “Foreign Payment System Operator” is an operator of a payment system that performs the role of processing, clearing and settlement of payment transactions.
It is mandatory that the qualifying services must leverage on any of the following advanced technology enablers, namely artificial Intelligence, big data analytics, internet of things, cybersecurity, cloud computing, blockchain, creative media technologies including extended reality or mixed reality, robotics or automation, or advanced network connectivity or telecommunication technology.
Appendix 1 and Appendix 1A respectively of the Guidelines provide further descriptions of each type of qualifying activity and technology enablers.
Activities that are specifically excluded from being qualifying activities include trading, manufacturing, telecommunications services, global business service or knowledge process outsourcing which is non-technical, low value call centres, data entry, recruitment process outsourcing and supply chain services relating directly or indirectly to cigarettes, tobacco, alcohol or gambling industries.
Eligibility Criteria
To be eligible to apply for the FCSFZ tax incentive, the applicant must be a company which:
- is incorporated under the Companies Act 2016/ Companies Act 1965 and resident in Malaysia;
- has a minimum paid up capital of RM50,000.00;
- is proposing to carry on the qualifying activity in Pulau 1 Forest City;
- has not issued any sales invoice for the qualifying activity in Malaysia prior to the date of submission of the tax incentive application, or has 60% direct or indirect Malaysian equity ownership and has not issued any sales invoice for the qualifying activity in Malaysia more than 12 months before the date of submission of the tax incentive application; and
- has not been granted any tax incentive by the Malaysian Government in relation to the qualifying activity.
Scope and Conditions for Tax Incentive
Initial 10-Year Period
To be eligible for the special tax incentive of 5% for the initial 10-year period, a company must satisfy the following conditions:
- employ an adequate number of full-time employees (“FTE”) to carry on the qualifying activities throughout a year of assessment (“YA”);
- ensure that the FTEs include a sufficient number of knowledge workers, each earning a minimum monthly basic salary of RM10,000 throughout the YA;
- incur adequate annual operating expenditure (“OPEX”) in carrying on the qualifying activities by the end of each YA;
- commence operations and carry on the qualifying activity from Pulau 1, Forest City throughout the YA;
- fulfil the conditions relating to environmental, social and governance (“ESG”);
- obtain relevant regulatory approvals/ licences for the qualifying activity regulated under written law;
- submit to MDEC annually a self-declaration form (“SDF”) within seven months from the end of each YA on compliance of conditions which is verified by an independent external auditor; and
- fulfil any other economic development conditions imposed.
The company will only be entitled to enjoy the tax incentive upon fulfilment of the conditions stated in the approval letter.
Second 10-Year Period
A company seeking to extend the special tax incentive of 5% for a second 10-year period must satisfy the following conditions:
- maintain the number of existing FTEs from the first incentive period throughout the YA;
- employ an adequate number of FTEs to carry on the qualifying activity throughout the YA;3
- ensure the new FTEs comprise an adequate number of knowledge workers with minimum monthly basic salary of RM10,000.00 throughout the YA;4
- incur adequate annual OPEX in carrying on the qualifying activity by the end of each YA;5
- fulfil the conditions relating to ESG;
- maintain a minimum paid-up capital of RM2.5 million throughout the YA;
- continue operations in Pulau 1, Forest City throughout the YA;
- maintain or obtain relevant regulatory approvals/ licences for the qualifying activity regulated under written law;
- submit to MDEC annually an SDF on compliance of conditions within seven months from the end of each YA which is verified by an independent external auditor; and
- fulfil any other economic development conditions imposed.
The application for the extension must be submitted to MDEC together with the SDF for the 10
th YA of the initial 10-year period.
6 If the application is approved, the special tax incentive for the second 10-year period will commence upon the expiry of the first 10 YAs.
Adequate number/amount
The adequate number/ amount of FTEs, knowledge workers and OPEX will be based on the proposed commitments stated in the company’s tax incentive application. The approved number/ amount will be determined by the National Committee on Investment (“
NCI”) and stipulated in the approval letter.
Non-compliance of conditions
A company must comply with all the applicable conditions as specified in the approval letter in order to be eligible for the special tax rate for the relevant YA. The company will be subject to the prevailing corporate tax rate if it fails to comply with any relevant condition applicable to that YA.
Submission of application and commencement of tax incentive
Applications for the special tax incentive must be submitted to MDEC for assessment by the NCI. Submission is open from 1 September 2024 to 31 December 2034.
A company is required to submit a request to MDEC to determine the commencement of the YA no later than 24 months from the date of approval in principle of the special tax incentive.
Top-up Tax
A company belonging to a group of companies is required to determine whether it falls within the category of companies with a consolidated annual revenue of EUR 750 million or more. If affirmative, the company can be subject to a top-up tax if the group's effective Malaysian tax rate is less than 15%. The top-up tax can be collected through the Domestic Top-up Tax mechanism under Part XI of the Income Tax Act 1967.
Additional Activities
A company which has been granted the special tax rate may, during the incentive period, apply to add other activity as an additional qualifying activity under the approved incentive, provided that the company has not issued any sales invoice for such activity in Malaysia prior to the date of submission of the application.
The application is to be submitted to MDEC no later than 18 months before the expiry of the existing incentive period. If the application is approved, the incentive period for the additional qualifying activity shall be granted within the existing incentive period and expire on the expiry date of the existing incentive period. The additional qualifying activity will be subject to a separate set of conditions.
Comments
The FCSFZ Tax Incentive represents a noteworthy step in Malaysia’s broader strategy to strengthen its standing in the global digital economy. By offering a reduced corporate tax rate and clearly defined qualifying activities, the scheme introduces a high level of policy clarity and sectoral focus. For companies planning long-term regional expansion, the structure of the incentive may provide a competitive edge. At the same time, the incentive’s design introduces several operational commitments that warrant close consideration, including staffing thresholds, ESG metrics, and annual verification requirements. Businesses should assess whether the incentive fits within their broader regional strategy, weighing the potential tax advantages against the administrative and operational obligations that come with it.
Alert by Sheba Gumis (Partner) of the Corporate Practice (Foreign Direct Investment) and Victoria Low (Associate) of the Tax Practice of Skrine.
1 The Guidelines are dated 18 April 2025 but appear to have been issued by MDEC on 13 May 2025. See MDEC Announcement dated 13 May 2025 that can be accessed
here.
2 MDEC has been appointed as the Government agency to process applications for the special tax incentives.
3 The proposed adequate number of FTE must be at least 30% of the existing condition number for the 10
th YA of the initial 10-year period.
4 The proposed adequate number of qualifying knowledge workers must be at least 30% of the existing condition number for the 10
th YA of the initial 10-year period.
5 The proposed adequate amount of annual OPEX must be at least 30% of the existing condition number for the 10
th YA of the initial 10-year period.
6 The extension is subject to approval of the approval committee.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.