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Tax incentives for Forest City Special Financial Zone Gazetted – Part 3

13 October 2025

As mentioned in Part 1 of our 3-part article, the Malaysian Government gazetted eleven pieces of subsidiary legislation relating to Pulau 1 of the Forest City Special Financia Zone1 (“Pulau 1 FCSFZ”) on 3 October 2025. The name of each subsidiary legislation and their respective commencement date or effective period are set out in the Table in Part 1.
 
In Parts 1 and 2 we have highlighted the salient points of P.U.(A) 350/2025 to P.U.(A) 356/2025. Parts 1 and 2 of the article can be accessed here and here.
 
In this third and final part of our article, we will provide a summary of the main requirements under P.U.(A) 357/2025 to P.U.(A) 360/2025.
 
P.U.(A) 357/2025 – Income tax exemption for non-resident
 
Exemption from income tax
 
Paragraph 2(1) of P.U.(A) 357/2025 exempts a non-resident person from payment of income tax derived from Malaysia in relation to the following classes of income under the Income Tax Act 1967 (“ITA”):
  1. any services referred to in section 4A(i)2;
  2. any advice, assistance or services referred to in section 4A(ii)3;
  3. any rental or other payments referred to in section 4A(iii)4; or
  4. any gains or profits under section 4(f)5. 
Source of income
 
Paragraph 2(2) of P.U.(A) 357/2025 stipulates that the income referred to in paragraph 2(1) must be received on or before 31 August 2034 from any of the following persons operating in Pulau 1 FCSFZ:
  1. a person who is licensed under section 10 of the Financial Services Act 2013 (“FSA”) or section 10 of the Islamic Financial Services Act 2013 (“IFSA”)
  2. a holder of a Capital Market Services Licence under the Capital Markets and Services Act 2007 (“CMSA”);
  3. a recognised market operator registered under section 34 of the CMSA other than an individual;
  4. a person registered under section 76 of the CMSA other than an individual;
  5. a capital market services provider registered under section 76A of the CMSA other than an individual;
  6. a single family fund company as verified by the SC;
  7. a financial technology company, insurance technology company, regulatory financial technology company or Islamic financial technology company which has been awarded MSC Malaysia Status or Malaysia Digital Status as verified by Malaysia Digital Economy Corporation Sdn Bhd (“MDEC”);
  8. a payment system operator established or incorporated in a foreign jurisdiction approved under section 11 of the FSA or section 11 of the IFSA to operate a payment system in Pulau 1 FCSFZ; or
  9. a centralised services entity providing financial global business services which has been awarded MSC Malaysia Status or Malaysia Digital Status as verified by MDEC. 
For the purposes of paragraph 2(2)(f):
  1. a “single family fund company” is a company which is: (i) incorporated under the Companies Act 2016 (“CA”) and resident in Malaysia; (ii) wholly owned, directly or indirectly, by a member of a single family; (iii) operating in Pulau 1 FCSFZ; and (iv) established solely for the purpose of holding the asset and investment activity for the interest of members of a single family; and
  2. a “single family” is a family whose members are individuals who are lineal descendants of a single ancestor and includes: (i) the spouse; (ii) the biological child; (iii) the stepchild; and (iv) the child adopted in accordance with any written law. 
Non-application
 
Section 109B and 109F of the ITA, which provide for deduction of tax at source for certain payments to non-residents, shall not apply to the income referred to in paragraph 2(1) of P.U.(A) 357/2025.
 
Commencement date
 
P.U.(A) 357/2025 is deemed to have come into operation on 1 September 2024.
 
P.U.(A) 358/2025 – Reduction of real property gains tax
 
Preliminary
 
Under the Real Property Gains Tax 1976 (“RPGTA”), the disposal of, inter alia, real property in Malaysia by an individual who is not a citizen or not a permanent resident is subject to real property gains tax (“RPGT) at the rate of 30% on the chargeable gains if the disposal is made within five years after the date of acquisition, and a rate of 10% on the chargeable gains if the disposal is made in the sixth year and subsequent years after the date of acquisition.
 
Reduction in rates
 
In respect of the disposal of real property in Pulau 1 of FCSFZ, paragraph 3(1) of P.U.(A) 358/2025 provides:
  1. a reduction in the rate of RPGT from 30% to 20% for a disposal made in the fourth year after the date of acquisition of the subject property;
  2. a reduction in the rate of RPGT from 30% to 15% for a disposal made in the fifth year after the date of acquisition of the subject property; and
  3. a full exemption from RPGT for a disposal made in the sixth year and subsequent years after the date of acquisition of the subject property. 
The amount of chargeable gain from a disposal in the fourth and fifth years is to be calculated using the formulae set out in paragraphs 3(2)(a) and 3(2)(b) respectively of P.U.(A) 358/2025.
 
Conditions for exemption
 
To qualify for the exemption, the sale and purchase agreement for the disposal of the real property must be executed from 1 September 2024 to 31 July 2034 and is duly stamped before 1 September 2034.
 
Conditional contract
 
Where the contract for disposal of real property is conditional upon the approval of the Federal Government or the State Government, the exemption shall only apply if:
  1. the contract is executed from 1 September 2024 to 31 July 2034 and is duly stamped before 1 September 2034; and
  2. the Federal Government’s or the State Government’s approval for the disposal is obtained on or after 1 September 2024. 
Commencement date
 
P.U.(A) 358/2025 is deemed to have come into operation on 1 September 2024.
 
P.U.(A) 359/2025 – Industrial building allowance for business activity of qualifying person
 
Industrial building allowance
 
Rule 4(1) of P.U.(A) 359/2025 provides that a qualifying person may claim for an industrial building allowance6 (“IBA”) if it incurs a capital expenditure on the construction or purchase of an industrial building in Pulau 1 FCSFZ for its business activity.
 
The amount for IBA referred to in rule 4(1) shall be equivalent to one-tenth of the capital expenditure on the construction or purchase of an industrial building incurred for that YA and for each of the nine following YAs.
 
The expressions “qualifying person”, “industrial building” and “business activity” which are key phrases in rule 4(1) will be explained below.
 
Qualifying person
 
For the purposes of P.U.(A) 359/2025, a qualifying person, as stated in rule 3(1) is:
  1. a person who is licensed under section 10 of the FSA or section 10 of the IFSA;
  2. a holder of a Capital Market Services Licence under the CMSA;
  3. a recognised market operator registered under section 34 of the CMSA other than an individual;
  4. a person registered under section 76 of the CMSA other than an individual;
  5. a capital market services provider registered under section 76A of the CMSA other than an individual;
  6. a single family fund company as verified by the SC;
  7. a financial technology company, insurance technology company, regulatory financial technology company or Islamic financial technology company which has been awarded MSC Malaysia Status or Malaysia Digital Status as verified by MDEC;
  8. a payment system operator established or incorporated in a foreign jurisdiction approved under section 11 of the FSA or section 11 of the IFSA to operate a payment system in Pulau 1 FCSFZ; or
  9. a centralised services entity providing financial global business services which has been awarded MSC Malaysia Status or Malaysia Digital Status as verified by MDEC. 
For the purposes of rule 3(1)(f):
  1. a “single family fund company” is a company which is: (i) incorporated under the CA and resident in Malaysia; (ii) wholly owned, directly or indirectly, by a member of a single family; (iii) operating in Pulau 1 FCSFZ; and (iv) established solely for the purpose of holding the asset and investment activity for the interest of members of a single family; and
  2. a “single family” is a family whose members are individuals who are lineal descendants of a single ancestor and includes: (i) the spouse; (ii) the biological child; (iii) the stepchild; and (iv) the child adopted in accordance with any written law. 
A qualifying person shall not be regarded as a qualifying person under P.U.(A) 359/2025 if the capital expenditure on the construction or purchase of an industrial building is incurred after 31 December 2034.
 
Industrial building
 
A commercial building which is constructed or purchased by a qualifying person in Pulau 1 FCSFZ shall be deemed as an industrial building if: (a) the qualifying person is the owner of the commercial building; and (b) the commercial building is used by that qualifying person for the purposes of a business activity as specified in the Schedule.
 
Business activity
 
As mentioned above, “business activity”, as set out in the Schedule to P.U.(A) 359/2025, means any of the following activities:
  1. banking business, insurance business or investment banking business;
  2. Islamic banking business, takaful business, international Islamic banking business or international takaful business;
  3. regulated activity as specified in Part 1 Schedule 2 to the CMSA;
  4. operating or maintaining a stock market or derivatives market by a recognised market operator registered under section 34 of the CMSA;
  5. regulated activity as specified in the second column of Schedule 4 to the CMSA;
  6. capital market services as specified under section 76A of the CMSA;
  7. holding of assets and investment activity by a single family fund company under P.U.(A) 350/2025;
  8. services in relation to financial technology company, insurance technology company, regulatory financial technology company or Islamic financial technology company;
  9. operating a payment system; and
  10. financial global business services. 
Conditions for capital expenditure
 
Rule 6(1) sets out certain conditions to which capital expenditure under rule 4(1) is subject. Among others, they include:
  1. circumstances in which capital expenditure is to be apportioned or reduced; and
  2. circumstances in which it is prohibited to dispose of the industrial building within two years from the date the capital expenditure on the construction or purchase of the building was incurred. 
Rule 6(2) provides guidance as to the date on which a capital expenditure is deemed to be incurred.
 
Disposal of industrial building
 
The adjustments to be made upon a disposal of an industrial building for which IBA has been allowed are set out in rule 7 of P.U.(A) 359/2025.
 
Commencement date
 
P.U.(A) 359/2025 is deemed to have effect from YA 2024.
 
P.U.(A) 360/2025 – Tax deduction for relocation of business to Pulau 1 FCSFZ
 
Deduction
 
For the purpose of ascertaining the adjusted income of a qualifying person in the basis period for a YA, rule 4(1) of P.U.(A) 360/2025 allows the qualifying person to deduct the cost incurred for relocation of business as specified in the Schedule in Pulau 1 of FCSFZ.
 
Qualifying person
 
A qualifying person refers to any of the entities set out in rule 3(1) of P.U.(A) 360/2025. They are identical to the qualifying persons set out in rule 3(1) of P.U.(A) 359/2025 (see above).
 
The phrases “single family fund company” and “single family” in rules 3(2) and 3(3) of P.U.(A) 360/2025 are applicable to rule 3(1)(f) of P.U.(A) 360/2025.
 
Costs for relocation of business
 
The cost for relocation of business under rule 4(1), as specified in the Schedule to P.U.(A) 360/2025, are:
  1. the cost incurred for planning, execution or supervision of the relocation of business;
  2. packing or unpacking (materials or labour charges);
  3. transportation;
  4. insurance premium for the purposes of relocation of business; and
  5. warehousing. 
Conditions for cost for relocation of business
 
The cost for relocation of business referred to in rule 4(1) is subject to the following conditions:
  1. the relocation of business must take place within the period from 1 September 2024 to 31 December 2034;
  2. the cost for relocation of business shall be deemed to be incurred in the YA in which the qualifying person commences to undertake the whole or part of its business in Pulau 1 FCSFZ;
  3. the cost for relocation of business shall be certified by an external auditor; and
  4. the deduction shall not exceed RM500,000. 
Commencement date
 
P.U.(A) 360/2025 is deemed to have come into operation on 1 September 2024.
 
 
Article by Sheba Gumis (Partner) and Joey Tiw (Senior Associate) of the Corporate Practice of Skrine.
 
 
 
1 Pulau 1 FCSFZ is situated in the Mukim of Tanjung Kupang, District of Johor Bahru, Johore as shown in the Gazette Plan PW50276 deposited in the Office of the Director of Survey and Mapping, Johore.
2 Section 4A(i), inter alia, subjects payments for certain services provided by non-residents (e.g. use of property rights and amounts paid for installation or operation of plant, equipment etc.) to income tax.
3 Section 4A(ii), inter alia, subjects payments for advice given, or assistance or services rendered by non-residents in connection with the management or administration of any scientific, industrial or commercial undertaking, venture or scheme to income tax.
4 Section 4A(iii), inter alia, subjects rents and other payments to non-residents for the use of any moveable property to income tax.
5 Section 4(f), inter alia, subjects income from gains or profits not falling under sections 4(a) to 4(e) to income tax.
6 A claim for IBA is provided in Schedule 3 to the ITA.

This article/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.

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