(Tax Update) Johor-Singapore Special Economic Zone (JS-SEZ) : Malaysia vs. Singapore Tax Differences for Foreign Investors

(Tax Update) Johor-Singapore Special Economic Zone (JS-SEZ) : Malaysia vs. Singapore Tax Differences for Foreign Investors

Singapore vs. Malaysia: Key Tax Differences for Foreign Investors

When considering business expansion into Johor under JS-SEZ , investors on both countries offer attractive investment opportunities but have distinct tax systems that can significantly impact profitability. Understanding these differences is crucial for making an informed decision.

1. Corporate Tax Rates: Flat vs. Tiered

  • Singapore: A flat corporate income tax (CIT) rate of 17% applies to all companies, regardless of size. There are no taxes on capital gains or dividends.

  • Malaysia: A tiered tax system applies:

    • SMEs (companies with paid-up capital below MYR 2.5 million) enjoy 15% on the first MYR 150,000 and 17% on the next MYR 450,000.

    • Larger companies are taxed at 24%.

For foreign investors, Singapore’s single low tax rate provides simplicity, whereas Malaysia’s structure benefits smaller businesses.

2. Foreign-Sourced Income: Exemption vs. Taxation

  • Singapore: Foreign-sourced income, such as dividends, branch profits, and service income, is exempt from tax if taxed abroad at a minimum of 15% and meets specific conditions.

  • Malaysia: Since January 2022, foreign-sourced income is taxable upon remittance into Malaysia unless an exemption applies.

For businesses with global operations, Singapore’s tax exemption provides a strategic advantage, whereas Malaysia’s rules require careful tax planning.

3. Withholding Taxes: Singapore’s Dividend Advantage

  • Singapore: No withholding tax on dividends paid to foreign investors. However, certain payments to non-residents attract withholding tax:

    • Royalties: 10%

    • Interest: 15%

  • Malaysia: A broader range of withholding taxes apply:

    • Dividends: No withholding tax

    • Interest: 15%

    • Royalties: 10%

    • Service fees to non-residents: 10%

While both countries exempt dividends from withholding tax, Singapore’s simpler system and fewer tax obligations on outbound payments make it more investor-friendly.

4. Tax Incentives: Sector-Specific vs. Broad-Based

  • Singapore: Encourages foreign investment through broad tax incentives, including:

    • Start-up Tax Exemption (SUTE) for new businesses

    • Regional headquarters incentives (tax rates as low as 5%)

    • Double tax deductions for international expansion

  • Malaysia: Offers industry-specific incentives, such as:

    • Pioneer Status (tax exemption for up to 10 years)

    • Investment Tax Allowances

    • Reinvestment Allowance for manufacturing and agriculture firms

Singapore’s incentives cater to multinational corporations, whereas Malaysia targets key growth industries.

5. Real Property Gains Tax (RPGT)

  • Singapore: No capital gains tax (CGT) or real property gains tax (RPGT). Profits from property sales are generally tax-free unless deemed as trading income.

  • Malaysia:

    • Real Property Gains Tax (RPGT) applies to disposals of real estate within six years (ranging from 30% in year 1 to 10% from year 6 onwards).

For real estate investors, Singapore offers a tax-free advantage, while Malaysia imposes RPGT on property sales.

6. Capital Gain Tax

Singapore does not impose a capital gains tax. Gains from selling shares, properties, or businesses are generally not taxed.

Malaysia introduced Capital Gains Tax (CGT) in 2024, targeting gains from the disposal of unlisted company shares. The tax applies at a rate of 10% on net gains or 2% on gross disposal value for shares acquired before March 1, 2024. For shares acquired after this date, only the 10% net gain tax applies.

7. Double Taxation Agreements (DTAs): Singapore’s Wider Network

Both countries have extensive DTAs to prevent double taxation, but Singapore’s network is broader and generally offers better tax relief for international businesses.

8. Ease of Tax Compliance: Efficiency vs. Complexity

  • Singapore: Consistently ranked as one of the easiest places to do business, with straightforward tax filings and digital processes.

  • Malaysia: While competitive, its more complex tax regime and frequent policy changes require extra compliance effort.

Final Thoughts

For foreign investors, the choice between Singapore and Malaysia depends on business priorities:

  • Singapore is ideal for those seeking lower tax rates, tax-free foreign income, and simpler compliance.

  • Malaysia offers industry-specific incentives, lower SME tax rates, and a growing consumer market, though with higher tax rates and stricter foreign income rules.

Stay tuned for more updates from KTP as we continue to guide businesses in navigating Malaysia’s tax landscape!

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