Understanding the broader landscape

Bilateral dynamics and the case for harmonisation

The JSSEZ builds on deep-rooted historical, social and economic ties between Malaysia and Singapore. Realising its full potential will require bilateral cooperation not only at the policy level but also in harmonising the various frameworks that underpin cross-border activity between the two countries.

Key to this will be the establishment of mutual recognition regimes covering, for example, professional qualifications, licences and customs standards, to reduce administrative friction. Regulatory alignment in areas such as labour mobility, data governance and infrastructure development will be essential for operational clarity.

Without such harmonisation, businesses may face duplicative compliance burdens, conflicting requirements or enforcement uncertainty, all of which undermine the efficiency gains that the JSSEZ seeks to deliver.

Domestic setting

Malaysia offers a relatively investor-friendly environment, although certain sectors remain subject to foreign ownership caps or local equity participation rules.

Furthermore, the Malaysian political landscape tends to be fairly fluid. Frequent changes in government, often via shifting parliamentary alliances, create inherent uncertainty around policy continuity. Malaysia also has a rotational monarchy, which has at least symbolic influence on public sentiment and policy momentum.

These dynamics may influence regulatory priorities and project timelines affecting the JSSEZ. Investors should therefore stay abreast of local developments and build adaptability into any long-term plans.

Regional and global dynamics

Global trade tensions, notably between the United States and China, and broader protectionist trends have intensified the need for resilient and diversified supply chains.

Malaysia and Singapore, along with the other Association of Southeast Asian (ASEAN) member states, are part of the ASEAN Free Trade Area, which aims to promote economic integration and regional cooperation within Southeast Asia by lowering or eliminating tariffs and non-tariff barriers on intra-ASEAN trade. Given its location, the JSSEZ may offer a strategic foothold in Southeast Asia, which will likely be attractive to businesses reliant on cross-border manufacturing or dual-use technologies.

The JSSEZ is not, however, the only special economic zone in Malaysia, let alone the region. Competition from other regional SEZs, such as those in the neighbouring Indonesian islands of Batam and Bintan, will no doubt influence investment decisions.

Legal and regulatory frameworks

Sector-specific rules

Malaysia’s regulatory landscape is evolving, especially in sectors central to the JSSEZ. Recent developments include draft personal data protection guidelines and enhanced cybersecurity standards, which could impose compliance obligations on investors in tech and digital infrastructure.

Operators in sensitive industries should closely evaluate licensing frameworks, foreign equity thresholds and specific sectoral regulations. Early alignment with the applicable laws can prevent delays, reduce exposure to enforcement risks and support sustainable scaling.

Cross-border data and IP

Data localisation requirements, restrictions on cross-border transfers and IP enforcement regimes should be addressed early in deal structurings. Tech-reliant businesses will need to design systems that comply with Malaysia’s data sovereignty rules, while IP-intensive ventures should ensure adequate legal protections are in place, particularly where assets or innovations will be used across borders.

Land use and real estate

Malaysia’s land tenure system features diverse structures – freehold, leasehold and temporary occupation licences. Real estate due diligence should cover zoning compliance, environmental restrictions, title verification and encumbrances.

The Invest Malaysia Facilitation Centre Johor (IMFC-J) and its recently announced Singapore counterpart (see our client alert with further information) provide general guidance, but do not replace the need for rigorous, project-specific legal review. Delays or disputes in land acquisition or conversion can materially impact feasibility and timing.

Government incentives and consultation-based development

The JSSEZ’s incentive regime is expected to include tax breaks, streamlined licensing and infrastructure support. However, details remain vague and access to these incentives varies based on location, project type, strategic alignment and timing.

While this consultative, ‘project-by-project’ approach allows for customised support, it also introduces uncertainty. Criteria for eligibility, application timelines and approval processes are not fully transparent, making it difficult to incorporate incentive assumptions into financial models with confidence.

Engaging early with facilitation agencies such as IMFC-J and building contingencies into project budgets will be essential. Investors should also track shifts in incentive policies linked to changes in government priorities or fiscal capacity.

Investment structuring and currency strategy

Careful structuring is key to managing regulatory, tax and repatriation issues. Depending on the sector, foreign investors may face restrictions on equity ownership, share transfers or exit rights.

Joint ventures with local partners, SPVs aligned to sectoral requirements and holding structures leveraging bilateral investment treaties (BITs) may provide operational and tax advantages. Similar advantages arise from multilateral investment treaties (MITs) with ASEAN, of which Singapore and Malaysia are members – investors will be able to benefit from investment treaties between other countries and ASEAN as a collective bloc. Foreign-controlled entities should assess whether their corporate form may trigger additional approval requirements for divestment or winding up.

Currency risk is another core consideration. The Malaysian ringgit’s fluctuations, particularly relative to the Singapore and U.S. dollars, can significantly affect profitability and return calculations. Hedging, currency matching and cross-border cash management should be factored into deal structuring and ongoing operations.

Infrastructure, resources and labour

Connectivity and transport

Transport infrastructure projects such as the Johor Bahru-Singapore Rapid Transit System Link (RTS Link) aim to facilitate cross-border movement. Investors should, however, be mindful of the impact shifting political winds may have on planned projects, with the currently shelved Kuala Lumpur–Singapore high-speed rail (HSR) serving as a timely reminder.

Utilities and sustainability

Industries such as manufacturing and data centres require reliable and scalable access to electricity and water. Malaysia’s environmental regulations are increasingly focused on resource efficiency and sustainability.

Investors should anticipate requirements for green building standards, renewable energy integration and resource management systems. Early planning around utilities can reduce compliance risk and enhance ESG positioning.

Human capital and workforce planning

Workforce readiness remains a work in progress. Investors should account for transitional periods where talent pipelines are still developing, particularly for specialised skills.

Labour laws around foreign worker quotas, permits and minimum standards must be navigated carefully. The availability of mutual recognition mechanisms and streamlined immigration processes will be crucial for attracting skilled labour into the JSSEZ.

Counterparty due diligence and governance

As with all contracts, investors should conduct thorough due diligence on any potential counterparties to avoid nasty surprises when problems occur. Enhanced due diligence is required if the counterparty is a state-owned entity, linked to the government or a politically exposed person.

Given the multi-jurisdictional nature of many JSSEZ projects, internal governance protocols should be aligned with international standards, for example, the U.S. FCPA and the UK Bribery Act.

Dispute resolution and legal protections

Despite being a contingency provision, careful thought needs to be given to the dispute resolution provisions in JSSEZ-related contracts, especially since most will involve some cross-border element.

Parties should consider the governing law of the contract and whether litigation or arbitration is better suited to their specific circumstances. Further, contracts that are long-term in nature or that require cordial working relationships often include an obligation on parties to seek to resolve any disputes amicably before initiating formal proceedings.

In addition to contractual recourse against counterparties, foreign investors may also be able to take advantage of additional protections under BITs and MITs.

Conclusion

The JSSEZ offers a rare chance to tap into a high-growth corridor connecting two powerhouse economies. But opportunity alone doesn’t guarantee success.

Navigating regulatory shifts, cross-border complexities and project-specific risks requires more than commercial instinct – it demands informed execution and a strong legal foundation.

With the right strategy, structures and safeguards in place, investors can move decisively and position themselves ahead of the curve when embarking on this venture.

Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.

Client Alert 2025-149