On 31 May 2024, the Malaysia Digital Economy Corporation (MDEC), with the support of the Ministry of Digital (KD) and the Ministry of Finance (MOF), introduced an innovative tax incentive scheme for Malaysia Digital (MD) companies: the Malaysia Digital (MD) Tax Incentive. This initiative is an outcome-based tax incentive scheme for eligible MD companies leveraging MD-promoted tech enablers.
The outcome-based approach uses a tiered system in granting tax incentives to encourage companies to spur the economy through investments in high-growth, high-value areas, create new economic clusters, expand domestic networks, and provide a balance between economic growth and environmental, social, and governance sustainability.
This incentive scheme is designed to align with the international standards of the Organisation for Economic Co-operation and Development (OECD).
The incentive is divided into two categories: the New Investment Incentive and the Expansion Incentive.
New Investment Incentive
Taxpayers eligible for the New Investment Incentive may opt for:
- a 0% reduced tax rate (RTR) on qualifying intellectual property (IP) income and a 5% or 10% rate on qualifying non-IP income for up to 10 years; or
- an investment tax allowance (ITA) of 60% or 100% of qualifying capital expenditure against up to 100% of statutory income for up to 5 years.
To qualify for the New Investment Incentive, the applicant must be a company that:
- is incorporated or deemed to be registered under the Companies Act 2016 and resident in Malaysia
- has a minimum paid-up capital of MYR 50,000.00;
- has made an application for the award of MD Status;
- is proposing to undertake the qualifying activity in Malaysia;
- has not issued any sales invoice for the qualifying activity in Malaysia prior to the date the tax incentive application is received, or has 60% direct or indirect Malaysian equity ownership and has not issued any sales invoice for the qualifying activity in Malaysia more than twelve months prior to the date the tax incentive application is received; and
- is not granted any tax incentive by the Government of Malaysia in relation to the qualifying activity.
Expansion Incentive
Taxpayers eligible for the Expansion Incentive may opt for:
- a 15% reduced tax rate (RTR) on qualifying IP and non-IP income for up to 5 years; or
- an investment tax allowance (ITA) of 30% or 60% of qualifying capital expenditure against up to 100% of statutory income for up to 5 years.
To qualify for the Expansion Incentive, the applicant must be a company that:
- is incorporated or deemed to be registered under the Companies Act 2016 and resident in Malaysia;
- has a minimum paid-up capital of MYR 250,000.00;
- has been in operation for at least 36 months;
- is an MD or MSC Malaysia Status company;
- in the case where the company has been granted tax incentive for existing activity under the MD or MSC Malaysia Status financial incentive schemes, the company has met all conditions under the tax incentive or has surrendered the tax incentive;
- is proposing to undertake the qualifying activity in Malaysia;
- has not issued any sales invoice for the qualifying activity in Malaysia prior to the date the tax incentive application is received; and
- is not granted any tax incentive by the Government of Malaysia in relation to the qualifying activity.
Eligible MD companies can benefit from the outcome-based tax incentive by engaging in qualifying activities utilising the promoted tech enablers. These qualifying activities are artificial intelligence (AI) and big data analytics (BDA), internet of things (IoT), cybersecurity, cloud, blockchain, drone technology, creative media technology including extended reality (XR) and mixed reality (MR), integrated circuit (IC) design with embedded software, robotics and automation, and advanced network connectivity and telecommunication technology.
