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Malaysia: Tax Incentives to  Boost Digital Economy

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The Malaysia Digital Economy Corporation (MDEC), supported by the Ministry of Digital (KD) and the Ministry of Finance (MOF), has launched an innovative tax incentive scheme aimed at Malaysia Digital (MD) companies. This initiative reflects the government’s commitment, articulated in Budget 2024, to introduce outcome-based tax incentives. These incentives are designed to stimulate economic growth by attracting investments in high-growth, high-value sectors, fostering the creation of new economic clusters, and promoting environmental sustainability.

The newly introduced MD tax incentive scheme offers a range of benefits for digital companies that utilise advanced technologies such as artificial intelligence (AI), cybersecurity, blockchain, and advanced network connectivity. Eligible MD companies can take advantage of a competitively reduced corporate income tax rate on both intellectual property (IP) and non-IP incomes. Additionally, the scheme includes investment tax allowances (ITA) for capital-intensive service activities. The flexible structure of the scheme allows companies to enjoy tax incentives based on their specific commitments, thus encouraging growth in high-value activities and rewarding performance.

The tax incentives under the scheme are categorised into two main types: New Investment and Expansion. Companies under the New Investment category may benefit from a reduced tax rate of 0% on IP income, and either 5% or 10% on non-IP income for a duration of ten years. On the other hand, companies under the Expansion category may enjoy a 15% reduced tax rate for five years.

Alternatively, companies in both categories have the option to choose an ITA ranging from 30% to 100% on capital expenditure for qualifying activities. This allowance can be offset against up to 100% of statutory income for five years.

The CEO of MDEC remarked that the MD tax incentive is transformative, positioning Malaysia as the digital hub of ASEAN. This move aligns with the current economic needs and international best practices, underlining Malaysia’s commitment to leading the digital revolution. By attracting global talent and investment in high-growth sectors, the initiative aims to create a robust digital ecosystem, generate high-value jobs, boost research and development (R&D) activities, and facilitate the integration of cutting-edge technologies within the country.

Aligning with the Prime Minister’s vision for Malaysia to become more investor-friendly and guided by the MADANI Economy framework, MDEC is streamlining processes to enhance ease of doing business. Efforts are being made to improve efficiency in processing digital investments and to eliminate unnecessary steps that complicate the execution of these investments.

Building on the success of the Multimedia Super Corridor (MSC) initiative, the new MD tax incentive scheme reaffirms Malaysia’s commitment to developing local tech champions and attracting high-value digital investments. Since the inception of MSC in 1996, alongside its Bill of Guarantees, the initiative has attracted RM485 billion in cumulative investments and created over 223,000 high-value jobs as of December 2022.

As of 30 April 2024, the number of awarded MD companies has exceeded 5,000. This milestone underscores the pivotal role of the MD initiative in fostering digital innovation across diverse industries and supporting the transformation plans outlined in both the MADANI Economy framework and the New Industrial Master Plan 2030 (NIMP 2030).

The MD tax incentive scheme, with its focus on leveraging advanced technologies and providing substantial tax benefits, represents a significant step towards making Malaysia a central hub for digital innovation in the ASEAN region. It is designed to attract high-value investments, encourage the creation of high-value jobs, and integrate cutting-edge technologies, thereby bolstering Malaysia’s digital economy and reinforcing its position as a leader in the digital revolution.

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