4. MD Guarantees for MD Status Companies

MD Status Companies are entitled to a set of incentives, rights, and privileges promised by the Malaysian Government, i.e., the MD Guarantees.

The benefits under the BoGs are subject to separate approvals, applicable eligibility criteria and conditions. Amongst others, BoGs provide MD Status companies with the eligibility to access or apply for:[9]

a. Foreign knowledge worker quota and passes;

b. Tax incentives;

c. Multimedia/ICT equipment import duty and sales tax exemptions;

d. Competitive and ready infrastructure for business available at MD Cybercities/ Cybercentres;

e. Freedom of ownership by exempting local ownership requirements;

f. Flexibility to source capital and funds globally; and/or

g. MDEC as the one-stop agency for MD Status companies.

 

B. MD Tax Incentives for MD Status Companies 

1. What are the MD Tax Incentives?

MDEC introduced the MD Tax Incentives on 31.5.2024[10]. These new outcome-based tax incentives are available for MD Status Companies that undertake activities utilising MD-promoted tech enablers. There are two types of MD Tax Incentives currently available, namely:

a. New Investment Incentive; and

b. Expansion Incentive.

 

2. What are the Promoted Tech Enablers and Activities for MD Tax Incentives?

MD Tax Incentives may be available for companies utilising the following tech enablers[11]:

a. Artificial Intelligence

b. Internet of Things

c. Cybersecurity

d. Cloud

e. Blockchain

f. Drone Technology

g. Creative Media Technology, including Extended Reality (XR) and/or Mixed Reality

h. Integrated Circuit (IC) Design with Embedded Software

i. Robotics and/or Automation

j. Advanced Network Connectivity and/or Telecommunication Technology

 

3. What is available under the MD Tax Incentives?

Both the New Investment Incentive and Expansion Incentive offer either of the following:

1. Reduced Tax Rate (“RTR”); or
2. Investment Tax Allowance.

These Incentives are mutually exclusive. A company that has been granted either of these incentives will not be allowed to switch to the other incentive.

The available rate and period for each Incentive differs as follows:

a. New Investment Incentive 

RTR[12]	Investment Tax Allowance[13]
0% RTR on qualifying intellectual property (“IP”) income AND 10% or 5% RTR on qualifying non-IP income For up to 10 years.	60% or 100% of qualifying capital expenditure against up to 100% of statutory income For up to 5 years.

 

b. Expansion Incentive 

RTR[14]	Investment Tax Allowance[15]
15% RTR on qualifying IP income and non-IP income For up to 5 years.	30% or 60% of qualifying capital expenditure against up to 100% of statutory income. For up to 5 years.

For details on the specific conditions, available rates, and periods for each incentive, please refer to the MD New Tax Incentive and MD Expansion Tax Incentive Guidelines published by MDEC.

 

4. What are the general eligibility criteria for the New Investment Incentive and Expansion Incentive? 

	New Investment Incentive[16]	Expansion Incentive[17]
Status & Residency	Company incorporated or deemed to be registered under the Companies Act 2016 and resident in Malaysia.
Minimum Paid Up Capital	RM50,000.	RM250,000.
MD Status	Applied.	MD or MSC Status.
Past operating period	N/A	At least 36 months.
Qualifying Activity	Is proposing to undertake the qualifying activity in Malaysia.
Issuance of sales invoice	Has not issued sales invoice for the qualifying activity prior to the date on which 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 more than 12 months prior to the date on which the tax incentive application is received.	Has not issued sales invoice for the qualifying activity in Malaysia prior to the date the tax incentive application is received.
Past tax incentives	N/A	Where this has been granted for an existing activity, the company has met all conditions or surrendered the tax incentive.
Other Incentives for the Qualifying Activity	Has not been granted any tax incentive by the Government of Malaysia in relation to the qualifying activity. Does not have any related company[18] that has been granted tax incentives in respect of the same qualifying activity.

 

C. DESAC (Digital Ecosystem Acceleration) Scheme

1. What is the DESAC Scheme?

DESAC is a MIDA led initiative to strengthen the Malaysian digital ecosystem by attracting technology and digital investments to Malaysia. Publicly available information on the DESAC Scheme is limited, as MIDA has not issued any formal guidelines. However, based on the available information from MIDA[19], companies under the scheme may qualify for either:

a. Investment Tax Allowance; or

b. Preferential Tax Rates.

 

2. Who may be eligible for the DESAC Scheme?

DESAC targets two types of digital providers, namely:

a. Digital Technology Providers (“DTPs”)

Providers of digital services based on IR4.0 and digitalisation technology related to manufacturing and manufacturing-related services; and

b. Digital Infrastructure Providers (“DIPs”)

Such as data centres and submarine cables.

 

D. Differences and Potential Overlap between the MD Tax Incentives and the DESAC Scheme: The Role of the Digital Investment Office (“DIO”)

Based on information obtained from MIDA, the DESAC Scheme is generally intended for digital infrastructure-related activities, whereas MD Tax Incentives are aimed at digital technologies-related activities.

However, there may be circumstances in which an applicant’s business model could fall within the scope of both the MD Tax Incentives as well as the DESAC Scheme. The Government is cognizant of this possibility and has set up the DIO. The DIO is a collaborative platform between MIDA and MDEC to coordinate and facilitate all digital investments (both foreign and local) into the country.

If you have any questions relating to applications for digital incentives, please contact the authors, Partner Chris Toh Pei Roo (tpr@lh-ag.com) or Associate Chang Jin Yee (cjy@lh-ag.com).

 

REFERENCES

[1] https://mdec.my/media-release/news-press-release/318/Malaysia%E2%80%99s-New-MD-Tax-Incentive%3A-Fueling-Digital-Growth

[2] Paragraph 1.1 of the Guideline on Transition of MSC Malaysia to Malaysia Digital (“MSC Transition Guidelines”), available here: https://mdec.my/static/pdf/malaysiadigital/Guidelines%20on%20Transition%20of%20MSC%20Malaysia%20Status%20Company%20to%20Malaysia%20Digital%20Company.pdf

[3] https://mdec.my/malaysiadigital

[4] Paragraph 4.1 of the MSC Transition Guidelines

[5] Paragraph 4.3 of the MSC Transition Guidelines

[6] Paragraphs 2.0 of the Guidelines on Malaysia Digital Status (“MD Status Guidelines”), available here: https://mdec.my/static/pdf/expats/Malaysia-Digital-MD-Status-Guidelines_Effective-30-June-2022.pdf

[7] Paragraphs 3.0 of the MD Status Guidelines

[8] Paragraph 7.7 of the MD Status Guidelines

[9] Paragraph 5.1(b) of the MD Status Guidelines

[10] Announcement on the Official Launch of MD Tax Incentive by MDEC dated 31.5.2024, available here: https://mdec.my/announcement/md-tax-incentive

[11] See Appendixes 1 of MDEC’s Guidelines on MD Tax Incentive (New Investment Incentive) (“MD New Tax Incentive Guidelines”), available here: https://mdec.my/static/pdf/malaysiadigital/20240419%20Published%20Guidelines%20on%20MD%20Tax%20Incentive%20New%20Investment.pdf; and MDEC’s Guidelines on MD Tax Incentive (Expansion Incentive) (“MD Expansion Tax Incentive Guidelines”), available here: https://mdec.my/static/pdf/malaysiadigital/20240419%20Published%20Guidelines%20on%20MD%20Tax%20Incentive%20(Expansion).pdf

[12] Paragraph 3 of the MD New Tax Incentive Guidelines

[13] Paragraph 4 of the MD New Tax Incentive Guidelines

[14] Paragraph 3 and 4 of the MD Expansion Tax Incentive Guidelines

[15] Paragraph 4 of the MD Expansion Tax Incentive Guidelines

[16] Paragraph 2 of the MD New Tax Incentive Guidelines

[17] Paragraph 2 of the MD Expansion Tax Incentive Guidelines

[18] Related company shall have the same meaning as the definition of “related company” under the Promotion of Investments Act 1986. See paragraphs 5.6 of the MD New Tax Incentive and MD Expansion Tax Incentive Guidelines.

[19] See, amongst others MIDA e-Newsletter titled “Malaysia All Geared Up To Become a Hub for Digital Investments, available here: https://www.mida.gov.my/malaysia-all-geared-up-to-become-a-hub-for-digital-investments/