Malaysia Digital (MD) tax incentives

On May 31, 2024, the Malaysia Digital Economy Corporation Sdn Bhd (“MDEC”) introduced an outcome-based Malaysia Digital (“MD”) Tax Incentive for eligible MD companies that intend to undertake qualifying activities by utilizing any of the following promoted technology enablers:

Artificial Intelligence (AI) and/or Big Data Analytics (BDA)
Internet of Things (IoT)
Cybersecurity
Cloud
Blockchain
Drone technology
Creative media technology including augmented reality (XR) and/or mixed reality (MR)
Integrated circuit (IC) design with embedded software
Robotics and/or automation
Advanced network connectivity and/or telecommunications technology.

The MD Tax Incentive offers the following options, i.e. New Investment Incentives and Expansion Incentives.

The overview of the MD Tax Incentive is as follows:

	New Investment Inventive		Expansion Incentive¹
Options (mutually exclusive)	Reduced Tax Rate ("RTR")	Investment Tax Allowance ("ITA")	RTR	ITA
Tax Incentive	0 % tax rate on qualifying intellectual property ("IP") income² 10 % tax rate on qualifying non-IP income, or	ITA of 60 % of qualifying capital expenditure ("QCE") set-off against 100 % statutory income ("SI"), or	15 % on statutory income for qualifying IP income² and non-IP income	ITA of 30 % of QCE set-off against 100 % SI, or
Upon meeting additional conditions³	5 % tax rate on qualifying non-IP income	ITA of 100 % of QCE set-off against 100 % SI		ITA of 60 % of QCE set-off against 100 % SI
Incentive Period	10 years	5 years	5 years	5 years
Application Period	Applications received by 31 December 2027 for companies that have been awarded MD status starting 1 July 2022		Applications received during the period from 1 January 2024 to 31 December 2027

Note¹:

For companies that have completed the initial incentive or have not been granted any incentive for existing activities.

Note²:

The reduced tax rate applies to a percentage of qualifying IP income derived from qualifying IP rights (patents, computer programs, etc., as prescribed) to be determined using the modified nexus approach formula (to be specified in subsidiary legislation). IP income comprises royalties and/or license fees.

Note ³:

Additional minimum requirements related to sustainable economic development.

The main eligibility criteria are as follows, subject to certain conditions:

Eligibility Criteria	New Investment Incentive	Expansion Incentive
Incorporation and resident status	A company incorporated or deemed to be registered under the Companies Act 2016 and resident in Malaysia
Paid up capital	Minimum of MYR 50,000	Minimum of MYR 250,000
Period in operation	N/A	At least 36 months
MD status	Has made an application for the award of MD status	Is an MD or MSC Malaysia Status company
Qualifying activity (i.e. tech enablers)	In relation to the qualifying activity, the applicant must: intend to carry on the activity in Malaysia has not received any tax concessions from the Government. In respect of the sales invoice for the qualifying activity, the applicant must: not have issued a sales invoice prior to the date of application; or not have issued any sales invoices in the last 12 months prior to the application if the applicant is 60 % directly or indirectly owned by Malaysians	In relation to the qualifying activity, the applicant must: intend to carry on the activity in Malaysia not have received any tax concessions from the government not have issued a sales invoice for the qualifying activity in Malaysia before submitting the application
Existing activity	N/A	Has fulfilled all conditions for the tax incentive under the MD or MSC Malaysia status financial incentive programs (if granted) or has waived the tax incentive
Related company	The applicant cannot claim the incentive for the qualifying activity if an associated company: has received a tax incentive for the qualifying activity issued a sales invoice for the qualifying activity before the applicant applied for the tax incentive