Malaysia Digital (MD) Tax Incentive Application in Malaysia

What is Malaysia Digital (MD) Tax Incentive.

Malaysia Digital Status (MD) New Investment Incentive1 aims to promote new investment activities in Malaysia and is offered to eligible companies that propose to undertake the qualifying activity under the tax incentive scheme. Under this New Investment Incentive, an eligible company may choose to enjoy either the reduced tax rate or investment tax allowance on income derived from the qualifying activity.

Eligibility criteria

  1. is incorporated under the Companies Act 2016/Companies Act 1965 and resident in Malaysia;
  2. has a minimum paid up capital of RM50,000.00;
  3. has been awarded MD Status;
  4. is proposing to undertake the qualifying activity in Malaysia;
  5. has not issued any sales invoice for the qualifying activity in Malaysia prior to the date of submission of the tax incentive application, or has sixty per cent 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 of submission of the tax incentive application; and
  6. is not granted any tax incentive by the Government of Malaysia in relation to the qualifying activity.
No. Promoted Tech Enablers Description
1 Artificial Intelligence (AI) / Big Data Analytics (BDA)

Artificial intelligence enables computers and machines to mimic human problem-solving and decision-making capabilities. Machine learning and deep learning are sub-fields of AI. Common AI applications include speech recognition, customer service, computer vision, recommendation engines, and fraud detection.

Generative AI refers to algorithms that create new content, including text, audio, images, video, and simulations.

Big data analytics refers to the use of advanced analytical techniques on large and diverse datasets, including structured, semi-structured, and unstructured data from multiple sources.

2 Internet of Things (IoT) The Internet of Things (IoT) refers to physical objects equipped with sensors, software, processing capability, and other technologies that connect and exchange data with other devices and systems through the internet or other communication networks.
3 Cybersecurity Cybersecurity is the practice of protecting critical systems, networks, and sensitive information from digital attacks. It includes measures designed to defend against threats originating from both inside and outside an organisation.
4 Cloud Cloud refers to servers, software, and databases that are accessed over the internet. Cloud computing allows users and businesses to use computing resources without managing physical servers or running software on their own local machines.
5 Blockchain Blockchain is a distributed database or ledger shared across a computer network. It facilitates the secure recording of transactions and tracking of assets while improving trust, transparency, and data integrity without relying on a central third party.
6 Drone Technology Drone technology refers to the systems and technologies used to operate unmanned aerial vehicles (UAVs). These may be remotely controlled or autonomously operated through embedded software, sensors, and GPS-based flight control systems.
7 Creative Media Technology, including Extended Reality (XR) / Mixed Reality (MR)

This covers technologies and activities involved in creating, delivering, and enhancing digital content such as animation, games, visual effects, design, simulation, and immersive experiences.

XR and MR are umbrella terms that include Augmented Reality (AR), Virtual Reality (VR), or a combination of both.

VR focuses on creating fully immersive digital environments, while AR overlays virtual elements onto real-world environments through devices such as smartphones or heads-up displays.

8 Integrated Circuit (IC) Design with Embedded Software

Integrated circuit (IC) design is a complex engineering activity focused on creating circuits with specific functionality. It involves both logic design and physical design processes using CAD or EDA tools.

Embedded software refers to software built into hardware or specialised devices to control their operation, typically with tighter hardware-specific restrictions than standard application software.

9 Robotics / Automation

Robotics combines science, engineering, and technology to develop machines or systems that replicate or support human actions. Automation refers to the use of software and related technologies to perform tasks automatically based on predefined processes or instructions.

Development may involve methodologies such as DevOps or Agile to improve speed, consistency, and reliability.

10 Advanced Network Connectivity / Telecommunication Technology This refers to high-capacity communication technologies, including optical networking and solutions such as Software Defined Networks (SDN), for submarine and terrestrial applications.

The following activities do not fall under the Malaysia Digital Activities:
(a) trading;
(b) manufacturing activities;
(c) provision of telecommunication services;
(d) digital banking services;
(e) global business services or knowledge process outsourcing which is:
(i) non-technical;
(ii) low value call centre;
(iii) data entry; or
(iv) recruitment process outsourcing; or
(f) provision of services in the supply chain such as buying and selling or provision of services,
directly or indirectly, to the industry of cigarettes, tobacco, alcohol and gambling.

Type of Tax Incentives

The company may choose to apply for:
i. Reduced Tax Rate
ii. Investment Tax Allowance (ITA)

MD Tax Incentive – Reduced Tax Rate

MD Tax Incentive Non-IP Income (10%) Non-IP Income (5%) IP Income (0%)
Exemption Period (YA) 10 YA 10 YA 10 YA
Sustainable Economic Development Not Applicable To meet minimum 3 conditions related to sustainable economic development, such as initiatives in education, social and environmental areas, at the end of each YA as stated in the approval letter. Not Applicable
Economic Development Not Required Other condition(s) related to economic development commitment by the company. Not Required
Modified Nexus Approach Not Applicable To comply with modified nexus approach
Full-Time Employees To employ an adequate number of full-time employees (FTE) in Malaysia to carry on the qualifying activity throughout the YA.
Minimum Monthly Basic Salary To ensure the FTE comprises adequate number of knowledge workers with a minimum monthly basic salary of RM5,000.
Minimum Annual Operating Expenditure To incur an adequate amount of annual operating expenditure in Malaysia to carry on the qualifying activity by the end of each YA.
Qualifying Activity To undertake the qualifying activity in Malaysia throughout the YA.
MD Status To remain an MD Status company and comply with all conditions at all times.
Self-Declaration Form (SDF) To submit annually to MDEC a self-declaration form (SDF) within 7 months from the end of each YA. The information must be verified by an independent external auditor appointed by the company.

MD Tax Incentive – Investment Tax Allowance (ITA)

ITA Period 5 Consecutive Years
ITA Rate 60% or 100% of qualifying capital expenditure (QCE), against up to 100% statutory income
Minimum Conditions (1) To incur an adequate amount of qualifying capital expenditure.
(2) To employ an adequate number of full-time employees (FTE) in Malaysia to carry on the qualifying activity.
(3) To undertake the qualifying activity in Malaysia at all times.
(4) To remain an MD Status company and comply with all the conditions under MD Status at all times.
(5) Other condition(s) related to economic development commitment by the company.
Additional Conditions (6) To meet minimum 3 conditions related to sustainable economic development such as relevant initiatives in education, social and environment, each in year 4 and year 5 of the ITA Period, as stated in the approval letter.
(7) Other condition(s) related to economic development commitment by the company.

 

ITA Period Compliance with Minimum Conditions Compliance with Additional Conditions
First ITA Period Second ITA Period
30% of QCE incurred in First ITA Period Yes N/A N/A
60% of QCE incurred in First and Second ITA Period Yes Yes No
100% of QCE incurred in First and Second ITA Period Yes Yes Yes

Source: MDEC

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