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MD Status

How to Claim the MD Tax Incentive in Form C

Approval is only the start. The claim depends on records, timing and compliance.


Quick answer: A company claims the Malaysia Digital (MD) tax incentive through its annual corporate income tax return (Form C), after MDEC and the National Committee on Investments approve it and the commencement year of assessment is determined. To keep the benefit it must keep the qualifying activity as a separate source with separate accounts, meet the minimum conditions each year, remain an MD status company and submit the Self-Declaration Form within seven months after the year of assessment ends, verified by an external auditor. Missing that deadline forfeits the reduced rate for the year.

Key takeaways

  • Claim through the annual return after approval and commencement are fixed.
  • Keep the qualifying activity as a separate source with separate accounts.
  • The Self-Declaration Form is due within seven months after the year of assessment ends.
  • Missing the form forfeits the reduced rate for that year.
  • Confirm the exact return schedules with your tax agent or LHDN.

What Must Be in Place Before You Claim

Item Why it matters
Approval in principle Granted after MDEC evaluation and NCI approval
Commencement year of assessment Determined by MDEC on request, within 24 months of approval in principle
MD status maintained A continuing condition
Separate source and accounts Required for the qualifying activity
Minimum conditions met Employees, knowledge workers, operating expenditure, activity in Malaysia

The Claim Cycle

1

Close the year of assessment

Finalise accounts with the qualifying activity kept separate.

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2

Check the conditions

Test headcount, knowledge worker salary, spend and activity location.

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3

Prepare the declaration

Complete the Self-Declaration Form.

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4

External verification

An independent external auditor verifies it.

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5

File the return

Include the incentive in the Form C computation with your tax agent.

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6

Submit the declaration in time

Within seven months after the year of assessment ends.


Reduced Rate or Allowance

Route How the benefit works
Reduced rate 10% on non-IP income, 5% if additional conditions are met, 0% on qualifying IP income, for 10 consecutive years of assessment
Investment Tax Allowance 60% or 100% of qualifying capital expenditure against up to 100% of statutory income, over five consecutive years

What Can Go Wrong

Failure Result
Declaration missed or late Reduced rate forfeited for that year of assessment
Conditions not met Prevailing corporate rate for the affected year, or no allowance claim
Accounts not separated The qualifying income cannot be clearly identified

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What to Confirm Yourself

MDEC's guidelines set the conditions but do not reproduce the return forms. Which schedules and computations to use is a tax filing matter, so confirm the current Form C requirements with LHDN or your tax agent before filing.


Checklist

  • Approval in principle received.
  • Commencement year determined by MDEC.
  • Qualifying activity kept as a separate source.
  • Separate accounts maintained.
  • Conditions tested for the year.
  • Self-Declaration Form verified by an external auditor.
  • Declaration lodged within seven months.
  • Return computation reviewed by a tax agent.

Mistakes

⚠️

Mixing income streams

Separate source and accounts are required.

⚠️

Late declaration

It forfeits the reduced rate for that year.

⚠️

Assuming approval alone means relief

Conditions are tested every year.


Three Scenarios

Scenario 1. A company files the verified declaration in month five and keeps the reduced rate.

Scenario 2. A company misses the deadline and pays the prevailing rate for that year.

Scenario 3. A company books qualifying and non-qualifying income together and cannot isolate the activity.


How We Help

What we handle for you

Before you apply

  • Test your activity, hiring plan and cost base against MDEC's conditions.
  • Advise whether MD status, a tax incentive or both make sense for your business.
  • Prepare your business plan and financial plan based on your company idea or business model.

Application

  • Prepare and submit the application and answer MDEC's questions.

Why companies choose us

End-to-end under one roof

  • We handle company incorporation, accounting and payroll, as well as MD status and expatriate pass applications, so your structure, records and hiring plan stay aligned.
  • The company is set up correctly from day one.

We check before you invest

  • We confirm eligibility, including whether you can hire the expatriates you need, before a foreign investor decides to incorporate in Malaysia.
  • Neutral Consulting PLT is a Kuala Lumpur firm led by a Managing Partner who is a member of the Malaysian Institute of Accountants.

Frequently Asked Questions

Quick answers.

How do I claim the MD tax incentive?

Through the annual corporate return after approval and commencement, while meeting the conditions and filing the Self-Declaration Form.

When is the Self-Declaration Form due?

Within seven months after the year of assessment ends.

Who verifies the declaration?

An independent external auditor.

What if I miss the deadline?

The reduced rate is forfeited for that year of assessment.

Do I need separate accounts?

Yes. The qualifying activity must be a separate source with separate accounts.

What is the reduced rate?

10% on non-IP income, 5% if additional conditions are met, and 0% on qualifying IP income, for 10 consecutive years of assessment.

What is the Investment Tax Allowance?

60% or 100% of qualifying capital expenditure against up to 100% of statutory income over five years.

Can I take both?

No. The applicant chooses the reduced rate or the allowance.

Who sets the commencement year?

MDEC determines it on request, within 24 months of approval in principle.

Which Form C schedules apply?

MDEC's guidelines do not cover the forms. Confirm with LHDN or your tax agent.

Does MD status need to continue?

Yes. The company must remain an MD status company.

Can you prepare the claim?

We can advise on structure, accounts and timing, together with your tax agent.



Sources

Official sources

This page is general information, not legal advice. Agencies change their requirements, so confirm the current rules with MDEC, or with us, before you act. Checked November 2026.


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