MDEC: New Tax Incentive Fuels Growth of Digital Companies
In an ambitious move to drive the digital economy, the Malaysia Digital Economy Corporation (MDEC), in collaboration with the Ministry of Digital and the Ministry of Finance, has rolled out a transformative tax incentive scheme specifically tailored for Malaysian digital companies. This strategic initiative is a direct response to the government’s assurances in Budget 2024, aiming to fortify the economy through the stimulation of investments in high-growth and high-value sectors, the facilitation of new economic clusters, and the advancement of environmental sustainability.
The groundbreaking MD tax incentive scheme provides a plethora of benefits for digital companies that are at the forefront of adopting pioneering technologies such as artificial intelligence, cybersecurity, blockchain, and advanced network connectivity. Qualified MD companies are poised to receive a reduced corporate income tax rate on both intellectual property (IP) and non-IP incomes. Additionally, an investment tax allowance (ITA) is available for capital-intensive services activities.
Designed with flexibility at its core, the scheme enables companies to secure tax incentives based on their specific commitments. This approach promotes growth in high-value activities and offers rewards based on performance. The incentives are available in two main categories: new investment and expansion. Companies categorized under new investment could enjoy a reduced tax rate of 0% on IP income, and 5% or 10% on non-IP income for a duration of 10 years. Conversely, companies seeking expansion may be eligible for a 15% reduced tax rate over five years.
Companies have the option to opt for an ITA ranging from 30% to 100% on capital expenditures for qualifying activities, which can be offset against up to 100% of statutory income for five years. “This MD tax incentive is a pivotal move to solidify Malaysia’s stature as the premier digital hub of ASEAN,” stated MDEC CEO Mahadhir Aziz. He highlighted the initiative’s alignment with current economic requisites and global best practices, reaffirming Malaysia’s dedication to spearheading the digital shift. The initiative aims to attract international talent and investments into high-growth sectors, fostering a robust digital ecosystem, the creation of high-value jobs, stimulation of R&D activities, and the local integration of breakthrough technologies.
Responding to the prime minister’s vision of creating an investor-friendly environment within Malaysia, the scheme is also set to streamline business operations, enhance the processing efficiency for digital investments, and remove unnecessary bureaucratic hurdles that hinder investment execution. This effort builds upon the legacy of the Multimedia Super Corridor (MSC) initiative, with the new MD tax incentive scheme emphasizing the nation’s commitment to nurturing local tech champions and drawing high-caliber digital investments into the country. Since its inception in 1996, the MSC initiative, along with its comprehensive Bill of Guarantees, has attracted RM485 billion in cumulative investments and has been instrumental in creating over 223,000 high-value jobs as of December 2022.
As of April 30, 2024, the number of MD companies awarded has exceeded 5,000, a testament to the central role of the MD initiative in propelling digital innovation across various industries. This further supports the transformative objectives outlined in the Madani Economy framework and the New Industrial Master Plan 2030, laying the groundwork for a future where Malaysia continues to lead as a beacon of digital innovation in the region.
