MDEC: New tax incentive fuels growth of digital companies
Malaysia Digital Economy Corporation (MDEC), in collaboration with the Ministry of Digital and the Ministry of Finance, has rolled out an innovative tax incentive program for Malaysian digital (MD) companies, aimed at driving growth in the digital sector.
This initiative aligns with the government’s commitment outlined in Budget 2024 to introduce outcome-based tax incentives that will stimulate investments in high-growth areas, foster the development of new economic clusters, and promote environmental sustainability.
Under the new MD tax incentive scheme, digital companies utilizing cutting-edge technologies like artificial intelligence, cybersecurity, blockchain, and advanced network connectivity stand to gain various benefits. Eligible MD companies can take advantage of a reduced corporate income tax rate on both intellectual property (IP) and non-IP incomes, along with an investment tax allowance (ITA) for capital-intensive services activities.
The scheme’s structure is designed to be flexible, allowing companies to access tax incentives based on their specific commitments, thereby encouraging growth in high-value activities and rewarding performance.
Companies falling under the new investment category may enjoy a reduced tax rate of 0% on IP income and 5% or 10% on non-IP income for a period of 10 years. Meanwhile, companies categorized under expansion may benefit from a 15% reduced tax rate for five years.
Alternatively, companies in both categories have the option to choose an ITA ranging from 30% to 100% on capital expenditure for qualifying activities, which can be offset against up to 100% of statutory income for five years.
MDEC CEO Mahadhir Aziz expressed that the MD tax incentive scheme is a transformative initiative aimed at solidifying Malaysia’s position as the digital hub of Asean. By attracting global talent and investment in high-growth sectors, Malaysia aims to create a thriving digital ecosystem, generate high-value jobs, boost research and development activities, and integrate cutting-edge technologies locally.
This move is in line with the government’s vision to enhance investor-friendliness and accelerate digital investments, guided by the Madani Economy framework. By streamlining processes and simplifying investment procedures, Malaysia aims to become more conducive for businesses, particularly in the digital sector.
Building on the success of the Multimedia Super Corridor (MSC) initiative, the new MD tax incentive scheme underscores Malaysia’s commitment to nurturing local tech champions and drawing high-value digital investments. Since the inception of MSC in 1996, the initiative has attracted significant investments and created numerous high-value jobs, showcasing the positive impact of initiatives aimed at boosting the digital economy.
With over 5,000 MD companies benefiting from the scheme as of April 30, 2024, it is evident that the MD initiative is playing a crucial role in driving digital innovation across various industries and supporting transformation plans outlined in the Madani Economy framework and the New Industrial Master Plan 2030.
