MDEC has announced changes to BOG 5 (Tax Exemption)
In a previous iteration, the tax exemption for MSC Malaysia Status was granted for the income derived from MSC Malaysia Approved Activities. In future, beginning first January 2019, the tax exemption will be granted for income derived from either services activities (Services Incentive) and/or intellectual property (IP Incentive).
Now, the meaning of this is that Msc Malaysia Status Activities will be categorised into either IP (intellectual property like copyrights and patents (software)) derived income or Non-IP derived income like ICT services (using other people's IP). Additionally, qualifying business models will need to have Industry 4.0 elements such as Artificial Intelligence, Robotics, Automation, IoT and Big Data. Now, for Non-IP derived income business models, in lieu of them not possessing valid intellectual properties, they will need to satisfy additional conditions like Substantive Activities .
Substantive Activities, if we were to infer from OECD group of which Malaysia is a recent associate member, means that applying companies will need to firstly increase their number of knowledge workers (will be given a period) and secondly, increase their paid-up capital (also given a period). Companies applying for Msc Malaysia Status will be given two years to raise their paid-up capital to half a million ringgit. As pioneer status is given for five plus five years periods, companies that obtained Msc Malaysia Status will need to raise their paid-up capital to 2.5 million by the fifth year if they were to seek tax relief extension for the second five year irrespective of whether they are tier one, tier two or tier three companies.
However, whether Substantive Activities will also be applied to IP derived income business model is still a matter of speculation. We will update you on this.
As for IP derived income business models, MDEC has yet to confirm what are the conditions as it is still in negotiation with OECD as to what is termed Intellectual Property derived income. We will hence update on this when the information is available.
No matter whether you have an IP derived income business model or not, you will need to base your activities on either one of these industrial sectors:
What qualifying activities are allowed since 1/1/2019:
* Artificial Intelligence
* IoT (also IIoT)
* Big Data
* Edutech (proposed)
* Proptech (proposed)
* Agritech (proposed)
* Data centre and cloud (technology/software/design and support)
* Creative Media Content
* 3D or Additive Manufacturing(technology/software/design and support)
* Sharing Economy
* User Interface and User Experience (UI/UX)
* Systems/network architecture design and support
* Cybersecurity (technology/software/design and support)
* Integrated Circuit (IC) design and Embedded software
* Autonomous (technology/software/design and support)
* Global Business Services or Knowledge Process Outsourcing excluding non-
technical and/or low value call center; data entry; and recruitment process outsourcing.
Now, as a result of Malaysia's participation in the Forum on Harmful Tax Practices (FHTP), Organisation for Economic Co-operation and Development (OECD), to implement the Base Erosion and Profit Shifting (BEPS) action plans, the income tax exemption under the MSC Malaysia Bill of Guarantee No. 5 has been revised to be consistent with the taxation standards under the OECD BEPS Action 52. Thus with this amendment, it will impact greatly on those who had obtained pioneer status from MOF and also those who intend to apply for pioneeer status through MDEC. You might want to take a view at the new amendments here
In case you are still confused, you may email us at firstname.lastname@example.org for a better understanding of what the new Msc Malaysia Status 2.0 is all about.