GUIDELINES ON MALAYSIA DIGITAL (MD) TAX INCENTIVE (EXPANSION INCENTIVE)
1. INTRODUCTION
MD Expansion Incentive 1 is offered to encourage companies to undertake new activities or investment as well as to grow capabilities in Malaysia. Expansion Incentive targets MD/MSC Malaysia Status company that has completed initial incentive and proposes to undertake new activity. This Expansion Incentive is also offered to an MSC Status company that has not been granted any incentive on their existing activity and proposes to undertake new activity.
2. ELIGIBILITY CRITERIA
2.1 To be eligible to apply for Expansion Incentive, the applicant must be a company which: (a) is incorporated or deemed to be registered under the Companies Act 2016 and resident in Malaysia; (b) has a minimum paid up capital of RM250,000.00; (c) has been in operation for at least 36 months; (d) is an MD or MSC Malaysia Status company; (e) in the case where the company has been granted tax incentive for existing activity under the MD or MSC Malaysia Status financial incentive schemes 2 , the company has met all conditions under the tax incentive or has surrendered the tax incentive; (f) is proposing to undertake the qualifying activity in Malaysia; (g) has not issued any sales invoice for the qualifying activity in Malaysia prior to the date the tax incentive application is received; and (h) is not granted any tax incentive by the Government of Malaysia in relation to the qualifying activity.
2.2 Qualifying activity means one or more new activity, which fulfills the criteria of MD Promoted Activities specified in Appendix 1, that has been approved under this Expansion Incentive (“Approved Qualifying Activity”).
2.3 If a company has any related company which has been granted tax incentive in respect of the Approved Qualifying Activity, the company shall not be qualified to be granted tax incentive under the Expansion Incentive in respect of the same Approved Qualifying Activity.
2.4 If a company has any related company which has issued any sales invoice for the Approved Qualifying Activity in Malaysia prior to the date the tax incentive application by the company is received, the company shall not be qualified to be granted tax incentive under the Expansion Incentive in respect of the same Approved Qualifying Activity.
2.5 The company may choose to apply for the reduced tax rate OR investment tax allowance under the Expansion Incentive 3
3. REDUCED TAX RATE
3.1 Scope and Conditions:
| IP Income4 | Non-IP Income | |
| Tax Rate | 15% on statutory income | |
| Years of Assessment (YA) | 5 consecutive YA | |
| Conditions | (1) To maintain the number of existing full-time employees (FTE) throughout the YA. | |
| (2)To employ an adequate number of new FTE in Malaysia to carry on the Approved Qualifying Activity. | ||
| (3) To ensure the new FTE comprises adequate number of knowledge workers with minimum average monthly basic salary of RM5,000.00 to carry on the Approved Qualifying Activity in Malaysia throughout the YA. | ||
| (4)To incur an adequate amount of annual operating expenditure5 in Malaysia to carry on the Approved Qualifying Activity by the end of each YA. | ||
| (5) To meet minimum 2 conditions related to sustainable economic development such as relevant initiatives in education, social and environment at the end of each YA as stated in the approval letter. | ||
| (6) To undertake the Approved Qualifying Activity in Malaysia throughout the YA. | ||
| (7) To remain an MD or MSC Malaysia Status company and comply with all the conditions under MD or MSC Malaysia Status at all times. | ||
| (8) To submit to MDEC annually a self-declaration form (SDF) on compliance of conditions within 7 months from the end of each year of assessment, and the information submitted in the SDF must first be verified by an independent external auditor appointed by the company at its own costs6 . | ||
| (9) Any other conditions stated in the approval letter | ||
| (10) To comply with modified nexus approach as specified in Appendix 2. | ||
| Non Applicable |
4. INVESTMENT TAX ALLOWANCE
4.1 Scope and Conditions:
| Period of investment tax allowance (ITA Period) | 5 consecutive years |
| Rate of investment tax allowance (ITA Rate) | 30% of qualifying capital expenditure, against up to 100% statutory income7 |
| Conditions (to be complied within 3 years from principle approval date | (1) To maintain the number of existing full-time employees (FTE) at all times. |
| (2) To employ an adequate number of new FTE in Malaysia to carry on the Approved Qualifying Activity. | |
| (3) To incur an adequate amount of qualifying capital expenditure. | |
| (4) To undertake the Approved Qualifying Activity in Malaysia at all times. | |
| (5) To remain an MD or MSC Malaysia Status company and comply with all the conditions under MD or MSC Malaysia Status at all times. | |
| (6) Any other conditions stated in the approval letter | |
| Rate of investment tax allowance (ITA Rate) | 60% of qualifying capital expenditure, against up to 100% statutory incom |
| Additional Conditions (to be complied by expiry of ITA Period) | (6) (7) To maintain conditions (1) to (6) | (8) 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. |
4.2 If the tax incentive application is to be considered, the company will be issued with a principle approval letter and be required to comply with conditions (1) to (6) within 3 years from the principle approval date. Upon compliance of such conditions, the company will be granted the approval for 30% of qualifying capital expenditure and commencement date of the ITA Period. If the company complies with all conditions including additional conditions (7) and (8) by the expiry of the ITA Period, the company will be granted the approval for 60% of qualifying capital expenditure. The company can only proceed to claim the applicable ITA Rate upon issuance of the relevant