Malaysia Digital (MD)
- Roger Pay
- May 3
- 9 min read
Malaysia Digital Initiative Explained
Malaysia Digital (MD) is a national strategic initiative by the Malaysian government to encourage and attract companies, talents, and investment while enabling Malaysian businesses and the rakyat (people) to play a leading part in the global digital revolution and digital economy.
Here's a breakdown of key aspects of Malaysia Digital:
Objectives and Goals:
Attract Investment: To position Malaysia as a prime destination for digital investments. In the first half of 2024 alone, Malaysia attracted RM66.22 billion in approved digital investments, surpassing the total for the entire year of 2023 (RM46.2 billion).
Foster Talent Development: To cultivate a digitally skilled workforce ready for the future.
Promote Digital Adoption: To encourage the use of digital technologies across all sectors of the economy, including Small and Medium-sized Enterprises (SMEs).
Drive Digital Economy Growth: To increase the digital economy's contribution to Malaysia's Gross Domestic Product (GDP). The target is to reach 25.5% by the end of 2025. In 2024, the digital economy contributed to the overall GDP growth of 5.1%.
Create High-Value Jobs: The digital investment inflow in the first half of 2024 created 25,498 jobs, exceeding the 22,258 jobs created in all of 2023.
Enhance Global Competitiveness: To establish Malaysia as the digital hub of ASEAN.
Key Components and Initiatives:
Malaysia Digital Economy Corporation (MDEC): MDEC is the government agency under the purview of the Ministry of Digital that drives the Malaysia Digital initiative. It is responsible for formulating policies, coordinating stakeholders, attracting investments, developing local tech champions, and propagating digital inclusivity.
MD Status: Eligible companies participating in and undertaking approved Malaysia Digital activities can be awarded MD Status. This status comes with a set of incentives, rights, and privileges from the government, subject to approvals and compliance.
Benefits of MD Status: These include competitive tax incentives, duty import and sales tax exemption on multimedia equipment, access to foreign knowledge workers, exemption from local ownership requirements, and access to funding facilitation.
Eligibility Criteria for MD Status: Companies must be incorporated and resident in Malaysia and propose to carry out or currently be involved in one or more of the designated Malaysia Digital activities. They also need to meet conditions within 12 months of being awarded the status, such as commencing operations, employing a minimum of two knowledge workers with a minimum average monthly salary of RM5,000, incurring an annual operating expenditure of at least RM50,000 for the approved activities, and having a minimum paid-up capital of RM1,000.
Malaysia Digital Activities: These encompass a wide range of technologies and areas, including big data analytics, artificial intelligence, fintech, internet of things, cybersecurity, data centers and cloud, blockchain, creative media technology, and more.
Malaysia Digital Catalytic Programmes (PeMangkinMD): These are specific projects designed to evolve Malaysia's digital economy capabilities and capacities and nurture technology sectors with significant commercial and economic potential.
Malaysia Digital Bill of Guarantees (BoG): This outlines the government's commitment to providing a conducive and enabling environment for MD Status companies, covering aspects like physical and information infrastructure, human capital, equity conditions, sourcing of capital, and intellectual property protection.
MD Cybercities and MD Cybercentres: A two-tier framework recognizing that different businesses have different infrastructure requirements. MD Status companies can operate anywhere in Malaysia, as the previous minimum office space requirement has been removed.
Malaysia Digital Economy Blueprint: This blueprint outlines the strategies, initiatives, and targets to drive the growth of the digital economy, aiming to make Malaysia a regional leader by achieving inclusive, responsible, and sustainable socioeconomic development. It is implemented in three phases, spanning from 2021 to 2030.
Recent Developments:
In the first half of 2024, 451 tech companies were awarded MD Status, significantly surpassing the 256 companies awarded in all of 2023. Of these, 39% are foreign companies, contributing to Foreign Direct Investment (FDI).
Malaysia has attracted over RM86 billion in data center investments in 2024, establishing itself as Southeast Asia's leading data center hub.
The Malaysia Digital Coordinating Committee (MD-CC) has been established to coordinate the governance and operation of Malaysia Digital.
In essence, Malaysia Digital is a comprehensive initiative aimed at transforming Malaysia into a digitally-driven economy, attracting global digital players, fostering local innovation, and ensuring that the benefits of the digital revolution are shared across the nation.
Malaysia Digital (MD) Tax Incentive
The Malaysia Digital (MD) initiative offers a range of tax incentives to eligible companies that are granted MD Status and undertake qualifying digital activities. These incentives are designed to attract investment, encourage innovation, and accelerate the growth of Malaysia's digital economy.
The Malaysia Digital Tax Incentive, launched on May 31, 2024, is an outcome-based scheme with two main categories:
1. New Investment Incentive: This incentive aims to attract new digital investment into Malaysia. Eligible companies can choose either a Reduced Tax Rate (RTR) or an Investment Tax Allowance (ITA):
Reduced Tax Rate (RTR):
0% on qualifying intellectual property (IP) income, subject to a modified nexus approach.
5% or 10% on qualifying non-IP income.
The reduced tax rate can be enjoyed for up to 10 years.
Investment Tax Allowance (ITA):
60% or 100% of qualifying capital expenditure can be set off against up to 100% of statutory income for up to 5 years.
2. Expansion Incentive: This incentive targets existing MD or MSC Malaysia Status companies undertaking new digital activities or investments. Eligible companies can choose either a Reduced Tax Rate (RTR) or an Investment Tax Allowance (ITA):
Reduced Tax Rate (RTR):
15% on qualifying IP and non-IP income for up to 5 years.
Investment Tax Allowance (ITA):
30% or 60% of qualifying capital expenditure can be set off against up to 100% of statutory income for up to 5 years.
Key Points Regarding the MD Tax Incentives:
Eligibility: The incentives are available to companies that have been awarded MD Status and undertake qualifying technology activities, such as Artificial Intelligence (AI), Big Data Analytics (BDA), Internet of Things (IoT), Cybersecurity, Cloud, Blockchain, Drone Technology, and Creative Media Technology.
Outcome-Based: The tiered system encourages companies to contribute to the economy through investments in high-growth, high-value areas, create new economic clusters, expand domestic networks, and balance economic growth with environmental, social, and governance (ESG) considerations. Achieving certain additional conditions, particularly related to sustainable economic development, may qualify companies for more favorable tax rates or allowances.
Mutually Exclusive: Companies can only choose either the Reduced Tax Rate or the Investment Tax Allowance under each incentive category (New Investment or Expansion). They cannot claim both.
Application Period: Applications for the MD Tax Incentive are open until December 31, 2027, for companies awarded MD status starting from July 1, 2022. For the Expansion Incentive, the application period is from January 1, 2024, to December 31, 2027.
Conditions: Depending on the chosen incentive (RTR rate or ITA percentage), there may be additional conditions to be met, such as incurring a specific amount of qualifying capital expenditure, employing a certain number of full-time employees (including knowledge workers with a minimum salary), and undertaking the qualifying activity in Malaysia. Compliance with MD Status conditions must also be maintained.
Companies interested in benefiting from these tax incentives need to apply for MD Status through the Malaysia Digital Economy Corporation (MDEC) and then apply for the specific tax incentive they wish to pursue.
Applying for Malaysia Digital (MD) Status for Companies
This is for companies intending to participate in and undertake approved Malaysia Digital activities to enjoy a range of incentives, rights, and privileges.
Eligibility Criteria: To be eligible for MD Status, a company must:
Be incorporated under the Companies Act 2016 and be a resident in Malaysia.
Propose to carry out or currently be involved in one or more of the designated Malaysia Digital activities (e.g., AI, Big Data Analytics, Fintech, Cybersecurity, etc.).
Conditions to be met within 12 months of being awarded MD Status:
Commence operations and undertake the approved Malaysia Digital activities in Malaysia.
Employ a minimum of two full-time "knowledge workers" with a minimum average monthly base salary of RM5,000 for the approved activities.
Incur a minimum annual operating expenditure of RM50,000 for the approved activities.
Have a minimum paid-up capital of RM1,000.
How to Apply for MD Status:
Registration: Register on the Malaysia Digital Platform and complete the online application form.
Processing Fee: Pay a non-refundable processing fee (currently RM1,080 including SST). The application will be closed if no payment and submission are made within 30 days of registration.
Application Acceptance: Upon submission, you will receive an acknowledgment and a Business Analyst will be assigned to your application. A preliminary eligibility check will be conducted.
Evaluation & Assessment: You might be required to provide additional information, documents, and/or present your proposed activities to the Business Analyst.
Application Deliberation: The application will be reviewed and deliberated by the Malaysia Digital-Coordination Committee (MD-CC).
Decision: You will receive an approval or rejection letter from MDEC. If approved, you will need to accept the letter, and an MD Status e-Certificate will be issued.
Where to Apply: Applications for MD Status are done through the official MDEC (Malaysia Digital Economy Corporation) website and their Malaysia Digital Platform.
Make sure to visit the relevant official website (MDEC for MD Status) for the most up-to-date information and application procedures.
Writing Business Plan
Present the proposed activities
Activity
Commencement of operation and undertaking of the Malaysia Digital Approved Activities in Malaysia
Knowledge Workers
Minimum 2 full-time employees (comprising knowledge workers) with minimum average monthly base salary of Ringgit Malaysia Five Thousand (RM5,000.00), employed for the Malaysia Digital Approved Activities
Operating Expenditure
Minimum annual operating expenditure of Ringgit Malaysia Fifty Thousand (RM50,000.00) incurred for the Malaysia Digital Approved Activities
Paid-up Capital
Minimum of Ringgit Malaysia One Thousand (RM1,000.00)
Proposing to carry out or is currently carrying out one or more of the Malaysia Digital activities
Promoted Tech Enablers
The outcome-based tax incentive is offered to eligible companies who undertake qualifying activities by leveraging any of the following promoted tech enablers:
Artificial Intelligence or Big Data Analytics
Blockchain
Cloud
Cybersecurity
Drone Technology
Internet of Things
Robotic or Automation
Creative Media Technology including extended reality (XR) or mixed reality (MR)
Integrated Circuit (IC) Design with Embedded Software
Advanced network connectivity or telecommunication technology
How Bestar can Help
Bestar can provide invaluable assistance throughout the entire process of applying for Malaysia Digital (MD) Status for companies. Here's a breakdown of how Bestar can help at each stage:
1. Initial Assessment and Eligibility Check:
Help understand the criteria: We possess in-depth knowledge of the eligibility requirements for MD Status, including the types of digital activities that qualify and the conditions that need to be met (e.g., number of knowledge workers, minimum salary, operating expenditure).
Assess your company's suitability: We can evaluate your company's current operations and future plans to determine if they align with the MD framework and have a strong chance of approval.
Identify potential gaps: We can pinpoint areas where your company might not currently meet the criteria and advise on necessary adjustments or strategic planning to enhance your eligibility.
2. Application Preparation and Documentation:
Ensure corporate compliance: We can verify that your company's registration and corporate structure are in order and meet Malaysian legal requirements.
Assist with documentation: We can help gather and organize the necessary legal and corporate documents required for the application, such as incorporation certificates, financial statements, and shareholder agreements.
Develop a compelling business plan: A well-articulated business plan outlining your proposed digital activities, market analysis, revenue model, and growth strategy is crucial. Bestar can help structure and write a persuasive plan that aligns with MD's objectives.
Highlight the digital focus: We can ensure the application clearly emphasizes the innovative and high-value digital aspects of your business.
Address the evaluation criteria: We can tailor the business plan to directly address the criteria that MDEC uses to assess applications, such as the potential for job creation, contribution to the digital economy, and technological innovation.
Prepare financial projections: We can develop realistic financial forecasts demonstrating the viability and potential economic impact of your digital activities.
Ensure financial documentation is accurate: We can help compile and present your company's financial statements in a clear and compliant manner.
Advise on meeting financial requirements: We can guide you on meeting the minimum paid-up capital and operating expenditure requirements.
Articulate your digital activities: We can help clearly and technically describe your proposed digital activities in a way that aligns with the designated Malaysia Digital activities recognized by MDEC.
Highlight technological innovation: We can help showcase the unique and innovative aspects of your technology or digital solutions.
3. Application Submission and Liaison with MDEC:
Manage the application process: We can guide you through the online application portal, ensuring all sections are completed accurately and all required documents are submitted correctly.
Act as a point of contact: We can liaise with MDEC on your behalf, addressing any queries or requests for additional information efficiently.
Follow up on the application status: We can track the progress of your application and keep you informed of any updates.
4. Post-Approval Compliance and Incentive Management:
Advise on tax incentives: Once MD Status is granted, Bestar can help you understand and leverage the available tax incentives effectively and ensure compliance with tax regulations.
Structure your business for optimal tax benefits: We can advise on the best corporate structure to maximize the benefits of the MD tax incentives.
Develop HR policies: We can help establish HR policies that align with the requirements for MD Status companies.
Ensure ongoing compliance: We can help you understand and meet the ongoing compliance requirements associated with MD Status to maintain your benefits.
Prepare and submit periodic reports: We can assist with the preparation and submission of any required reports to MDEC.
In summary, engaging Bestar can significantly increase your chances of a successful MD Status application by:
Providing expert guidance and knowledge of the requirements.
Ensuring your application is comprehensive, accurate, and persuasive.
Streamlining the application process and saving you time and effort.
Minimizing the risk of errors or omissions that could lead to rejection.
Facilitating communication with MDEC.
Helping you navigate the post-approval compliance and incentive management.
By leveraging the expertise of Bestar, companies can navigate the complexities of the MD Status application process more effectively and position themselves to benefit from the opportunities offered by Malaysia's digital economy initiatives.
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