Recently, with the support of the Malaysia Digital Economy Development Agency (MDEC), the Malaysian Ministry of Digital (KD) and the Ministry of Finance (MOF), launched an innovative tax incentive program aimed at Malaysian digital (MD) companies, fulfilling the government's commitment to introduce a "performance-based tax incentive program" as proposed in the 2024 budget.

According to reports, the newly introduced MD tax incentive program provides a range of benefits for digital companies utilizing advanced technologies such as artificial intelligence (AI), cybersecurity, blockchain, and advanced network connectivity. Eligible MD companies can enjoy competitive reductions in corporate income tax rates for both IP and non-IP income.

Furthermore, the program includes Investment Tax Allowances (ITA) for capital-intensive service activities. Its flexible structure allows companies to enjoy tax incentives based on their specific commitments, thus encouraging the growth of high-value activities and rewarding performance.

Specifically, the tax incentives under this program are mainly divided into two categories: "New Investments" and "Expansion."

• Companies under the "New Investments" category can enjoy a reduced tax rate of 0% for IP income and 5% or 10% for non-IP income over a period of ten years.
• Companies under the "Expansion" category can benefit from a 15% tax incentive over a five-year period.

Additionally, both categories of companies can choose to enjoy ITA ranging from 30% to 100% for capital expenditure on eligible activities. Within five years, this allowance can offset up to 100% of statutory income.

Guided by the "MADANI Economy" framework and in line with the vision of making Malaysia more investment-friendly, MDEC is streamlining investment approval processes to improve business facilitation. The department is currently working to enhance the efficiency of digital investment processing and eliminate unnecessary steps that complicate investment.

Building on the success of the Multimedia Super Corridor (MSC) program, the new MD tax incentive program reaffirms Malaysia's commitment to developing local technology leaders and attracting high-value digital investments. Since the launch of the MSC program and its accompanying legislation in 1996, it has attracted cumulative investments of RM 485 billion and created over 223,000 high-value jobs as of December 2022.

As of April 30, 2024, over 5,000 companies authorized by MD highlight the crucial role of this program in promoting cross-industry digital innovation, supporting the "MADANI Economy" framework, and the transformation outlined in the National Industry 4.0 Policy (NIMP 2030).

Focusing on leveraging advanced technology and providing substantial tax incentives, the MD tax incentive program represents a crucial element in Malaysia's ambition to become the ASEAN digital innovation hub.

Mahadhir Aziz, CEO of MDEC, emphasized the transformative significance of the MD tax incentive, positioning Malaysia as the digital hub of ASEAN. Aligned with current economic needs and international best practices, it demonstrates Malaysia's commitment to leading the digital revolution.

By attracting global talent and investments in high-growth industries, the initiative aims to create a robust digital ecosystem, generate high-value employment opportunities, foster research and development activities, and drive the integration of cutting-edge technologies domestically.